THIRD DIVISION
promissory note, Citibank sent to private respondent CBC a letter
[G.R. No. 128661. August 8, 2000]
PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT
DEVELOPMENT CORPORATION, petitioners, vs. THE COURT OF
APPEALS, CHINA BANKING CORPORATION, respondents.
DECISION
GONZAGA-REYES, J.:
In this petition for review on certiorari under Rule 45 of the Rules
of Court, petitioners seek the reversal of the 21 March 1997
decisioni[1] of the Court of Appeals in C.A.-G.R. No. CV-38131.
The assailed decision set aside the Orderii[2] dated 4 March 1992
of the Regional Trial Court of Makati City, Branch 146 in Civil
Case No. 7119 insofar as it dismissed the complaint-in-
intervention of private respondent China Banking Corporation.
The facts of the case are as follows:
To finance the acquisition of seven (7) ocean-going vessels,
namely M/V Asean Liberty, M/V Asean Independence, M/V
Asean Mission, M/V Asean Knowledge, M/V Asean Nations, M/V
Asean Greatness, and M/V Asean Objectives, the Philippine
International Shipping Corporation (hereinafter PISC) applied for
and was granted by petitioner National Investment and
Development Corporation (hereinafter NIDC) the following
guaranty accommodations:
a. US$9.44 Million in favor of Ultrafin A.G. of Zurich,
Switzerland as Agent for the banks/financial institutions as
evidenced by and subject to the terms and conditions of a
Guaranty Agreement dated December 7, 1978 to partly finance
the acquisition of two (2) ocean-going vessels;
b. US$23.60 Million in favor of the Philippine National
Bank (hereinafter PNB as evidenced by and subject to the terms
and conditions of a Consolidated Amendatory Agreement dated
January 25, 1979 to finance the acquisition cost of four (4)
additional ocean-going vessels; and
c. US$1.291 Million in favor of PNB as evidenced by and
subject to the terms and conditions of that Second Consolidated
Amendatory Agreement dated July 17, 1979 to finance the
additional acquisition cost of one (1) ocean-going vessel.iii[3]
As security for these guaranty accommodations, PISC executed
in favor of petitioners the following mortgage documents:
a. Deed of Chattel Mortgage dated September 14, 1979
constituted on M/V Asean Liberty and M/V Asean Nation and
recorded on September 25, 1979 with the Philippine Coast Guard
Headquarters;
b. Supplemental Chattel Mortgage dated October 2, 1979
constituted on M/V Asean Independence, M/V Asean Mission,
M/V Asean Knowledge, and M/V Asean Objectives and recorded
with the Philippine Coast Guard Headquarters on February 13,
1980; and
c. Supplemental Chattel Mortgage constituted on M/V
Asean Greatness and recorded with the Philippine Coast Guard
Headquarters on February 3, 1981.iv[4]
Meanwhile, on March 12, 1979, PISC entered into a Contract
Agreement with Hong Kong United Dockyards, Ltd. for the repair
and conversion of the vessel M/V Asean Liberty at a contract price
of HK$2,200,000.00 variable as provided therein.v[5]
On May 28, 1979, the Central Bank of the Philippines authorized
PISC to open with private respondent China Banking Corporation
(hereinafter CBC) a standby letter of credit for US$545,000.00 in
favor of Citibank, N.A. (hereinafter Citibank) to cover the repair
and partial conversion of the vessel M/V Asean Liberty. This was
pursuant to the letter of the Central Bank of the Philippines dated
May 28, 1979 as amended on June 20, 1979.vi[6]
On June 15, 1979, PISC executed an Application and Agreement
for Commercial Letter of Credit for $545,000.00 with private
respondent CBC in favor of Citibank. Pursuant to this application
and agreement, private respondent CBC issued on September 12,
1979 its Irrevocable Standby Letter of Credit No. 79/4174 for
US$545,000.00 in favor of Citibank for account of PISC.
On September 17, 1979, a Promissory note for US$545,000.00
was executed by PISC in favor of Citibank pursuant to the Loan
Agreement for US$545,000.00 between PISC, as borrower, and
Citibank, as lender.vii[7]
Upon failure of PISC to fulfill its obligations under the said
dated March 25, 1983 drawing on Letter of Credit No. 79/4174.
In this letter, Citibank certified that the draft attached thereto for
US$242,225.00 represented the principal balance due to
Citibank as of March 17, 1983 under the promissory note
executed by PISC, the proceeds of which were used for the repair
and conversion of M/V Asean Liberty. Thus, on March 30, 1983,
CBC instructed its correspondent Irving Trust Co., by cable, to
pay to Citibank the amount of US$242,225.00. On the same date,
Irving Trust Co. advised private respondent CBC by mail that the
amount of US$242,225.00 had been debited against CBCs
Account No. 8033278269 and remitted to Citibank.viii[8]
On May 10, 1983, for failure of PISC to settle its obligations in the
amount of US$64,789,470.96, petitioner PNB conducted, thru
the Sheriffs Office, an auction sale of the mortgaged vessels,
except for the vessel M/V Asean Objective. Petitioner NIDC
emerged as the highest bidder in these auctions.ix[9]
On May 27, 1983, claiming that the foreclosure sale of its
mortgaged vessels was illegal, unjust, irregular, and oppressive,
PISC instituted before the Regional Trial Court of Makati, a civil
casex[10] against petitioners for the annulment of the foreclosure
and auction sale of its vessels and damages.
As accurately narrated in the trial courts Order and adopted by
the Court of Appeals in its Decision of March 21, 1997, the
following proceedings transpired in the lower court:
Records show that on May 27, 1983, PISC (Philippine
International Shipping Corporation) filed suit against National
Investment and Development Corporation (NIDC, for short) and
Philippine National Bank (PNB, for short) for annulment of
foreclosure of mortgage and auction sale with damages vis--vis
the sale on foreclosure of vessels Asean Mission, Asean
Knowledge, Asean Nations and Asean Greatness (as well as Asean
Liberty and Asean Independence). NIDC answered the complaint,
and in an amended answer impleaded additional counterclaim
defendants. In an Order dated September 29, 1984, then Judge
Jose L. Coscolluela, Jr. dismissed the complaint as against PNB
and the counterclaimed defendants. And under date of November
3, 1986, the complaint itself against and the NIDC counterclaims
were dismissed with prejudice.
In the meantime, NIDC acquired the vessels as highest bidder in
the foreclosure thereof initiated by PNB, NIDC having thereafter
disposed of said vessels in favor of the National Steel Corporation
(NSC).
Complaints in intervention were filed by and for Unitor Ships
Services PTE, Ltd., IMO Industries AB, UDDVALLARVARVET AB,
Hyundai, Shipyard Co., Lloyds, China bank, Chiang Tung
Enterprises Co., Ltd., Pan Asia, Inc., and HANMF Marine Service,
Co., Ltd., for recovery upon maritime liens against the proceeds
of the sale of the foreclosed vessels. The parties concerned, except
for intervenors Lloyds and China Bank, eventually submitted a
Compromise Agreement dated July 12, 1989, and made the basis
for the Decision of August 23, 1989.
As first stated, there now remain only Lloyds and China Bank
claims in intervention, recovery upon which is covered by a PNB
bank guarantee therefor if found matters of entitlement (sic) by
said intervenors.
Intervenor Lloyds claim is for the service of herein intervenor
Lloyds Register of Shipping to class aforementioned vessels (M/V
Asean Nations and Asean Greatness) during the period covering
July 22, 1981 to July 14, 1983 and the cost for said maritime
surveys in the sum of HK$65,930.00, UKC10,363.45 and
P9,653.00 said to have been unpaid by PISC despite demands.
NIDC traversed the Lloyds claim as not being preferred maritime
liens and in any event inferior in nature.
Intervenor China Banks claims are predicated on (i) a China Bank
Standby Letter of Credit in favor of Citibank, N. A. purportedly to
cover repair and partial conversion of M/V Asean Liberty, to the
extent of US$242,225.00 paid by China Bank to Citibank, and
said to be now owing by PISC together with stipulated interest;
(ii) a China Bank loan of US$2,700,000.00 as evidenced by a
promissory note, the loan proceeds said to have allowed PISC to
reduce overhead expenses and afford it competitive advantage in
overseas shipping, and to pay for bunker fuel, defray port
expenses and storage, container rental and insurance, as well as
salaries and wages of crew members; and (iii) a China bank
commercial letter of credit to PISC in favor of Bank of America,
particularly a BA Draft for US$648,002.54 said to have been
applied towards vessel repair and conversion by the China
Shipbuilding Corporation of Taiwan, together with stipulated
interests due from PISC. China Banks claims are premised on the
above as being preferred maritime liens. NIDC rejects said claims
as not being maritime liens, much less preferred maritime liens.
Shortly after the undersigned penning Judge assumed his duties
in this Court, Lloyds and China Bank were enjoined to furnish
opposite counsel with copies of the documentation of their
respective claims, to obviate the necessity of adducing evidence
in point on matters capable of stipulation. Thus, failing
formulation of any amicable settlement in the manner arrived at
by all other intervenors, pre-trial proceedings for the subject last
remaining claims in intervention by and for Lloyds and China
Bank resulted in an August 9, 1991 Pre-Trial Order which set
forth-
A. NATURE OF THE CASE
Claimant-intervenor Lloyds Register of Shipping seeks recovery
as unpaid creditor of HK$65,930., UK Pounds C10,363.45 and
P9,653.00 as being in the nature of preferred maritime liens on
the vessels M/V ASEAN NATIONS and ASEAN GREATNESS,
representing costs for maritime services rendered for said vessels
for the period July 22, 1981 to July 14, 1983.
Intervenor-claimant China Banking Corporation seeks recovery,
as being in the nature of a preferred maritime lien, of the sum of
US$3,890,227.53, representing the totality of loans extended by
said intervenor-claimant said to have been expended in financing
repair and conversion costs, for expenses and storage container
rentals and insurance premium paid out by it.
Plaintiffs admit the recoverability of said claims as being in the
nature of preferred maritime liens, whereas PNB-NIDC contests
the said claims.
B. STIPULATIONS AND ADMISSIONS.
Plaintiffs, PNB-NIDC and intervenor-claimant Lloyds Register of
Shipping stipulate and admit that the totality of its claims as fully
supported by documentation already verified by the parties are in
the sums of HK$65,930,00, UKC10,363.45 and P9,653.00.
Plaintiffs, PNB-NIDC and intervenor-claimant China Banking
Corporation stipulate and admit that the totality of its claim is in
the sum of US$3,870,227.53 as fortified by documentation
already verified in point.
C. ISSUES.
The parties have agreed to limit the resolution of the last two
remaining claims in intervention aforementioned to the following
legal questions:
i. Whether or not said claims, in the
context in which they sought to be
recovered, are preferred maritime lien
as would entitle said claims to
recover, and
ii. Whether or not assuming
recoverability thereon as being in the
nature of maritime liens, such
recovery may be allowed in relation
with PNBs being the mortgagee of the
assets from which recovery is sought.
Considering that the issues to be addressed are purely legal in
nature, presentation of evidence and/or witnesses in point is
unnecessary.xi[11]
After the parties submitted their respective memoranda, the trial
court issued on March 4, 1992 an Order dismissing the
complaint-in-intervention filed by private respondent CBC for
lack of merit. In dismissing the complaint-in-intervention, the
trial court ruled that the claim of private respondent CBC was not
a preferred maritime lien but was merely a loan extended to PISC
by CBC.
Private respondent CBC appealed the Order of the trial court to
the Court of Appeals. In its appeal, private respondent CBC
imputed the following errors allegedly committed by the trial
court:
a) the trial court erred in holding that the loans extended
by China Banking Corporation to the Philippine International
Shipping Corporation did not create maritime liens.
b) assuming that the loans are not themselves maritime
liens, the trial court erred in holding that the China Banking
Corporation did not acquire the maritime liens of Philippine
International Shipping Corporation's creditors by subrogation.
For its part, herein petitioners PNB/NIDC raised as an issue in
its Appellees Brief before the Court of Appeals the lack of
jurisdiction of the appellate court to entertain and pass upon the
appeal interposed by CBC on the ground that the issues raised
therein were purely legal; and that the appeal of CBC should have
been lodged with the Supreme Court by petition for review on
certiorari.xii[12]
On March 21, 1997, the Court of Appeals promulgated its
questioned decision, the dispositive portion of which states:
WHEREFORE, insofar as the appellant CBC is concerned, the
appealed Order is hereby SET ASIDE and judgment is rendered:
(a) Directing the appellee Philippine National
Bank/National Investment and Development Corporation to pay
the appellant China Banking Corporation from the proceeds of
the foreclosure sale of M/V Asean Liberty the amount of
US$242,225.00 or its Philippine Peso Equivalent at the time of
payment, with interest thereon at the legal rate from November 7,
1984, the date of filing of CBCs complaint-in-intervention, until
fully paid; and
(b) Ordering the appellee Philippine International Shipping
Corporation to pay the same CBC the amounts of US$648,002.54
and US$2.7 Million plus stipulated interests, arrangement fees,
swap premiums, expenses, losses, taxes and penalties,
xxx
SO ORDERED.xiii[13]
In the said decision, the appellate court held petitioners
PNB/NIDC liable to CBC only for the amount of US$242,225.00,
which was used for the repair and conversion of the M/V Asean
Liberty, as it was only this amount which CBC was able to prove
as being a preferred maritime lien. Moreover, such amount was
to be paid by petitioners PNB/NIDC from the proceeds of the
foreclosure sale of the vessel M/V Asean Liberty. Private
respondent CBCs other claims of US$648,000.54 and US$2.7
Million were found by the appellate court as not being in the
nature of maritime liens and as such, recoverable only from PISC,
not from herein petitioners PNB/NIDC.
Not satisfied with the decision of the appellate court, petitioners
PNB/NIDC institute the present petition for review on certiorari
where they raise the following issues:
I.
WHETHER OR NOT THE COURT OF APPEALS HAS APPELLATE
JURISDICTION TO ENTERTAIN AND PASS UPON THE APPEAL
INTERPOSED BY PRIVATE RESPONDENT CBC FROM THE
ORDER OF THE TRIAL COURT OF MARCH 4, 1992 WHICH
INVOLVED PURE QUESTIONS OF LAW.
II.
WHETHER OR NOT PRIVATE RESPONDENT CBCS CLAIM FOR
US$242,225.OO AS EVIDENCED BY ITS IRREVOCABLE LETTER
OF CREDIT NO. 79/4174 OF SEPTEMBER 12, 1979 IS IN THE
NATURE OF A MARITIME LIEN UNDER THE PROVISIONS OF
P.D. NO. 1521; AND IF SO, WHETHER OR NOT SAID MARITIME
LIEN IS PREFERRED OVER THE MORTGAGE LIEN OF
PETITIONER PNB/NIDC ON THE FORECLOSED VESSEL M/V
ASEAN LIBERTY.
On the first issue, petitioners argue that the Court of Appeals
committed grave error in law in taking cognizance of the appeal
interposed by private respondent CBC from the Order of the trial
court dated 4 March 1992 involving as it does pure questions of
law. They claim that the Court of Appeals had no jurisdiction to
entertain and pass upon the appeal interposed by private
respondent CBC as the issues raised therein are purely legal. As
such, petitioners continue, the appeal of CBC should have been
lodged directly with the Supreme Court by way of petition for
review on certiorari under Rule 45 of the Revised Rules of Court.
Citing the pronouncement of this Court en banc in Anacleto
Murillo vs. Rodolfo Consulxiv[14], the petitioners conclude that the
appeal made by private respondent CBC to the Court of Appeals
should have been dismissed by the respondent court for lack of
jurisdiction.
It is true that the decisions of the Regional Trial Court may be
directly reviewed by the Supreme Court on petition for review if
pure questions of law are raised. Circular 2-90,xv[15] which
petitioners cite and which outlined the applicable rules of
procedure on this matter at that time, indirectly states that cases
from the Regional Trial Court raising only questions of law should
be taken to the Supreme Court. Paragraphs No. 4(c) and (d) of the
said Circular provide as follows:
4. Erroneous Appeals. An appeal taken to either the Supreme
Court of the Court of Appeals by the wrong or inappropriate mode
shall be dismissed.
xxx xxx xxx
(c) Raising issues purely of law in the Court of Appeals or
appeal by wrong mode. If an appeal under Rule 41 is taken from
the Regional Trial Court to the Court of Appeals and therein the
appellant raises only questions of law, the appeal shall be
dismissed, issues purely of law not being reviewable by said
court. xxx
(d) No transfer of appeals erroneously taken. No transfers
of appeals erroneously taken to the Supreme Court or to the
Court of Appeals to whichever of these Tribunals has appropriate
appellate jurisdiction will be allowed; continued ignorance or
willful disregard of the law on appeals will not be tolerated.
From the cited provisions, it is clear that the Court of Appeals
does not have jurisdiction over appeals from the Regional Trial
Court that raise purely questions of law. Appeals of this nature
should be raised to the Supreme Court.xvi[16] Furthermore,
transfer of erroneous appeals is not allowed and the tribunal
which receives the erroneous appeal should perforce dismiss the
same for lack of jurisdiction.
Notwithstanding this legal rule, the appeal brought before the
Court of Appeals by the private respondent CBC must first be
analyzed as to whether the same raised questions or errors of law
alone. If the petition raised only questions of law, then the Court
of Appeals had no jurisdiction to take cognizance of the case and
should have dismissed the case outright. On the other hand, if
the petition raised only questions of fact or questions of both fact
and law, then the Court of Appeals correctly exercised jurisdiction
over the issue.xvii[17]
As such, even if, as in this case, the documentary evidence
adduced by the parties was admitted without objection, a
question of fact is still involved when the query necessarily invites
the calibration of the whole evidence including the relevancy of
surrounding circumstances and their relation to each other.
On this point, we note with approval the following justification
made by the respondent court in assuming jurisdiction over the
case:
A question of fact has been distinguished from a question of law
in this wise:
At this point, the distinction between a question of fact and a
question of law must be clear. As distinguished from a question
of law which exists when the doubt or difference arises as to what
the law is on certain state of facts there is a question of fact when
the doubt or difference arises as to the truth or the falsehood of
alleged facts; or when the query necessarily invites calibration of
the whole evidence considering mainly the credibility of
witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole and
probabilities of the situation.(Bernardo vs. Court of Appeals, 216
SCRA 224)
Stated differently, a question of law does not involve an
examination of the probative value of the evidence presented by
the litigants or any of them; otherwise, if such examination and
re-evaluation of the evidence is called for, a question of fact is
raised.
In the decision from which the CBC appealed, the trial court
primarily held that the former is a mere money lender and not a
maritime lienor. In its appeal, the CBC argues that in so holding,
the trial court disregarded the maritime purposes for which the
loans it extended to the Philippine International Shipping
Corporation (PISC) were availed of and used. The issue thus
raised cannot be judiciously resolved without reviewing the
probative weight of the evidence on record consisting in the main
of the various documents, contracts and transactions attached to
CBCs complaint-in-intervention. It is, therefore, indubitable that
mixed questions of fact and of law are involved over which this
Court has jurisdiction.xviii[18]
Thus, in resolving the issues raised by private respondent in the
Court of Appeals, the appellate court had to make a factual
inquiry, among others, on the nature and terms of the contracts
among the different parties, the relationship of the different
parties with one another and with respect to the vessels involved
in the case, how the proceeds of the loans were used, and the
correct dates when the maritime and mortgage liens were
constituted on the vessels. The determination of these facts is
crucial as it will resolve whether the amount advanced by
respondent CBC is in the nature of a maritime lien and if so,
whether the lien is superior to the mortgage lien of petitioners. If
the appellate court, in the exercise of its review power, finds that
the amount advanced by CBC was used for the repair of the
vessels, then a mortgage lien was indubitably established over the
shipping vessels. Moreover, a determination of the dates when the
respective liens of the parties were constituted over the vessels
will answer the question as to which lien is preferred over the
other. In short, in order to address fully the issues raised by the
parties in their pleadings, the appellate court necessarily had to
make factual findings.
Verily, the issues raised by private respondent in the appellate
court were cognizable by the said court, the issues being mixed
questions of fact and law. Respondent court was therefore acting
within its jurisdiction when it promulgated its questioned
decision.
The next issue brought up by petitioners is whether or not private
respondent CBCs claim for US$242,225.00 is in the nature of a
maritime lien. It is the contention of petitioners that (t)he Court
of Appeals gravely erred in law in holding that private respondent
CBCs claim under its Standby Letter of Credit No. 79/4174 is a
maritime lien, and that said maritime lien is preferred over the
mortgage lien of petitioners PNB/NIDC on the foreclosed vessel
M/V Asean Liberty.xix[19]
The applicable law on the matter is Presidential Decree No. 1521,
otherwise known as the Ship Mortgage Decree of 1978. Sections
17 and 21 of the said Presidential Decree provides as follows:
Sec. 17. Preferred Maritime Liens, Priorities, Other Liens (a) Upon
the sale of any mortgaged vessel in any extra-judicial sale or by
order of a district court of the Philippines in any suit in rem in
admiralty for the enforcement of a preferred mortgage lien
thereon, all pre-existing claims on the vessel, including any
possessory common-law lien of which a lienor is deprived under
the provisions of Section 16 of this Decree, shall be held
terminated and shall thereafter attach, in like amount and in
accordance with the priorities established herein to the proceeds
of the sale. The preferred mortgage lien shall have priority over all
claims against the vessel, except the following claims in the order
stated: (1) expenses and fees allowed and costs taxed by the court
and taxes due to the government; (2) crews wages; (3) general
average; (4) salvage; including contract salvage; (5) maritime liens
arising prior in time to the recording of the preferred mortgage;
and (6) damages arising out of tort; and (7) preferred mortgage
registered prior in time.
(b) If the proceeds of the sale should not be sufficient to pay all
creditors included in one number or grade, the residue shall be
divided among them pro rata. All credits not paid, whether fully
or partially shall subsist as ordinary credits enforceable by
personal action against the debtor. The record of judicial sale or
sale by public auction shall be recorded in the Record of Transfers
& Encumbrances of Vessels in the port of documentation.
Sec. 21. Maritime Lien for Necessaries; persons entitled to such
lien. Any person furnishing repairs, supplies, towage, use of dry
dock or maritime railway, or other necessaries to any vessel,
whether foreign or domestic, upon the order of the owner, shall
have a maritime lien on the vessel, which may be enforced by suit
in rem, and it shall be necessary to allege or prove that credit was
given to the vessel.
Under these provisions, any person furnishing repairs, supplies,
or other necessaries to a vessel on credit will have a maritime lien
on the said vessel. Such maritime lien, if it arose prior to the
recording of a preferred mortgage lien, shall have priority over the
said mortgage lien.
In the instant case, it was Hongkong United Dockyards, Ltd.
which originally possessed a maritime lien over the vessel M/V
Asean Liberty by virtue of its repair of the said vessel on credit.
Under the Contract Agreement dated March 12, 1979 between
Hongkong United Dockyards, Ltd. and PISC, the former, as
contractor, obligated itself to repair and convert the vessel M/V
Asean Liberty, which was owned by PISC. Section 7 of the said
Agreement provides as follows:
(7) a) The Owner will, before the commencement of
work, provide an Irrevocable Documentary
Credit for the Contract Price plus an estimate
to cover the cost of extra work. The banks and
wording of the Credit are to be agreed by the
Contractor.
b) Payment will be:
(1) Before departure of vessel from
Contractors yard: 20% of contract
price;
(2) 60 days from departure of vessel from
Contractors yard: 40% of contract
price;
(3) 90 days from departure of vessel from
Contractors yard: 40% of contract
price.xx[20]
The foregoing provision of the contract agreement indubitably
shows that credit was given to the vessel M/V Asean Liberty by
Hongkong United Dockyards, Ltd. and as a result, a maritime lien
in favor of Hongkong United Dockyards, Ltd. was constituted on
the said vessel by virtue of Section 21 of the Ship Mortgage Decree
of 1978.
It is the contention of private respondent CBC however, that it
ultimately acquired the maritime lien of Hongkong United
Dockyards, Ltd. over the vessel M/V Asean Liberty. As shown by
the documentary evidence offered by private respondent CBC, its
proof that it acquired said maritime lien is as follows:
(a) On March 12, 1979, PISC entered into a Contract
Agreement with Hongkong United Dockyards, Ltd., as contractor,
for the repair and conversion of its vessel M/V Asean Liberty for
a contract price of HK$2,200,000.00xxi[21];
(b) On May 28, 1979, the Central Bank of the Philippines
approved PISCs request to open with private respondent China
Banking Corporation a Standby Letter of Credit for
US$545,000.00 in favor of Hongkong United Dockyards, Ltd. This
May 28, 1979 letter stated that the credit for US$545,000 would
be used to cover the partial conversion cost of the vessel Asean
Liberty. On June 20, 1979, the Central Bank approved the
request of PISC to change the beneficiary of the said Standby
Letter of Credit from Hongkong United Dockyards, Ltd. to
Citibankxxii[22];
(c) On June 15, 1979, PISC executed an Application and
Agreement with private respondent CBC for the opening of a
Standby Letter of Credit for US$545,000.00 in favor of Citibank,
N.A., Makati, Metro Manila as beneficiary. The agreement
confirmed that the letter of credit would be used to guarantee the
loan in the amount of US$545,000.00, the proceeds of which will
be used to finance partially the conversion cost of the vessel MV
ASIAN LIBERTYxxiii[23];
(d) On September 12, 1979, private respondent CBC issued
an Irrevocable Standby Letter of Credit in favor of Citibank for
any sum or sums not exceeding a total of US$545,000.00. Per
express terms of the Letter of Credit, its purpose was to guarantee
(Citibanks) loan to Philippine International Shipping Corporation,
the proceeds of which loan, according to accountee, are to finance
partially the conversion cost of the vessel M/V ASIAN
LIBERTYxxiv[24];
(e) Pursuant to its loan agreement with Citibank, PISC
executed on September 17, 1979 a promissory note for
US$545,000.00 in favor of Citibank, promising to pay the latter
the principal sum of US$545,000.00 in nine (9) consecutive semi-
annual installments of US$60,555.00 commencing one (1) year
from date hereof or on September 17, 1980 until September 17,
1984xxv[25];
(f) On March 25, 1983, Citibank sent a letter to private
respondent CBC calling and drawing on CBCs Letter of Credit No.
79/4174 and certifying that the draft attached thereto for
US$242,225.00 represents the principal balance due to Citibank
as of March 17, 1983 under PISCs Promissory Note of September
17, 1979xxvi[26]. This March 25, 1983 letter likewise indicated
that the loan due from PISC was used to finance partially the
conversion cost of the vessel M/V Asian Liberty;
(g) On March 30, 1983, private respondent CBC instructed
by cable its correspondent, Irving Trust Co., to pay Citibank
US$242,225.00. On the same date, Irving Trust Co., advised
private respondent CBC by mail that the sum of US$242,225.00
was debited against CBCs Account No. 8033278269 and remitted
to the Citibank Foreign Currency Deposit Unit, Makatixxvii[27];
From the documentary evidence thus presented, it is clear that
private respondents claim is predicated on the payment it made
to Citibank by virtue of the Irrevocable Letter of Credit it
established in the latters favor. Per express provisions of the
Letter of Credit, the same was established to guarantee your
(Citibank) loan in the principal amount of US$545,000.00 to
Philippine International Shipping Corporation, the proceeds of
which loan, according to accountee, are to finance partially the
conversion cost of the vessel M/V Asean Liberty.xxviii[28]
In short, private respondent CBC was a guarantor of the loan
extended by Citibank to PISC. It was Citibank, which advanced
the money to PISC. It was only upon the failure of PISC to fulfill
its obligations under its promissory note to Citibank that private
respondent CBC was called upon by Citibank to exercise its
duties under the Standby Letter of Credit.
It is the holding of the appellate court, however, that private
respondent stepped into the shoes of Hongkong United
Dockyards, Ltd. by legal subrogation and thus acquired the
maritime lien of the latter over the vessel M/V Asean Liberty.
Thus:
It is not disputed that CBCs claim for US$242,225.00 and
US$648,002.54 refer to the repair and conversion of two (2) of
PISCs vessels, namely M/V Asean Liberty and M/V Asean
Mission, undertaken by Hongkong United Dockyards, Ltd. and
the China Shipbuilding Corporation of Taiwan, respectively, upon
the order of the owner, as deposed by George Lim, the President
of the PISC. Such being the case, maritime liens on the vessels
concerned arose conformably with the aforequoted provision of
Section 21 of P.D. No. 1521. True it is that under the law the
persons entitled to the lien are the Hongkong United Dockyards,
Ltd. and the China Shipbuilding Corporation of Taiwan, they
being the ones who furnished the repair works. However, since it
was CBC who paid off these lienors, it stepped into the shoes of
the latter by subrogation. This is the prevailing doctrine in
American jurisprudence which holds that: A creditor who
advances money specifically for the purpose of discharging a
maritime lien is subrogated to the lienors rights. Significantly, the
Federal Maritime Lien Act, like our Ship Mortgage Decree of 1978,
provides that, any person furnishing repairs, supplies, towage,
use of drydock or marine railway, or other necessaries, to any
foreign or domestic vessel on the order of the owner of such
vessel, or of a person authorized by the owner of such vessel, or
of a person authorized by the owner has a maritime lien on the
vessel which may be enforced by suit in rem. The only difference
is that under the Federal Maritime Lien Act, it is not necessary to
allege or prove that the credit was given to the vessel. Hence,
insofar as the creation of the lien and the persons entitled to the
lien are concerned, American jurisprudence is highly persuasive.
Furthermore, Article 1302 (2) of our Civil Code explicitly provides:
Art. 1302 (2). It is presumed that there is legal subrogation:
xxx xxx xxx
(2) When a third person not interested in the obligation pays with
the express or tacit approval of the debtor;
xxx xxx xxx.
Accordingly, since CBCs payment to the lienors was with
the express consent of the debtor owner of the vessels
repaired, legal subrogation took place in CBCs favor.
Petitioners do not question the abovequoted rationale of the Court
of Appeals. It takes exception however to the appellate courts
finding and conclusion that it was ultimately private respondent
CBC which paid off the maritime lienor and that the
US$545,000.00 advanced by Citibank was actually paid to the
persons who furnished the repairs on the vessels. On this point,
petitioners argue that the entirety of the documentary evidence of
private respondent CBC does not show that the latter actually
paid off the maritime lienholder for the repair of M/V Asean
Liberty as required by Section 21 of the Ship Mortgage Act of
1978.xxix[29] Furthermore, petitioners claim that the respondent
court committed serious error in law when it considered and gave
credence to the written deposition of Mr. George Lim, the
President of PISC, as basis for the said finding considering that
the same had earlier been denied admission by the trial court.
There is no merit in the contentions of petitioners.
The provisions of our Ship Mortgage Decree of 1978 were
patterned quite closely after the U.S. Ship Mortgage Act of
1920.xxx[30] Significantly, the Federal Maritime Lien Act of the
United States, like our Ship Mortgage Decree of 1978, provides
that any person furnishing repairs, supplies, towage, use of
drydock, or marine railway, or other necessaries, to any foreign
or domestic vessel on the order of the owner of such vessel, or of
a person authorized by the owner has a maritime lien on the
vessel, which may be enforced by suit in rem.xxxi[31] Being of
foreign origin, the provisions of the Ship Mortgage Decree of 1978
may thus be construed with the aid of foreign jurisprudence from
which they are derived except insofar as they conflict with existing
laws or are inconsistent with local customs and institutions.
As held by the public respondent Court of Appeals, those who
provide credit to a master of a vessel for the purpose of
discharging a maritime lien also acquire a lien over the said
vessel. Under American jurisprudence, (f)urnishing money to a
master in good faith to obtain repairs or supplies or to remove
liens, in order to forward the voyage of the vessel, raises a lien
just as though the things (for which) money was obtained to pay
for had been furnished by the lender.xxxii[32] Likewise,
(a)dvances to discharge maritime liens create a lien on the vessel,
and one advancing money to discharge a valid lien gets a lien of
equal dignity with the one discharged.xxxiii[33] There is no
reason why these doctrines cannot be given persuasive
application in the instant case considering that they do not violate
or contravene any of our existing laws. Moreover, as pointed out
by the appellate court, these doctrines are in accord with our
provisions on subrogation particularly Art. 1302, paragraph 2 of
the New Civil Code which provides that there is legal subrogation
when a third person, not interested in the fulfillment in the
obligation, pays with the express or tacit approval of the debtor.
Under these doctrines, a person who extends credit for the
purpose of discharging a maritime lien is not entitled to the said
lien where the funds were not furnished to the ship on the order
of the master and there was no evidence that the money was
actually used to pay debts secured by the lien.xxxiv[34] As
applied in the instant case, it becomes necessary to prove that
the credit advanced by Citibank to PISC was actually utilized for
the repair and conversion of the vessel M/V Asean Liberty.
Otherwise, Citibank could not have acquired the maritime lien of
Hongkong United Dockyards, Ltd. over the vessel M/V Asean
Liberty.
On this point, we agree with the position of private respondent
that the question of whether or not the proceeds of the loans
extended by Citibank were used for the repair and conversion of
M/V Asean Liberty is a factual issuexxxv[35] which the Court
cannot review absent a showing that it was arbitrarily
resolved.xxxvi[36]
Contrary to the assertions of petitioners, the records are replete
with documents that show that the proceeds of the loans were
used for the repair and conversion of the vessel M/V Asean
Liberty. Even without the written deposition of Mr. George Lim,
there is still sufficient documentary evidence in the records
supporting the appellate courts findings. The correspondences
between PISC and the Central Bank, the Application and
Agreement, and the Standby Letter of Credit itself explicitly state
that the proceeds of the loan applied for by PISC are to be used
to finance partially the conversion cost of the vessel M/V Asean
Liberty. Moreover, the March 25, 1983 letter of Citibank to private
respondent CBC drawing on the latters letter of credit, confirmed
that the loan due from PISC was used to finance partially the
conversion cost of the said vessel.
In the presence of such documentary evidence, which were
admitted without objection from the petitioners, we cannot say
that the Court of Appeals resolved the issue arbitrarily. The
appellate courts finding that the amount sought to be recovered
by petitioner was actually used for the repair and conversion of
the vessel M/V Asean Liberty is based on substantial evidence.
From the foregoing, it is clear that the amount used for the repair
of the vessel M/V Asean Liberty was advanced by Citibank and
was utilized for the purpose of paying off the original maritime
lienor, Hongkong United Dockyards, Ltd. As a person not
interested in the fulfillment of the obligation between PISC and
Hongkong United Dockyards, Ltd., Citibank was subrogated to
the rights of Hongkong United Dockyards, Ltd. as maritime lienor
over the vessel, by virtue of Article 1302, par. 2 of the New Civil
Code. By definition, subrogation is the transfer of all the rights of
the creditor to a third person, who substitutes him in all his
rights.xxxvii[37] Considering that Citibank paid off the debt of
PISC to Hongkong United Dockyards, Ltd. it became the
transferee of all the rights of Hongkong United Dockyards, Ltd.
as against PISC, including the maritime lien over the vessel M/V
Asean Liberty.
Private respondent CBC, as guarantor, was itself subrogated to
all the rights of Citibank as against PISC, the latters debtor.
Article 2067 of the New Civil Code provides that (t)he guarantor
who pays is subrogated by virtue thereof to all the rights which
the creditor had against the debtor. Private respondent, having
paid off the debt of PISC to Citibank, was therefore, subrogated
to all the rights Citibank had against its debtor PISC. Considering
that Citibank had a maritime lien over the vessel M/V Asean
Liberty, private respondent was likewise subrogated to this right
when it paid off Citibank under the contract of guarantee.
Having thus established that private respondent CBC possessed
a maritime lien over the vessel M/V Asean Liberty, the next issue
is whether the said maritime lien is preferred over the mortgage
lien of petitioners.
In the case at bench, petitioners mortgage lien arose on
September 25, 1979 when the said mortgage was registered with
the Philippine Coast Guard Headquarters.xxxviii[38] As such, in
order for the maritime lien of private respondent CBC to be
preferred over the mortgage lien of petitioners, the same must
have arisen prior to the recording of the mortgage on September
25, 1979.
On this point, petitioners argue that inasmuch as the Standby
Letter of Credit was in the nature of a guarantee, the right of
private respondent CBC to claim or to collect the maritime lien
arose only at the time CBC actually paid off the said lien to
Citibank on March 30, 1983. Otherwise stated, it is the
contention of petitioners that private respondent CBCs maritime
lien under its Standby Letter of Credit No. 79/4174 arose only on
March 30, 1983 when CBC actually paid off the outstanding
obligation of PISC to Citibank.xxxix[39] Considering that its
mortgage lien arose on September 25, 1979, petitioners thus
conclude that its lien is preferred as against private respondent
CBCs maritime lien.
There is no merit in this contention.
As stated by a noted commentator on the subject, a maritime lien
constitutes a present right of property in the ship, a jus in re, to
be afterward enforced in admiralty by process in rem. From the
moment the claim or privilege attaches, it is inchoate, and when
carried into effect by legal process, by a proceeding in rem, it
relates back to the period when it first attached.xl[40]
In the case at bench, the maritime lien over the vessel M/V Asean
Liberty arose or was constituted at the time Hongkong United
Drydocks, Ltd. made repairs on the said vessel on credit. As such,
as early as March 12, 1979, the date of the contract for the repair
and conversion of M/V Asean Liberty, a maritime lien had already
attached to the said vessel. When Citibank advanced the amount
of US$242,225.00 for the purpose of paying off PISCs debt to
Hongkong United Dockyards, Ltd., it acquired the existing
maritime lien over the vessel. When private respondent honored
its contract of guarantee with Citibank on March 30, 1983, it
likewise acquired by subrogation the maritime lien that was
already existing over the vessel M/V Asean Liberty. Thus, when
private respondent CBC chose to exercise its right to the maritime
lien during the proceedings in the trial court, it was actually
enforcing a privilege that attached to the ship as early as March
12, 1979.
The maritime lien of private respondent CBC thus arose prior in
time to the recording of petitioners mortgage on September 25,
1979. As such, the said maritime lien has priority over the said
mortgage lien. Pursuant to Section 17 of the Ship Mortgage
Decree of 1978, a preferred mortgage lien shall have priority over
all claims against the vessel except, among others, maritime liens
arising prior in time to the recording of the preferred mortgage.
The respondent court thus committed no reversible error when it
ruled that the maritime lien of private respondent CBC is superior
to the mortgage lien of petitioners.
WHERFORE, in view of the foregoing, the petition is denied and
the decision of the Court of Appeals dated March 21, 1997 in CA-
G.R. CV. No. 38131 is hereby AFFIRMED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47447-47449 October 29, 1941
TEODORO R. YANGCO, ETC., petitioner,
vs.
MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.
Powell & Vega for respondents.
MORAN, J.:
At about one o'clock in the afternoon of May 26, 1927, the
steamer S.S. Negros, belonging to petitioner here, Teodoro R.
Yangco, left the port of Romblon on its retun trip to Manila.
Typhoon signal No. 2 was then up, of which fact the captain was
duly advised and his attention thereto called by the passengers
themselves before the vessel set sail. The boat was overloaded as
indicated by the loadline which was 6 to 7 inches below the
surface of the water. Baggage, trunks and other equipments were
heaped on the upper deck, the hold being packed to capacity. In
addition, the vessel carried thirty sacks of crushed marble and
about one hundred sacks of copra and some lumber. The
passengers, numbering about 180, were overcrowded, the
vessel's capacity being limited to only 123 passengers. After two
hours of sailing, the boat encountered strong winds and rough
seas between the islands of Banton and Simara, and as the waves
splashed the ladies' dresses, the awnings were lowered. As the
sea became increasingly violent, the captain ordered the vessel to
turn left, evidently to return to port, but in the manuever, the
vessel was caught sidewise by a big wave which caused it to
capsize and sink. Many of the passengers died in the mishap,
among them being Antolin Aldaña 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 Basaña, son of Filomeno Basaña, 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
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.
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 dueño 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 dueño 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 Española, 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 daños o perjuicios
que ocasionare esta desempeñando 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 daños
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.
Avanceña, C.J., Abad Santos, Diaz, Laurel, Horrilleno, and Ozaeta,
JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-42926 September 13, 1985
PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO,
AGUSTINA VIRTUDES, ROMEO VASQUEZ and MAXIMINA
CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES,
INC., respondents.
Emilio D. Castellanes for petitioners.
Apolinario A. Abantao for private respondents.
MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of
petitioners' respective children after the shipwreck of MV Pioneer
Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and
adopted by respondent Court, and which we find supported by
the record, read as follows:
When the inter-island vessel MV "Pioneer
Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it
had on board the spouses Alfonso Vasquez and
Filipinas Bagaipo and a four-year old boy,
Mario Marlon Vasquez, among her passengers.
The MV "Pioneer Cebu" encountered typhoon
"Klaring" and struck a reef on the southern
part of Malapascua Island, located somewhere
north of the island of Cebu and subsequently
sunk. The aforementioned passengers were
unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega
are the parents of Alfonso Vasquez; plaintiffs
Cleto Bagaipo and Agustina Virtudes are the
parents of Filipinas Bagaipo; and plaintiffs
Romeo Vasquez and Maxima Cainay are the
parents of the child, Mario Marlon Vasquez.
They seek the recovery of damages due to the
loss of Alfonso Vasquez, Filipinas Bagaipo and
Mario Marlon Vasquez during said voyage.
At the pre-trial, the defendant admitted its
contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez,
and the fact of the sinking of the MV "Pioneer
Cebu". The issues of the case were limited to
the defenses alleged by the defendant that the
sinking of the vessel was caused by force
majeure, and that the defendant's liability had
been extinguished by the total loss of the
vessel.
The evidence on record as to the
circumstances of the last voyage of the MV
"Pioneer Cebu" came mainly, if not exclusively,
from the defendant. The MV "Pioneer Cebu"
was owned and operated by the defendant and
used in the transportation of goods and
passengers in the inter-island shipping.
Scheduled to leave the Port of Manila at 9:00
p.m. on May 14, 1966, it actually left port at
5:00 a.m. the following day, May 15, 1966. It
had a passenger capacity of three hundred
twenty-two (322) including the crew. It
undertook the said voyage on a special permit
issued by the Collector of Customs inasmuch
as, upon inspection, it was found to be without
an emergency electrical power system. The
special permit authorized the vessel to carry
only two hundred sixty (260) passengers due
to the said deficiency and for lack of safety
devices for 322 passengers (Exh. 2). A
headcount was made of the passengers on
board, resulting on the tallying of 168 adults
and 20 minors, although the passengers
manifest only listed 106 passengers. It has
been admitted, however, that the headcount is
not reliable inasmuch as it was only done by
one man on board the vessel.
When the vessel left Manila, its officers were
already aware of the typhoon Klaring building
up somewhere in Mindanao. There being no
typhoon signals on the route from Manila to
Cebu, and the vessel having been cleared by
the Customs authorities, the MV "Pioneer
Cebu" left on its voyage to Cebu despite the
typhoon. When it reached Romblon Island, it
was decided not to seek shelter thereat,
inasmuch as the weather condition was still
good. After passing Romblon and while near
Jintotolo island, the barometer still indicated
the existence of good weather condition
continued until the vessel approached
Tanguingui island. Upon passing the latter
island, however, the weather suddenly
changed and heavy rains felt Fearing that due
to zero visibility, the vessel might hit Chocolate
island group, the captain ordered a reversal of
the course so that the vessel could 'weather
out' the typhoon by facing the winds and the
waves in the open. Unfortunately, at about
noontime on May 16, 1966, the vessel struck a
reef near Malapascua island, sustained leaks
and eventually sunk, bringing with her
Captain Floro Yap who was in command of the
vessel.
Due to the loss of their children, petitioners sued for damages
before the Court of First Instance of Manila (Civil Case No.
67139). Respondent defended on the plea of force majeure, and
the extinction of its liability by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered
ordering the defendant to pay:
(a) Plaintiffs Pedro Vasquez and Soledad
Ortega the sums of P15,000.00 for the loss of
earning capacity of the deceased Alfonso
Vasquez, P2,100.00 for support, and
P10,000.00 for moral damages;
(b) Plaintiffs Cleto B. Bagaipo and Agustina
Virtudes the sum of P17,000.00 for loss of
earning capacity of deceased Filipinas
Bagaipo, and P10,000.00 for moral damages;
and
(c) Plaintiffs Romeo Vasquez and Maximina
Cainay the sum of P10,000.00 by way of moral
damages by reason of the death of Mario
Marlon Vasquez.
On appeal, respondent Court reversed the aforementioned
judgment and absolved private respondent from any and all
liability.
Hence, this Petition for Review on Certiorari, the basic issue being
the liability for damages of private respondent for the presumptive
death of petitioners' children.
The trial Court found the defense of caso fortuito untenable due
to various decisive factors, thus:
... It is an admitted fact that even before the
vessel left on its last voyage, its officers and
crew were already aware of the typhoon
brewing somewhere in the same general
direction to which the vessel was going. The
crew of the vessel took a calculated risk when
it proceeded despite the typhoon advisory. This
is quite evident from the fact that the officers

of the vessel had to conduct conferences
amongst themselves to decide whether or not
to proceed. The crew assumed a greater risk
when, instead of seeking shelter in Romblon
and other islands the vessel passed en route,
they decided to take a change on the expected
continuation of the good weather the vessel
was encountering, and the possibility that the
typhoon would veer to some other directions.
The eagerness of the crew of the vessel to
proceed on its voyage and to arrive at its
destination is readily understandable. It is
undeniably lamentable, however, that they did
so at the risk of the lives of the passengers on
board.
Contrariwise, respondent Appellate Court believed that the
calamity was caused solely and proximately by fortuitous event
which not even extraordinary diligence of the highest degree could
have guarded against; and that there was no negligence on the
part of the common carrier in the discharge of its duties.
Upon the evidence and the applicable law, we sustain the trial
Court. "To constitute a caso fortuito that would exempt a person
from responsibility, it is necessary that (1) the event must be
independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal
manner; and that (3) the obligor must be free of participation in,
or aggravation of, the injury to the creditor." 1 In the language of
the law, the event must have been impossible to foresee, or if it
could be foreseen, must have been impossible to avoid. 2 There
must be an entire exclusion of human agency from the cause of
injury or loss. 3
Turning to this case, before they sailed from the port of Manila,
the officers and crew were aware of typhoon "Klaring" that was
reported building up at 260 kms. east of Surigao. In fact, they
had lashed all the cargo in the hold before sailing in anticipation
of strong winds and rough waters. 4 They proceeded on their way,
as did other vessels that day. Upon reaching Romblon, they
received the weather report that the typhoon was 154 kms. east
southeast of Tacloban and was moving west northwest. 5 Since
they were still not within the radius of the typhoon and the
weather was clear, they deliberated and decided to proceed with
the course. At Jintotolo Island, the typhoon was already reported
to be reaching the mainland of Samar. 6 They still decided to
proceed noting that the weather was still "good" although,
according to the Chief Forecaster of the Weather Bureau, they
were already within the typhoon zone. 7 At Tanguingui Island,
about 2:00 A.M. of May 16, 1966, the typhoon was in an area
quite close to Catbalogan, placing Tanguingui also within the
typhoon zone. Despite knowledge of that fact, they again decided
to proceed relying on the forecast that the typhoon would weaken
upon crossing the mainland of Samar. 8 After about half an hour
of navigation towards Chocolate Island, there was a sudden fall
of the barometer accompanied by heavy downpour, big waves,
and zero visibility. The Captain of the vessel decided to reverse
course and face the waves in the open sea but because the
visibility did not improve they were in total darkness and, as a
consequence, the vessel ran aground a reef and sank on May 16,
1966 around 12:45 P.M. near Malapascua Island somewhere
north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an
inevitable occurrence, yet, having been kept posted on the course
of the typhoon by weather bulletins at intervals of six hours, the
captain and crew were well aware of the risk they were taking as
they hopped from island to island from Romblon up to
Tanguingui. They held frequent conferences, and oblivious of the
utmost diligence required of very cautious persons, 9 they decided
to take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the
safety of the passengers transported by them with due regard for
an circumstances 10 and unnecessarily exposed the vessel and
passengers to the tragic mishap. They failed to overcome that
presumption of fault or negligence that arises in cases of death or
injuries to passengers. 11
While the Board of Marine Inquiry, which investigated the
disaster, exonerated the captain from any negligence, it was
because it had considered the question of negligence as "moot
and academic," the captain having "lived up to the true tradition
of the profession." While we are bound by the Board's factual
findings, we disagree with its conclusion since it obviously had
not taken into account the legal responsibility of a common
carrier towards the safety of the passengers involved.
With respect to private respondent's submission that the total
loss of the vessel extinguished its liability pursuant to Article 587
of the Code of Commerce 12 as construed in Yangco vs. Laserna,
73 Phil. 330 [1941], suffice it to state that even in the cited case,
it was held that the liability of a shipowner is limited to the value
of the vessel or to the insurance thereon. Despite the total loss of
the vessel therefore, its insurance answers for the damages that
a shipowner or agent may be held liable for by reason of the death
of its passengers.
WHEREFORE, the appealed judgment is hereby REVERSED and
the judgment of the then Court of First Instance of Manila,
Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente
and Patajo, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
Paras, Padilla, Sarmiento and Regalado, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21495 March 18, 1924
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-
appellant,
vs.
THE INSULAR MARITIME CO., defendant-appellee.
Attorney-General Villa-Real for appellant.
Antonio M. Opisso for appellee.
MALCOLM, J.:
The Government of the Philippine Islands seeks by this action to
recover from The Insular Maritime Company the sum of
P30,437.91 for repairs made by the Bureau of Commerce and
Industry on the motor ship Insular.
The Insular Maritime Company was organized with a capital of
P150,000. It became the owner of one vessel only, the Insular,
valued at P150,000. On October 29, 1919, The Insular Maritime
Company asked the Bureau of Commerce and Industry to
perform certain repairs on the Insular. The Government
consented and terminated said repairs on November 29 of the
same year. Subsequent thereto, on April 15, 1920, the Insular
suffered a total loss by fire.
The bill prepared by the chief accountant of the Bureau of
Commerce and Industry for work done on the motor ship Insular
in the amount of P30,437.91, was dated July 31, 1920. Collection
of the claim was attempted pursuant to formal demand made by
the Acting Insular Auditor of date April 30, 1921.
It will thus be noted, as was emphasized by the defense and by
His Honor, the trial judge, that no steps were taken by the
Government to secure payment for the repairs until after the loss
of the vessel Insular. The first error assigned by the Attorney-
General addressed to this finding of fact is accordingly without
merit.
The trial judge further found in effect, as a legal conclusion, that
the loss of the vessel Insular extinguished the obligation. The
Attorney-General challenges the correctness of this view.
The decision of the trial judge was predicated on his
understanding of the provisions of article 591 of the Code of
Commerce in relation with other articles of the same Code, and
with the decision of this court in the case of Philippine Shipping
Co. vs. Garcia Vergara ([1906], 6 Phil., 281). As to the applicability
of article 591 of the Code of Commerce, there is nothing in the
language to denote that the liability of the owners of a vessel is
wiped out by the loss of that vessel. As to the applicability of the
decision in the case of Philippine Shipping Co. vs. Garcia Vergara,
supra, the facts are not the same. There, the owners and agents
of a vessel causing the loss of another vessel by collision were
held "not liable beyond the vessel itself causing the collision," but
were "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." Here; there
is a contractual relation which remains unaffected by the loss of
the thing concerned in the contract and which is governed
principally by the provisions of the Civil Code.
The rights and liabilities of owners of ships are in many respects
essentially the same as in the case of other owners of things. As
a general rule, the owners of a vessel and the vessel itself are
liable for necessary repairs. Naturally the total destruction of the
vessel extinguishes a maritime lien, as there is no longer any res
to which it can attach. But the total destruction of the vessel does
not affect the liability of the owners for repairs on the vessel
completed before its loss.
It is but fair to say that what has been stated in this decision
more accurately expresses the consensus of opinion in the court
than it does the views of the writer, who sees more in the
appellee's case than do his colleagues in the court.
The trial court was accordingly right in its exposition of the fact
but not in its application of the law. Judgment must therefore be
as it is hereby reversed, and in lieu of the judgment appealed
from, another shall be entered here in favor of the plaintiff and
against the defendant for the sum of P30,437.91 with legal
interest from July 20, 1921, when the complaint was presented,
until payment. Without special findings as to costs in either
instance, it is so ordered.
Araullo, C.J., Johnson, Street, Avanceña, Ostrand, Johns and
Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-42926 September 13, 1985
PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO,
AGUSTINA VIRTUDES, ROMEO VASQUEZ and MAXIMINA
CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES,
INC., respondents.
Emilio D. Castellanes for petitioners.
Apolinario A. Abantao for private respondents.
MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of
petitioners' respective children after the shipwreck of MV Pioneer
Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and
adopted by respondent Court, and which we find supported by
the record, read as follows:
When the inter-island vessel MV "Pioneer
Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it
had on board the spouses Alfonso Vasquez and
Filipinas Bagaipo and a four-year old boy,
Mario Marlon Vasquez, among her passengers.
The MV "Pioneer Cebu" encountered typhoon
"Klaring" and struck a reef on the southern
part of Malapascua Island, located somewhere
north of the island of Cebu and subsequently
sunk. The aforementioned passengers were
unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega
are the parents of Alfonso Vasquez; plaintiffs
Cleto Bagaipo and Agustina Virtudes are the
parents of Filipinas Bagaipo; and plaintiffs
Romeo Vasquez and Maxima Cainay are the
parents of the child, Mario Marlon Vasquez.
They seek the recovery of damages due to the
loss of Alfonso Vasquez, Filipinas Bagaipo and
Mario Marlon Vasquez during said voyage.
At the pre-trial, the defendant admitted its
contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez,
and the fact of the sinking of the MV "Pioneer
Cebu". The issues of the case were limited to
the defenses alleged by the defendant that the
sinking of the vessel was caused by force
majeure, and that the defendant's liability had
been extinguished by the total loss of the
vessel.
The evidence on record as to the
circumstances of the last voyage of the MV
"Pioneer Cebu" came mainly, if not exclusively,
from the defendant. The MV "Pioneer Cebu"
was owned and operated by the defendant and
used in the transportation of goods and
passengers in the inter-island shipping.
Scheduled to leave the Port of Manila at 9:00
p.m. on May 14, 1966, it actually left port at
5:00 a.m. the following day, May 15, 1966. It
had a passenger capacity of three hundred
twenty-two (322) including the crew. It
undertook the said voyage on a special permit
issued by the Collector of Customs inasmuch
as, upon inspection, it was found to be without
an emergency electrical power system. The
special permit authorized the vessel to carry
only two hundred sixty (260) passengers due
to the said deficiency and for lack of safety
devices for 322 passengers (Exh. 2). A
headcount was made of the passengers on
board, resulting on the tallying of 168 adults
and 20 minors, although the passengers
manifest only listed 106 passengers. It has
been admitted, however, that the headcount is
not reliable inasmuch as it was only done by
one man on board the vessel.
When the vessel left Manila, its officers were
already aware of the typhoon Klaring building
up somewhere in Mindanao. There being no
typhoon signals on the route from Manila to
Cebu, and the vessel having been cleared by
the Customs authorities, the MV "Pioneer
Cebu" left on its voyage to Cebu despite the
typhoon. When it reached Romblon Island, it
was decided not to seek shelter thereat,
inasmuch as the weather condition was still
good. After passing Romblon and while near
Jintotolo island, the barometer still indicated
the existence of good weather condition

continued until the vessel approached
Tanguingui island. Upon passing the latter
island, however, the weather suddenly
changed and heavy rains felt Fearing that due
to zero visibility, the vessel might hit Chocolate
island group, the captain ordered a reversal of
the course so that the vessel could 'weather
out' the typhoon by facing the winds and the
waves in the open. Unfortunately, at about
noontime on May 16, 1966, the vessel struck a
reef near Malapascua island, sustained leaks
and eventually sunk, bringing with her
Captain Floro Yap who was in command of the
vessel.
Due to the loss of their children, petitioners sued for damages
before the Court of First Instance of Manila (Civil Case No.
67139). Respondent defended on the plea of force majeure, and
the extinction of its liability by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered
ordering the defendant to pay:
(a) Plaintiffs Pedro Vasquez and Soledad
Ortega the sums of P15,000.00 for the loss of
earning capacity of the deceased Alfonso
Vasquez, P2,100.00 for support, and
P10,000.00 for moral damages;
(b) Plaintiffs Cleto B. Bagaipo and Agustina
Virtudes the sum of P17,000.00 for loss of
earning capacity of deceased Filipinas
Bagaipo, and P10,000.00 for moral damages;
and
(c) Plaintiffs Romeo Vasquez and Maximina
Cainay the sum of P10,000.00 by way of moral
damages by reason of the death of Mario
Marlon Vasquez.
On appeal, respondent Court reversed the aforementioned
judgment and absolved private respondent from any and all
liability.
Hence, this Petition for Review on Certiorari, the basic issue being
the liability for damages of private respondent for the presumptive
death of petitioners' children.
The trial Court found the defense of caso fortuito untenable due
to various decisive factors, thus:
... It is an admitted fact that even before the
vessel left on its last voyage, its officers and
crew were already aware of the typhoon
brewing somewhere in the same general
direction to which the vessel was going. The
crew of the vessel took a calculated risk when
it proceeded despite the typhoon advisory. This
is quite evident from the fact that the officers
of the vessel had to conduct conferences
amongst themselves to decide whether or not
to proceed. The crew assumed a greater risk
when, instead of seeking shelter in Romblon
and other islands the vessel passed en route,
they decided to take a change on the expected
continuation of the good weather the vessel
was encountering, and the possibility that the
typhoon would veer to some other directions.
The eagerness of the crew of the vessel to
proceed on its voyage and to arrive at its
destination is readily understandable. It is
undeniably lamentable, however, that they did
so at the risk of the lives of the passengers on
board.
Contrariwise, respondent Appellate Court believed that the
calamity was caused solely and proximately by fortuitous event
which not even extraordinary diligence of the highest degree could
have guarded against; and that there was no negligence on the
part of the common carrier in the discharge of its duties.
Upon the evidence and the applicable law, we sustain the trial
Court. "To constitute a caso fortuito that would exempt a person
from responsibility, it is necessary that (1) the event must be
independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal
manner; and that (3) the obligor must be free of participation in,
or aggravation of, the injury to the creditor." 1 In the language of
the law, the event must have been impossible to foresee, or if it
could be foreseen, must have been impossible to avoid. 2 There
must be an entire exclusion of human agency from the cause of
injury or loss. 3
Turning to this case, before they sailed from the port of Manila,
the officers and crew were aware of typhoon "Klaring" that was
reported building up at 260 kms. east of Surigao. In fact, they
had lashed all the cargo in the hold before sailing in anticipation
of strong winds and rough waters. 4 They proceeded on their way,
as did other vessels that day. Upon reaching Romblon, they
received the weather report that the typhoon was 154 kms. east
southeast of Tacloban and was moving west northwest. 5 Since
they were still not within the radius of the typhoon and the
weather was clear, they deliberated and decided to proceed with
the course. At Jintotolo Island, the typhoon was already reported
to be reaching the mainland of Samar. 6 They still decided to
proceed noting that the weather was still "good" although,
according to the Chief Forecaster of the Weather Bureau, they
were already within the typhoon zone. 7 At Tanguingui Island,
about 2:00 A.M. of May 16, 1966, the typhoon was in an area
quite close to Catbalogan, placing Tanguingui also within the
typhoon zone. Despite knowledge of that fact, they again decided
to proceed relying on the forecast that the typhoon would weaken
upon crossing the mainland of Samar. 8 After about half an hour
of navigation towards Chocolate Island, there was a sudden fall
of the barometer accompanied by heavy downpour, big waves,
and zero visibility. The Captain of the vessel decided to reverse
course and face the waves in the open sea but because the
visibility did not improve they were in total darkness and, as a
consequence, the vessel ran aground a reef and sank on May 16,
1966 around 12:45 P.M. near Malapascua Island somewhere
north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an
inevitable occurrence, yet, having been kept posted on the course
of the typhoon by weather bulletins at intervals of six hours, the
captain and crew were well aware of the risk they were taking as
they hopped from island to island from Romblon up to
Tanguingui. They held frequent conferences, and oblivious of the
utmost diligence required of very cautious persons, 9 they decided
to take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the
safety of the passengers transported by them with due regard for
an circumstances 10 and unnecessarily exposed the vessel and
passengers to the tragic mishap. They failed to overcome that
presumption of fault or negligence that arises in cases of death or
injuries to passengers. 11
While the Board of Marine Inquiry, which investigated the
disaster, exonerated the captain from any negligence, it was
because it had considered the question of negligence as "moot
and academic," the captain having "lived up to the true tradition
of the profession." While we are bound by the Board's factual
findings, we disagree with its conclusion since it obviously had
not taken into account the legal responsibility of a common
carrier towards the safety of the passengers involved.
With respect to private respondent's submission that the total
loss of the vessel extinguished its liability pursuant to Article 587
of the Code of Commerce 12 as construed in Yangco vs. Laserna,
73 Phil. 330 [1941], suffice it to state that even in the cited case,
it was held that the liability of a shipowner is limited to the value
of the vessel or to the insurance thereon. Despite the total loss of
the vessel therefore, its insurance answers for the damages that
a shipowner or agent may be held liable for by reason of the death
of its passengers.
WHEREFORE, the appealed judgment is hereby REVERSED and
the judgment of the then Court of First Instance of Manila,
Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente
and Patajo, JJ., concur.
SECOND DIVISION
[G.R. No. 1600. June 1, 1906. ]
THE PHILIPPINE SHIPPING COMPANY, ET AL., Plaintiffs-
Appellants, v. FRANCISCO GARCIA VERGARA, Defendant-
Appellee.
Del-Pan, Ortigas & Fisher, for Appellants.
Ledesma, Sumulong & Quintos, for Appellee.
SYLLABUS
1. MARITIME LAW, "REAL" NATURE OF; LOSS OF VESSEL. —
"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. . . . 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 vessels." (Madariaga, pp. 60-62, 62, and
85.)
2. ID.; ID.; OWNERS AND AGENTS OF VESSELS, LIABILITY. —
The owners and agents of a vessel causing the loss of another
vessel by collision are not liable beyond the vessel itself causing
the collision and other things appertaining thereto.
3. ID.; ID. — In the case at bar the vessel L., sailing in accordance
with the rules of navigation, collided with the vessel N., not so
sailing, and both vessels were lost. P., the owner of the vessel L.,
sues for the value of the vessel N., the vessel causing the loss.
Held, That in view of the above stated principles, the defendant is
liable for the indemnification to which the plaintiff is entitle 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.
DECISION
ARELLANO, C.J. :
The Philippine Shipping Company, the owner of the steamship
Nuestra Sra. de Lourdes, claims an indemnification of 44,000
pesos for the loss of the said ship as a result of a collision.
Ynchusti & Co. also claimed 24,705.64 pesos as an
indemnification for the loss of the cargo of hemp and coprax
carried by the said ship on her last trip. The defendant, Francisco
Garcia Vergara, was the owner of the steamship Navarra, which
collided with the Lourdes.
From the judgment of the trial court the Philippine Shipping
Company and the defendant Vergara appealed, but the latter has
failed to prosecute his appeal by a bill of exceptions or otherwise.
The only appellant who has prosecuted this appeal now reduced
its claim to 18,000 pesos, the value of the colliding vessel.
The court below found as a matter of fact that the steamship
Lourdes was sailing in accordance with law, but that the Navarra
was not, and was therefore responsible for the collision. (Bill of
exceptions, p. 7.) The court also found as a fact that "both ships
with their respective cargoes were entirely lost." Construing
article 837 of the Code Commerce, the court below held "that the
defendant was not responsible to the plaintiff for the value of the
steamship Lourdes, with the costs against the latter." (Bill of
exceptions, p. 8.)
But the appellant, the Philippine Shipping Company, contends
that the defendant should pay to 18,000 pesos, the value of the
Navarra at the time of its loss; that this is the sense in which the
provisions of article 837 of the Code of Commerce should be
understood; that said code has followed the principles of the
English law and not those of the American law, and that it was
immaterial whether the Navarra had been entirely lost, provided
her value at the time she was lost could be ascertained, since the
extent of the liability of the owner of the colliding vessel for the
damages resulting from the collision is to be determined in
accordance with such value.
Article 837 of the Code 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."cralaw virtua1aw library
"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 the 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."cralaw virtua1aw library
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 interest 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 for
the owner of the vessel. Such liability is limited by the proposed
code to the value of the vessel and other things appertaining
thereto."cralaw virtua1aw library
There is no doubt that if the Navarra had not been entirely lost,
the agent, having 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 the 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 exist between the lawful acts and
lawful obligation 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 agent liable to the
extent of the value of the vessel, as to the codes of the principal
maritime nations provided, 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:jgc:chanrobles.com.ph
"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 interest 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 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 shipwrecks, 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 maritime law, exclusively ’real,’ according
to which the liability of the parties is limited to a thing to which
is at 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 — 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 other liabilities arising from collisions under article 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 of
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. 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.
Torres, Mapa, Johnson, and Carson, JJ., concur.
EN BANC
[G.R. No. L-9534. September 29, 1956.]
MANILA STEAMSHIP CO., INC., Petitioner, vs. INSA
ABDULHAMAN (MORO) and LIM HONG TO, Respondents.
DECISION
REYES, J. B. L., J.:
This case was begun in the Court of First Instance of Zamboanga
(Civil Case No. 170) by Insa Abdulhaman against the Manila
Steamship Co., owner of the M/S “Bowline Knot”, and Lim Hong
To, owner of the M/L “Consuelo V”, to recover damages for the
death of his (Plaintiff’s) five children and loss of personal
properties on board the M/L “Consuelo V” as a result of a
maritime collision between said vessel and the M/S “Bowline
Knot” on May 4, 1948, a few kilometers distant from San Ramon
Beach, Zamboanga City.
On appeal, the Court of Appeals found the following facts to have
been established:chanroblesvirtuallawlibrary
“From 7:chanroblesvirtuallawlibrary00 to
8:chanroblesvirtuallawlibrary00 o’clock in the evening of May 4,
1948, the M/L “Consuelo V”, laden with cargoes and passengers
left the port of Zamboanga City bound for Siokon under the
command of Faustino Macrohon. She was then towing a kumpit,
named “Sta. Maria Bay”. The weather was good and fair. Among
her passengers were the Plaintiff Insa Abdulhaman, his wife
Carimla Mora and their five children already mentioned. The
Plaintiff and his wife paid their fare before the voyage started.
On that same night the M/S “Bowline Knot” was navigating from
Maribojoc towards Zamboanga.
Between 9:chanroblesvirtuallawlibrary30 to
10:chanroblesvirtuallawlibrary00 in the evening the dark clouds
bloated with rain began to fall and the gushing strong wind began
to blow steadily harder, lashing the waves into a choppy and
roaring sea. Such weather lasted for about an hour and then it
became fair although it was showering and the visibility was good
enough.
When some of the passengers of the M/L “Consuelo V” were then
sleeping and some were lying down awake, all of a sudden they
felt the shocking collision of the M/L “Consuelo V” and a big
motorship, which later on was identified as the M/V “Bowline
Knot”.
Because the M/L “Consuelo V” capsized, her crew and
passengers, before realizing what had happened, found
themselves swimming and floating on the crest of the waves and
as a result of which nine (9) passengers were dead and missing
and all the cargoes carried on said boat, including those of the
Plaintiff as appear in the list, Exhibit “A”, were also lost.
Among the dead passengers found were Maria, Amlasa, Bidoaya
and Bidalla, all surnamed Inasa, while the body of the child
Abdula Inasa of 6 years of age was never recovered. Before the
collision, none of the passengers were warned or informed of the
impending danger as the collision was so sudden and
unexpected. All those rescued at sea were brought by the M/V
“Bowline Knot” to Zamboanga City.” (Decision of C. A., pp. 5-6).
As the cause of the collision, the Court of Appeals affirmed the
findings of the Board of Marine Inquiry, that the commanding
officer of the colliding vessels had both been negligent in
operating their respective vessels. Wherefore, the Court held the
owners of both vessels solidarily liable to Plaintiff for the damages
caused to him by the collision, under Article 827 of the Code of
Commerce; chan roblesvirtualawlibrarybut exempted Defendant
Lim Hong To from liability by reason of the sinking and total loss
of his vessel, the M/L “Consuelo V”, while the other Defendant,
the Manila Steamship Co., owner of the M/S “Bowline Knot”, was
ordered to pay all of Plaintiff’s damages in the amount of
P20,784.00 plus one-half of the costs. It is from this judgment
that Defendant Manila Steamship Co. had appealed to this Court.
Petitioner Manila Steamship Co. pleads that it is exempt from any
liability to Plaintiff under Article 1903 of the Civil Code because it
had exercised the diligence of a good father of a family in the
selection of its employees, particularly Third Mate Simplicio
Ilagan, the officer in command of its vessels, the M/S “Bowline
Knot”, at the time of the collision. This defense is untenable.
While it is true that Plaintiff’s action against Petitioner is based on
a tort or quasi-delict, the tort in question is not a civil tort under
the Civil Code but a maritime tort resulting in a collision at sea,
governed by Articles 826-939 of the Code of Commerce. Under
Article 827 of the Code of Commerce, in case of collision between
two vessels imputable to both of them, each vessel shall suffer
her own damage and both shall be solidarily liable for the
damages occasioned to their cargoes. The characteristic language
of the law in making the “vessels” solidarily liable for the damages
due to the maritime collision emphasizes the direct nature of the
responsibilities on account of the collision incurred by the
shipowner under maritime law, as distinguished from the civil
law and mercantile law in general. This direct responsibility is
recognized in Article 618 of the Code of Commerce under which
the captain shall be civilly liable to the ship agent, and the latter
is the one liable to third persons, as pointed out in the collision

case of Yueng Sheng Exchange & Trading Co. vs. Urrutia & Co.,
12 Phil. 747, 753:chanroblesvirtuallawlibrary
“The responsibility involved in the present action is that derived
from the management of the vessel, which was defective on
account of lack of skill, negligence, or fault, either of the captain
or of the crew, for which the captain is responsible to the agent,
who in his turn is responsible to the third party prejudiced or
damaged. (Article 618, Code of Commerce).”
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); chan
roblesvirtualawlibraryso 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):chanroblesvirtuallawlibrary
“In the second assignment of error, the Appellant contends that
the Defendant ought not to be held liable for the negligence of his
agents and employees.
It is proven that the agents and employees, through whose
negligence the explosion and fire in question occurred, were
agents, employees and mandatories of the Defendant. Where the
vessel is one of freight, a public concern or public utility, its owner
or agents is liable for the tortious acts of his agents (Articles 587,
613, and 618 Code of Commerce; chan roblesvirtualawlibraryand
Article 1902, 1903, 1908, Civil Code). This principle has been
repeatedly upheld in various decisions of this court.
The doctrines cited by the Appellant in support of his theory have
reference to the relations between principal and agent in general,
but not to the relations between ship agent and his agents and
employees; chan roblesvirtualawlibraryfor this reason they
cannot be applied in the present case.”
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 absence of negligence on its parts in the
selection and supervision of the officers and crew of the M/S
“Bowline Knot”.
The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber
Co., 55 Phil. 517, invoked by Petitioner, is not the point. Said case
treated of a civil tort, in that the vessel of the Defendant, allegedly
negligently managed by its captain in the course of its maneuvers
to moor at Plaintiff’s wharf, struck the same and partially
demolished it, causing damage to Plaintiff. Because the tort
allegedly committed was civil, the provisions of Article 1903 of the
Civil Code were correctly applied. The present case, on the other
hand, involves tortious conduct resulting in a maritime collision;
chan roblesvirtualawlibrarywherefore, the liability of the
shipowner is, as already stated, governed by the provisions of the
Code of Commerce and not by the Civil Code.
We agree, however, with Petitioner-Appellant, that the Court of
Appeals was in error in declaring the Respondent Lim Hong To,
owner of the M/L “Consuelo V”, exempt from liability to the
original Plaintiff, Abdulhaman, in view of the total loss of his own
vessel, that sank as a result of the collision. It is to be noted that
both the master and the engineer of the motor launch “Consuelo
V” were not duly licensed as such (Exh. 2). In applying for
permission to operate, despite the lack of properly trained and
experienced, crew, Respondent Lim Hong To gave as a reason —
“that the income derived from the vessel is insufficient to pay
licensed officers who demand high salaries”,
and expressly declared:chanroblesvirtuallawlibrary
“That in case of any accident, damage or loss, I shall assume full
risk and responsibility for all the consequences thereof.” (Exhibit
2).
His permit to operate, in fact, stipulated —
“that in case of any accident, damage or loss, the registered owner
thereof shall assume full risk and responsibility for all the
consequences thereof, and that said vessel shall be held
answerable for any negligence, disregard or violation of any of the
conditions herein imposed and for any consequence arising from
such negligence, disregard or violations.” (Exhibit 3.)
The Court of Appeals held that neither the letter (Exhibit 2) nor
the permit (Exhibit 3) contained any waiver of the right of
Respondent Lim Hong To to limit his liability to the value of his
motor launch and that he did not lose the statutory right to limit
his liability by abandonment of the vessel, as conferred by Article
587 of the Code of Commerce.
We find the ruling untenable. Disregarding the question whether
mere inability to meet the salary demands of duly licensed
masters and engineers constitutes non-availability thereof that
would excuse noncompliance with the law and authorize
operation without licensed officers under Act 3553, the fact
remains that by operating with an unlicensed master, Lim Hong
To deliberately increased the risk to which the passengers and
shippers of cargo aboard the “Consuelo V” would be subjected. In
his desire to reap greater benefits in the maritime trade, Lim Hong
To willfully augmented the dangers and hazards to his vessel’s
unwarry passengers, who would normally assume that the
launch officers possessed the necessary skill and experience to
evade the perils of the sea. Hence, the liability of said Respondent
cannot be the identical to that of a shipowner who bears in mind
the safety of the passengers and cargo by employing duly licensed
officers. To hold, as the Court of Appeals has done, that Lim Hong
To may limit his liability to the value of his vessels, is to erase all
difference between compliance with law and the deliberate
disregard thereof. To such proposition we cannot assent.
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. Fariña (Derecho Comercial
Maritimo, Vol. I, pp. 122-123), on the authority of judicial
precedents from various nations, sets the rule to be as
follows:chanroblesvirtuallawlibrary
“Esta generalmente admitido que el propietario del buque no
tiene derecho a la limitacion legal de responsibilidad si los daños
o averias que dan origen a la limitacion provienen de sus propias
culpas. El Convenio de Bruselas de 25 de agosto de 1924 tambien
invalida la limitacion en el caso de culpa personal en los
accidentes o averías sobrevenidos (Art. 2°).”
To the same effect, a noted French author
states:chanroblesvirtuallawlibrary
“La limitacion de la responsabilidad maritima ha sido admitida
para proteger a los armadores contra los actos abusivos de sus
encargados y no dejar su patrimonio entero a la discrecion del
personal de sus buques, porque este personal cumple sus
obligaciones en condiciones especiales; chan
roblesvirtualawlibrarypero los armadores no tienen por sobre los
demas derecho a ser amparados contra ellos mismos ni a ser
protegidos contra sus propios actos.”
(Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.)
That Lim Hong To understood that he would incur greater liability
than that normally borne by shipowners, is clear from his
assumption of “ full” risk and responsibility for all the
consequences” of the operation of the M/L “Consuelo V”; chan
roblesvirtualawlibrarya responsibility expressly assumed in his
letter Exhibit 2, and imposed in his special permit, in addition to
the vessel itself being held answerable. This express assumption
of “full risk and responsibility” would be meaningless unless
intended to broaden the liability of Respondent Lim Hong To
beyond the value of his vessel.

In resume, we hold:chanroblesvirtuallawlibrary
(1) That the Manila Steamship Co., owner of the M/S “Bowline
Knot”, is directly and primarily responsible in tort for the injuries
caused to the Plaintiff by the collision of said vessel with the
launch “Consuelo V”, through the negligence of the crews of both
vessels, and it may not escape liability on the ground that it
exercised due diligence in the selection and supervision of the
officers and crew of the “Bowline Knot”;
(2) That Lim Hong To, as owner of the motor launch “Consuelo
V”, having caused the same to sail without licensed officers, is
liable for the injuries caused by the collision over and beyond the
value of said launch;
(3) That both vessels being at fault, the liability of Lim Hong To
and Manila Steamship Co. to the Plaintiff herein is in solidum, as
prescribed by Article 827 of the Code of Commerce.
In view of the foregoing, the decision of the Court of Appeals is
modified, and that of the Court of First Instance affirmed, in the
sense of declaring both original Defendants solidarily liable to
Plaintiff Insa Abdulhaman in the sum of P20,784.00 and the cost
of the litigation, without prejudice to the right of the one who
should pay the judgment in full to demand contribution from his
co-Defendant.
Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador,
Concepcion, Endencia and Felix, JJ., concur.
FIRST DIVISION
[G.R. No. 116940. June 11, 1997]
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., petitioner, vs. COURT OF APPEALS and FELMAN SHIPPING
LINES, respondents.
DECISION
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of
cargo due to its failure to observe the extraordinary diligence
required by Art. 1733 of the Civil Code as well as the right of the
insurer to be subrogated to the rights of the insured upon
payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on
board MV Asilda, a vessel owned and operated by respondent
Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-
liter Coca-Cola softdrink bottles to be transported from
Zamboanga City to Cebu City for consignee Coca-Cola Bottlers
Philippines, Inc., Cebu.iii[1] The shipment was insured with
petitioner Philippine American General Insurance Co., Inc.
(PHILAMGEN for brevity), under Marine Open Policy No. 100367-
PAG.
MV Asilda left the port of Zamboanga in fine weather at eight
oclock in the evening of the same day. At around eight forty-five
the following morning, 7 July 1983, the vessel sank in the waters
of Zamboanga del Norte bringing down her entire cargo with her
including the subject 7,500 cases of 1-liter Coca-Cola softdrink
bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines,
Inc., Cebu plant, filed a claim with respondent FELMAN for
recovery of damages it sustained as a result of the loss of its
softdrink bottles that sank with MV Asilda. Respondent denied
the claim thus prompting the consignee to file an insurance claim
with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse
against respondent FELMAN which disclaimed any liability for
the loss. Consequently, on 29 November 1983 PHILAMGEN sued
the shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total
loss of MV Asilda and its cargo were due to the vessels
unseaworthiness as she was put to sea in an unstable condition.
It further alleged that the vessel was improperly manned and that
its officers were grossly negligent in failing to take appropriate
measures to proceed to a nearby port or beach after the vessel
started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based
on the affirmative defense that no right of subrogation in favor of
PHILAMGEN was transmitted by the shipper, and that, in any
event, FELMAN had abandoned all its rights, interests and
ownership over MV Asilda together with her freight and
appurtenances for the purpose of limiting and extinguishing its
liability under Art. 587 of the Code of Commerce.iii[2]
On 17 February 1986 the trial court dismissed the complaint of
PHILAMGEN. On appeal the Court of Appeals set aside the
dismissal and remanded the case to the lower court for trial on
the merits. FELMAN filed a petition for certiorari with this Court
but it was subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor
of FELMAN.iii[3] It ruled that MV Asilda was seaworthy when it
left the port of Zamboanga as confirmed by certificates issued by
the Philippine Coast Guard and the shipowners surveyor
attesting to its seaworthiness. Thus the loss of the vessel and its
entire shipment could only be attributed to either a fortuitous
event, in which case, no liability should attach unless there was
a stipulation to the contrary, or to the negligence of the captain
and his crew, in which case, Art. 587 of the Code of Commerce
should apply.
The lower court further ruled that assuming MV Asilda was
unseaworthy, still PHILAMGEN could not recover from FELMAN
since the assured (Coca-Cola Bottlers Philippines, Inc.) had
breached its implied warranty on the vessels seaworthiness.
Resultantly, the payment made by PHILAMGEN to the assured
was an undue, wrong and mistaken payment. Since it was not
legally owing, it did not give PHILAMGEN the right of subrogation
so as to permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the
Court of Appeals. On 29 August 1994 respondent appellate court
rendered judgment finding MV Asilda unseaworthy for being top-
heavy as 2,500 cases of Coca-Cola softdrink bottles were
improperly stowed on deck. In other words, while the vessel
possessed the necessary Coast Guard certification indicating its
seaworthiness with respect to the structure of the ship itself, it
was not seaworthy with respect to the cargo. Nonetheless, the
appellate court denied the claim of PHILAMGEN on the ground
that the assureds implied warranty of seaworthiness was not
complied with. Perfunctorily, PHILAMGEN was not properly
subrogated to the rights and interests of the shipper.
Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability
under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV
Asilda was seaworthy when it left the port of Zamboanga; (b)
whether the limited liability under Art. 587 of the Code of
Commerce should apply; and, (c) whether PHILAMGEN was
properly subrogated to the rights and legal actions which the
shipper had against FELMAN, the shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga.
In a joint statement, the captain as well as the chief mate of the
vessel confirmed that the weather was fine when they left the port
of Zamboanga. According to them, the vessel was carrying 7,500
cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of
seaweeds, 200 empty CO2 cylinders and an undetermined
quantity of empty boxes for fresh eggs. They loaded the empty
boxes for eggs and about 500 cases of Coca-Cola bottles on
deck.iii[4] The ship captain stated that around four oclock in the
morning of 7 July 1983 he was awakened by the officer on duty
to inform him that the vessel had hit a floating log. At that time
he noticed that the weather had deteriorated with strong
southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and
would not correct itself despite the heavy rolling and pitching. He
then ordered his crew to shift the cargo from starboard to portside
until the vessel was balanced. At about seven oclock in the
morning, the master of the vessel stopped the engine because the
vessel was listing dangerously to portside. He ordered his crew to
shift the cargo back to starboard. The shifting of cargo took about
an hour afterwhich he rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside
and before the captain could decide on his next move, some of the
cargo on deck were thrown overboard and seawater entered the
engine room and cargo holds of the vessel. At that instance, the
master of the vessel ordered his crew to abandon ship. Shortly
thereafter, MV Asilda capsized and sank. He ascribed the sinking
to the entry of seawater through a hole in the hull caused by the
vessels collision with a partially submerged log.iii[5]

The Elite Adjusters, Inc., submitted a report regarding the sinking
of MV Asilda. The report, which was adopted by the Court of
Appeals, reads -
We found in the course of our investigation that a reasonable
explanation for the series of lists experienced by the vessel that
eventually led to her capsizing and sinking, was that the vessel
was top-heavy which is to say that while the vessel may not have
been overloaded, yet the distribution or stowage of the cargo on
board was done in such a manner that the vessel was in top-
heavy condition at the time of her departure and which condition
rendered her unstable and unseaworthy for that particular
voyage.
In this connection, we wish to call attention to the fact that this
vessel was designed as a fishing vessel x x x x and it was not
designed to carry a substantial amount or quantity of cargo on
deck. Therefore, we believe strongly that had her cargo been
confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel
would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy
cargo on its deck, the vessel was rendered unseaworthy for the
purpose of carrying the type of cargo because the weight of the
deck cargo so decreased the vessels metacentric height as to
cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered
big waves, it must be pointed out that ships are precisely
designed to be able to navigate safely even during heavy weather
and frequently we hear of ships safely and successfully
weathering encounters with typhoons and although they may
sustain some amount of damage, the sinking of ship during heavy
weather is not a frequent occurrence and is not likely to occur
unless they are inherently unstable and unseaworthy x x x x
We believe, therefore, and so hold that the proximate cause of the
sinking of the M/V Asilda was her condition of unseaworthiness
arising from her having been top-heavy when she departed from
the Port of Zamboanga. Her having capsized and eventually sunk
was bound to happen and was therefore in the category of an
inevitable occurrence (underscoring supplied).iii[6]
We subscribe to the findings of the Elite Adjusters, Inc., and the
Court of Appeals that the proximate cause of the sinking of MV
Asilda was its being top-heavy. Contrary to the ship captains
allegations, evidence shows that approximately 2,500 cases of
softdrink bottles were stowed on deck. Several days after MV
Asilda sank, an estimated 2,500 empty Coca-Cola plastic cases
were recovered near the vicinity of the sinking. Considering that
the ships hatches were properly secured, the empty Coca-Cola
cases recovered could have come only from the vessels deck
cargo. It is settled that carrying a deck cargo raises the
presumption of unseaworthiness unless it can be shown that the
deck cargo will not interfere with the proper management of the
ship. However, in this case it was established that MV Asilda was
not designed to carry substantial amount of cargo on deck. The
inordinate loading of cargo deck resulted in the decrease of the
vessels metacentric heightiii[7] thus making it unstable. The
strong winds and waves encountered by the vessel are but the
ordinary vicissitudes of a sea voyage and as such merely
contributed to its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not
applicable to the case at bar.iii[8] Simply put, the ship agent is
liable for the negligent acts of the captain in the care of goods
loaded on the vessel. This liability however can be limited through
abandonment of the vessel, its equipment and freightage as
provided in Art. 587. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held
answerable despite the abandonment, as where the loss or injury
was due to the fault of the shipowner and the captain.iii[9] The
international rule is to the effect that the right of abandonment
of vessels, as a legal limitation of a shipowners liability, does not
apply to cases where the injury or average was occasioned by the
shipowners own fault.iii[10] It must be stressed at this point that
Art. 587 speaks only of situations where the fault or negligence is
committed solely by the captain. Where the shipowner is likewise
to be blamed, Art. 587 will not apply, and such situation will be
covered by the provisions of the Civil Code on common
carrier.iii[11]
It was already established at the outset that the sinking of MV
Asilda was due to its unseaworthiness even at the time of its
departure from the port of Zamboanga. It was top-heavy as an
excessive amount of cargo was loaded on deck. Closer supervision
on the part of the shipowner could have prevented this fatal
miscalculation. As such, FELMAN was equally negligent. It
cannot therefore escape liability through the expedient of filing a
notice of abandonment of the vessel by virtue of Art. 587 of the
Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the
nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them,
according to all the circumstances of each case x x x x" In the
event of loss of goods, common carriers are presumed to have
acted negligently. FELMAN, the shipowner, was not able to rebut
this presumption.
In relation to the question of subrogation, respondent appellate
court found MV Asilda unseaworthy with reference to the cargo
and therefore ruled that there was breach of warranty of
seaworthiness that rendered the assured not entitled to the
payment of is claim under the policy. Hence, when PHILAMGEN
paid the claim of the bottling firm there was in effect a voluntary
payment and no right of subrogation accrued in its favor. In other
words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the
assured impliedly warrants to the assurer that the vessel is
seaworthy and such warranty is as much a term of the contract
as if expressly written on the face of the policy.iii[12] Thus Sec.
113 of the Insurance Code provides that (i)n every marine
insurance upon a ship or freight, or freightage, or upon anything
which is the subject of marine insurance, a warranty is implied
that the ship is seaworthy. Under Sec. 114, a ship is seaworthy
when reasonably fit to perform the service, and to encounter the
ordinary perils of the voyage, contemplated by the parties to the
policy. Thus it becomes the obligation of the cargo owner to look
for a reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full
control in the selection of the common carrier that will transport
his goods. He also has full discretion in the choice of assurer that
will underwrite a particular venture.
We need not belabor the alleged breach of warranty of
seaworthiness by the assured as painstakingly pointed out by
FELMAN to stress that subrogation will not work in this case. In
policies where the law will generally imply a warranty of
seaworthiness, it can only be excluded by terms in writing in the
policy in the clearest language.iii[13] And where the policy
stipulates that the seaworthiness of the vessel as between the
assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing
concealment or misrepresentation by the assured.iii[14]
The marine policy issued by PHILAMGEN to the Coca-Cola
bottling firm in at least two (2) instances has dispensed with the
usual warranty of worthiness. Paragraph 15 of the Marine Open
Policy No. 100367-PAG reads (t)he liberties as per Contract of
Affreightment the presence of the Negligence Clause and/or
Latent Defect Clause in the Bill of Lading and/or Charter Party
and/or Contract of Affreightment as between the Assured and the
Company shall not prejudice the insurance. The seaworthiness of
the vessel as between the Assured and the Assurers is hereby
admitted.iii[15]
The same clause is present in par. 8 of the Institute Cargo
Clauses (F.P.A.) of the policy which states (t)he seaworthiness of
the vessel as between the Assured and Underwriters in hereby
admitted x x x x"iii[16]
The result of the admission of seaworthiness by the assurer
PHILAMGEN may mean one or two things: (a) that the warranty
of the seaworthiness is to be taken as fulfilled; or, (b) that the risk
of unseaworthiness is assumed by the insurance company.iii[17]
The insertion of such waiver clauses in cargo policies is in
recognition of the realistic fact that cargo owners cannot control
the state of the vessel. Thus it can be said that with such
categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is
liable.

Having disposed of this matter, we move on to the legal basis for
subrogation. PHILAMGENs action against FELMAN is squarely
sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss or
injury.
In Pan Malayan Insurance Corporation v. Court of Appeals,iii[18]
we said that payment by the assurer to the assured operates as
an equitable assignment to the assurer of all the remedies which
the assured may have against the third party whose negligence
or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or
upon payment by the insurance company of the insurance claim.
It accrues simply upon payment by the insurance company of the
insurance claim.
The doctrine of subrogation has its roots in equity. It is designed
to promote and to accomplish justice and is the mode which
equity adopts to compel the ultimate payment of a debt by one
who in justice, equity and good conscience ought to pay.iii[19]
Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring an
action as subrogee against FELMAN. Having failed to rebut the
presumption of fault, the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN
SHIPPING LINES is ordered to pay petitioner PHILIPPINE
AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred
Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00)
plus legal interest thereon counted from 29 November 1983, the
date of judicial demand, pursuant to Arts. 2212 and 2213 of the
Civil Code.iii[20]
SO ORDERED.
SECOND DIVISION
[G.R. No. 110398. November 7, 1997]
NEGROS NAVIGATION CO., INC., petitioner, vs. THE COURT OF
APPEALS, RAMON MIRANDA, SPS. RICARDO and VIRGINIA DE
LA VICTORIA, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals affirming with modification the Regional Trial
Courts award of damages to private respondents for the death of
relatives as a result of the sinking of petitioners vessel.
In April of 1980, private respondent Ramon Miranda purchased
from the Negros Navigation Co., Inc. four special cabin tickets
(#74411, 74412, 74413 and 74414) for his wife, daughter, son
and niece who were going to Bacolod City to attend a family
reunion. The tickets were for Voyage No. 457-A of the M/V Don
Juan, leaving Manila at 1:00 p.m. on April 22, 1980.
The ship sailed from the port of Manila on schedule.
At about 10:30 in the evening of April 22, 1980, the Don Juan
collided off the Tablas Strait in Mindoro, with the M/T Tacloban
City, an oil tanker owned by the Philippine National Oil Company
(PNOC) and the PNOC Shipping and Transport Corporation
(PNOC/STC). As a result, the M/V Don Juan sank. Several of her
passengers perished in the sea tragedy. The bodies of some of the
victims were found and brought to shore, but the four members
of private respondents families were never found.
Private respondents filed a complaint on July 16, 1980 in the
Regional Trial Court of Manila, Branch 34, against the Negros
Navigation, the Philippine National Oil Company (PNOC), and the
PNOC Shipping and Transport Corporation (PNOC/STC), seeking
damages for the death of Ardita de la Victoria Miranda, 48,
Rosario V. Miranda, 19, Ramon V. Miranda, Jr., 16, and Elfreda
de la Victoria, 26.
In its answer, petitioner admitted that private respondents
purchased ticket numbers 74411, 74412, 74413 and 74414; that
the ticket numbers were listed in the passenger manifest; and
that the Don Juan left Pier 2, North Harbor, Manila on April 22,
1980 and sank that night after being rammed by the oil tanker
M/T Tacloban City, and that, as a result of the collision, some of
the passengers of the M/V Don Juan died. Petitioner, however,
denied that the four relatives of private respondents actually
boarded the vessel as shown by the fact that their bodies were
never recovered. Petitioner further averred that the Don Juan was
seaworthy and manned by a full and competent crew, and that
the collision was entirely due to the fault of the crew of the M/T
Tacloban City.
On January 20, 1986, the PNOC and petitioner Negros Navigation
Co., Inc. entered into a compromise agreement whereby petitioner
assumed full responsibility for the payment and satisfaction of all
claims arising out of or in connection with the collision and
releasing the PNOC and the PNOC/STC from any liability to it.
The agreement was subsequently held by the trial court to be
binding upon petitioner, PNOC and PNOC/STC. Private
respondents did not join in the agreement.
After trial, the court rendered judgment on February 21, 1991,
the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of the plaintiffs, ordering all the defendants to
pay jointly and severally to the plaintiffs damages as follows:
To Ramon Miranda:
P42,025.00 for actual damages;
P152,654.55 as compensatory damages for loss of
earning capacity of his wife;
P90,000.00 as compensatory damages for
wrongful death of three (3) victims;
P300,000.00 as moral damages;
P50,000.00 as exemplary damages, all in the total
amount of P634,679.55; and
P40,000.00 as attorneys fees.
To Spouses Ricardo and Virginia de la Victoria:
P12,000.00 for actual damages;
P158,899.00 as compensatory damages for loss of
earning capacity;
P30,000.00 as compensatory damages for wrongful death;
P100,000.00 as moral damages;
P20,000.00 as exemplary damages, all in the total
amount of P320,899.00; and
P15,000.00 as attorneys fees.
On appeal, the Court of Appealsiii[1] affirmed the decision of the
Regional Trial Court with modification
1. Ordering and sentencing defendants-appellants, jointly and
severally, to pay plaintiff-appellee Ramon Miranda the amount of
P23,075.00 as actual damages instead of P42,025.00;
2. Ordering and sentencing defendants-appellants, jointly and
severally, to pay plaintiff-appellee Ramon Miranda the amount of
P150,000.00, instead of P90,000.00, as compensatory damages
for the death of his wife and two children;
3. Ordering and sentencing defendants-appellants, jointly and
severally, to pay plaintiffs-appellees Dela Victoria spouses the
amount of P50,000.00, instead of P30,000.00, as compensatory
damages for the death of their daughter Elfreda Dela Victoria;
Hence this petition, raising the following issues:
(1) whether the members of private respondents families were
actually passengers of the Don Juan;
(2) whether the ruling in Mecenas v. Court of Appeals,iii[2] finding
the crew members of petitioner to be grossly negligent in the
performance of their duties, is binding in this case;
(3) whether the total loss of the M/V Don Juan extinguished
petitioners liability; and
(4) whether the damages awarded by the appellate court are
excessive, unreasonable and unwarranted.

First. The trial court held that the fact that the victims were
passengers of the M/V Don Juan was sufficiently proven by
private respondent Ramon Miranda, who testified that he
purchased tickets numbered 74411, 74412, 74413, and 74414
at P131.30 each from the Makati office of petitioner for Voyage
No. 47-A of the M/V Don Juan, which was leaving Manila on April
22, 1980. This was corroborated by the passenger manifest (Exh.
E) on which the numbers of the tickets and the names of Ardita
Miranda and her children and Elfreda de la Victoria appear.
Petitioner contends that the purchase of the tickets does not
necessarily mean that the alleged victims actually took the trip.
Petitioner asserts that it is common knowledge that passengers
purchase tickets in advance but do not actually use them. Hence,
private respondent should also prove the presence of the victims
on the ship. The witnesses who affirmed that the victims were on
the ship were biased and unreliable.
This contention is without merit. Private respondent Ramon
Miranda testified that he personally took his family and his niece
to the vessel on the day of the voyage and stayed with them on
the ship until it was time for it to leave. There is no reason he
should claim members of his family to have perished in the
accident just to maintain an action. People do not normally lie
about so grave a matter as the loss of dear ones. It would be more
difficult for private respondents to keep the existence of their
relatives if indeed they are alive than it is for petitioner to show
the contrary. Petitioners only proof is that the bodies of the
supposed victims were not among those recovered from the site
of the mishap. But so were the bodies of the other passengers
reported missing not recovered, as this Court noted in the
Mecenasiii[3] case.
Private respondent Mirandas testimony was corroborated by
Edgardo Ramirez. Ramirez was a seminarian and one of the
survivors of the collision. He testified that he saw Mrs. Miranda
and Elfreda de la Victoria on the ship and that he talked with
them. He knew Mrs. Miranda who was his teacher in the grade
school. He also knew Elfreda who was his childhood friend and
townmate. Ramirez said he was with Mrs. Miranda and her
children and niece from 7:00 p.m. until 10:00 p.m. when the
collision happened and that he in fact had dinner with them.
Ramirez said he and Elfreda stayed on the deck after dinner and
it was there where they were jolted by the collision of the two
vessels. Recounting the moments after the collision, Ramirez
testified that Elfreda ran to fetch Mrs. Miranda. He escorted her
to the room and then tried to go back to the deck when the lights
went out. He tried to return to the cabin but was not able to do
so because it was dark and there was a stampede of passengers
from the deck.
Petitioner casts doubt on Ramirez testimony, claiming that
Ramirez could not have talked with the victims for about three
hours and not run out of stories to tell, unless Ramirez had a
storehouse of stories. But what is incredible about acquaintances
thrown together on a long journey staying together for hours on
end, in idle conversation precisely to while the hours away?
Petitioner also points out that it took Ramirez three (3) days
before he finally contacted private respondent Ramon Miranda to
tell him about the fate of his family. But it is not improbable that
it took Ramirez three days before calling on private respondent
Miranda to tell him about the last hours of Mrs. Miranda and her
children and niece, in view of the confusion in the days following
the collision as rescue teams and relatives searched for survivors.
Indeed, given the facts of this case, it is improper for petitioner to
even suggest that private respondents relatives did not board the
ill-fated vessel and perish in the accident simply because their
bodies were not recovered.
Second. In finding petitioner guilty of negligence and in failing to
exercise the extraordinary diligence required of it in the carriage
of passengers, both the trial court and the appellate court relied
on the findings of this Court in Mecenas v. Intermediate Appellate
Court,iii[4] which case was brought for the death of other
passengers. In that case it was found that although the proximate
cause of the mishap was the negligence of the crew of the M/T
Tacloban City, the crew of the Don Juan was equally negligent as
it found that the latters master, Capt. Rogelio Santisteban, was
playing mahjong at the time of collision, and the officer on watch,
Senior Third Mate Rogelio De Vera, admitted that he failed to call
the attention of Santisteban to the imminent danger facing them.
This Court found that Capt. Santisteban and the crew of the M/V
Don Juan failed to take steps to prevent the collision or at least
delay the sinking of the ship and supervise the abandoning of the
ship.
Petitioner Negros Navigation was found equally negligent in
tolerating the playing of mahjong by the ship captain and other
crew members while on board the ship and failing to keep the
M/V Don Juan seaworthy so much so that the ship sank within
10 to 15 minutes of its impact with the M/T Tacloban City.
In addition, the Court found that the Don Juan was overloaded.
The Certificate of Inspection, dated August 27, 1979, issued by
the Philippine Coast Guard Commander at Iloilo City stated that
the total number of persons allowed on the ship was 864, of whom
810 are passengers, but there were actually 1,004 on board the
vessel when it sank, 140 persons more than the maximum
number that could be safely carried by it.
Taking these circumstances together, and the fact that the M/V
Don Juan, as the faster and better-equipped vessel, could have
avoided a collision with the PNOC tanker, this Court held that
even if the Tacloban City had been at fault for failing to observe
an internationally-recognized rule of navigation, the Don Juan
was guilty of contributory negligence. Through Justice Feliciano,
this Court held:
The grossness of the negligence of the Don Juan is underscored
when one considers the foregoing circumstances in the context of
the following facts: Firstly, the Don Juan was more than twice as
fast as the Tacloban City. The Don Juans top speed was 17 knots;
while that of the Tacloban City was 6.3. knots. Secondly, the Don
Juan carried the full complement of officers and crew members
specified for a passenger vessel of her class. Thirdly, the Don
Juan was equipped with radar which was functioning that night.
Fourthly, the Don Juans officer on-watch had sighted the
Tacloban City on his radar screen while the latter was still four
(4) nautical miles away. Visual confirmation of radar contact was
established by the Don Juan while the Tacloban City was still 2.7
miles away. In the total set of circumstances which existed in the
instant case, the Don Juan, had it taken seriously its duty of
extraordinary diligence, could have easily avoided the collision
with the Tacloban City. Indeed, the Don Juan might well have
avoided the collision even if it had exercised ordinary diligence
merely.
It is true that the Tacloban City failed to follow Rule 18 of the
International Rules of the Road which requires two (2) power-
driven vessels meeting end on or nearly end on each to alter her
course to starboard (right) so that each vessel may pass on the
port side (left) of the other. The Tacloban City, when the two (2)
vessels were only three-tenths (0.3) of a mile apart, turned (for
the second time) 15o to port side while the Don Juan veered hard
to starboard. . . . [But] route observance of the International Rules
of the Road will not relieve a vessel from responsibility if the
collision could have been avoided by proper care and skill on her
part or even by a departure from the rules.
In the petition at bar, the Don Juan having sighted the Tacloban
City when it was still a long way off was negligent in failing to take
early preventive action and in allowing the two (2) vessels to come
to such close quarters as to render the collision inevitable when
there was no necessity for passing so near to the Tacloban City
as to create that hazard or inevitability, for the Don Juan could
choose its own distance. It is noteworthy that the Tacloban City,
upon turning hard to port shortly before the moment of collision,
signalled its intention to do so by giving two (2) short blasts with
its horn. The Don Juan gave no answering horn blast to signal its
own intention and proceeded to turn hard to starboard.
We conclude that Capt. Santisteban and Negros Navigation are
properly held liable for gross negligence in connection with the
collision of the Don Juan and Tacloban City and the sinking of
the Don Juan leading to the death of hundreds of passengers. . .
.iii[5]
Petitioner criticizes the lower courts reliance on the Mecenas case,
arguing that, although this case arose out of the same incident
as that involved in Mecenas, the parties are different and trial was
conducted separately. Petitioner contends that the decision in
this case should be based on the allegations and defenses pleaded
and evidence adduced in it or, in short, on the record of this case.
The contention is without merit. What petitioner contends may
be true with respect to the merits of the individual claims against
petitioner but not as to the cause of the sinking of its ship on
April 22, 1980 and its liability for such accident, of which there
can only be one truth. Otherwise, one would be subscribing to

the sophistry: truth on one side of the Pyrenees, falsehood on the
other!
Adherence to the Mecenas case is dictated by this Courts policy
of maintaining stability in jurisprudence in accordance with the
legal maxim stare decisis et non quieta movere (Follow past
precedents and do not disturb what has been settled.) Where, as
in this case, the same questions relating to the same event have
been put forward by parties similarly situated as in a previous
case litigated and decided by a competent court, the rule of stare
decisis is a bar to any attempt to relitigate the same issue.iii[6] In
Woulfe v. Associated Realties Corporation,iii[7] the Supreme Court
of New Jersey held that where substantially similar cases to the
pending case were presented and applicable principles declared
in prior decisions, the court was bound by the principle of stare
decisis. Similarly, in State ex rel. Tollinger v. Gill,iii[8] it was held
that under the doctrine of stare decisis a ruling is final even as to
parties who are strangers to the original proceeding and not
bound by the judgment under the res judicata doctrine. The
Philadelphia court expressed itself in this wise: Stare decisis
simply declares that, for the sake of certainty, a conclusion
reached in one case should be applied to those which follow, if
the facts are substantially the same, even though the parties may
be different.iii[9] Thus, in J. M. Tuason v. Mariano, supra, this
Court relied on its rulings in other cases involving different
parties in sustaining the validity of a land title on the principle of
stare decisis et non quieta movere.
Indeed, the evidence presented in this case was the same as those
presented in the Mecenas case, to wit:
Document Mecenas
case This case
Decision of Commandant
Exh. 10iii[10] Exh. 11-B-
NN/X
Phil. Coast Guard in BMI Case
No. 415-80 dated 3/26/81
Decision of the Minister Exh. 11iii[11]
Exh. ZZ
of National Defense dated 3/12/82
Resolution on the motion Exh. 13iii[12]
Exh. AAA
for reconsideration of the
(private respondents)
decision of the Minister of
National Defense dated 7/24/84
Certificate of inspection Exh. 1-Aiii[13]
Exh. 19-NN
dated 8/27/79
Certificate of Stability Exh. 6-Aiii[14]
Exh. 19-D-NN
dated 12/16/76
Nor is it true that the trial court merely based its decision on the
Mecenas case. The trial court made its own independent findings
on the basis of the testimonies of witnesses, such as Senior Third
Mate Rogelio de Vera, who incidentally gave substantially the
same testimony on petitioners behalf before the Board of Marine
Inquiry. The trial court agreed with the conclusions of the then
Minister of National Defense finding both vessels to be negligent.
Third. The next issue is whether petitioner is liable to pay
damages notwithstanding the total loss of its ship. The issue is
not one of first impression. The rule is well-entrenched in our
jurisprudence that a shipowner may be held liable for injuries to
passengers notwithstanding the exclusively real and hypothecary
nature of maritime law if fault can be attributed to the
shipowner.iii[15]
In Mecenas, this Court found petitioner guilty of negligence in (1)
allowing or tolerating the ship captain and crew members in
playing mahjong during the voyage, (2) in failing to maintain the
vessel seaworthy and (3) in allowing the ship to carry more
passengers than it was allowed to carry. Petitioner is, therefore,
clearly liable for damages to the full extent.
Fourth. Petitioner contends that, assuming that the Mecenas case
applies, private respondents should be allowed to claim only
P43,857.14 each as moral damages because in the Mecenas case,
the amount of P307,500.00 was awarded to the seven children of
the Mecenas couple. Under petitioners formula, Ramon Miranda
should receive P43,857.14, while the De la Victoria spouses
should receive P97,714.28.
Here is where the principle of stare decisis does not apply in view
of differences in the personal circumstances of the victims. For
that matter, differentiation would be justified even if private
respondents had joined the private respondents in the Mecenas
case. The doctrine of stare decisis works as a bar only against
issues litigated in a previous case. Where the issue involved was
not raised nor presented to the court and not passed upon by the
court in the previous case, the decision in the previous case is
not stare decisis of the question presently presented.iii[16] The
decision in the Mecenas case relates to damages for which
petitioner was liable to the claimants in that case.
In the case at bar, the award of P300,000.00 for moral damages
is reasonable considering the grief petitioner Ramon Miranda
suffered as a result of the loss of his entire family. As a matter of
fact, three months after the collision, he developed a heart
condition undoubtedly caused by the strain of the loss of his
family. The P100,000.00 given to Mr. and Mrs. de la Victoria is
likewise reasonable and should be affirmed.
As for the amount of civil indemnity awarded to private
respondents, the appellate courts award of P50,000.00 per victim
should be sustained. The amount of P30,000.00 formerly set in
De Lima v. Laguna Tayabas Co.,iii[17] Heirs of Amparo delos
Santos v. Court of Appeals,iii[18] and Philippine Rabbit Bus Lines,
Inc. v. Intermediate Appellate Courtiii[19] as benchmark was
subsequently increased to P50,000.00 in the case of Sulpicio
Lines, Inc. v. Court of Appeals,iii[20] which involved the sinking of
another interisland ship on October 24, 1988.
We now turn to the determination of the earning capacity of the
victims. With respect to Ardita Miranda, the trial court awarded
damages computed as follows:iii[21]
In the case of victim Ardita V. Miranda whose age at the time of
the accident was 48 years, her life expectancy was computed to
be 21.33 years, and therefore, she could have lived up to almost
70 years old. Her gross earnings for 21.33 years based on
P10,224.00 per annum, would be P218,077.92. Deducting
therefrom 30% as her living expenses, her net earnings would be
P152,654.55, to which plaintiff Ramon Miranda is entitled to
compensatory damages for the loss of earning capacity of his wife.
In considering 30% as the living expenses of Ardita Miranda, the
Court takes into account the fact that plaintiff and his wife were
supporting their daughter and son who were both college
students taking Medicine and Law respectively.
In accordance with the ruling in Villa-Rey Transit, Inc. v. Court of
Appeals,iii[22] we think the life expectancy of Ardita Miranda was
correctly determined to be 21.33 years, or up to age 69. Petitioner
contends, however, that Mrs. Miranda would have retired from
her job as a public school teacher at 65, hence her loss of earning
capacity should be reckoned up to 17.33 years only.
The accepted formula for determining life expectancy is 2/3
multiplied by (80 minus the age of the deceased). It may be that
in the Philippines the age of retirement generally is 65 but, in
calculating the life expectancy of individuals for the purpose of
determining loss of earning capacity under Art. 2206(1) of the
Civil Code, it is assumed that the deceased would have earned
income even after retirement from a particular job. In this case,
the trial court took into account the fact that Mrs. Miranda had
a masters degree and a good prospect of becoming principal of
the school in which she was teaching. There was reason to believe
that her income would have increased through the years and she
could still earn more after her retirement, e.g., by becoming a
consultant, had she not died. The gross earnings which Mrs.
Miranda could reasonably be expected to earn were it not for her
untimely death was, therefore, correctly computed by the trial
court to be P218,077.92 (given a gross annual income of
P10,224.00 and life expectancy of 21.33 years).
Petitioner contends that from the amount of gross earnings, 60%
should be deducted as necessary living expenses, not merely 30%
as the trial court allowed. Petitioner contends that 30% is
unrealistic, considering that Mrs. Mirandas earnings would have
been subject to taxes, social security deductions and inflation.
 Exemplary damages are designed by our civil law to permit the
We agree with this contention. In Villa-Rey Transit, Inc. v. Court of courts to reshape behaviour that is socially deleterious in its
Appeals,iii[23] the Court allowed a deduction of P1,184.00 for consequence by creating negative incentives or deterrents against
such behaviour. In requiring compliance with the standard of
living expenses from the P2,184.00 annual salary of the victim,
extraordinary diligence, a standard which is in fact that of the
which is roughly 54.2% thereof. The deceased was 29 years old
highest possible degree of diligence, from common carriers and in
and a training assistant in the Bacnotan Cement Industries. In
People v. Quilaton,iii[24] the deceased was a 26-year old laborer creating a presumption of negligence against them, the law seeks
to compel them to control their employees, to tame their reckless
earning a daily wage. The court allowed a deduction of
instincts and to force them to take adequate care of human beings
P120,000.00 which was 51.3% of his annual gross earnings of
P234,000.00. In People v. Teehankee,iii[25] the court allowed a and their property. The Court will take judicial notice of the
deduction of P19,800.00, roughly 42.4% thereof from the dreadful regularity with which grievous maritime disasters occur
in our waters with massive loss of life. The bulk of our population
deceaseds annual salary of P46,659.21. The deceased, Maureen
is too poor to afford domestic air transportation. So it is that
Hultman, was 17 years old and had just received her first
notwithstanding the frequent sinking of passenger vessels in our
paycheck as a secretary. In the case at bar, we hold that a
deduction of 50% from Mrs. Mirandas gross earnings waters, crowds of people continue to travel by sea. This Court is
prepared to use the instruments given to it by the law for securing
(P218,077.92) would be reasonable, so that her net earning
the ends of law and public policy. One of those instruments is the
capacity should be P109,038.96. There is no basis for supposing
institution of exemplary damages; one of those ends, of special
that her living expenses constituted a smaller percentage of her
gross income than the living expenses in the decided cases. To importance in an archipelagic state like the Philippines, is the
safe and reliable carriage of people and goods by sea.iii[28]
hold that she would have used only a small part of her income for
herself, a larger part going to the support of her children would WHEREFORE, the decision of the Court of Appeals is AFFIRMED
be conjectural and unreasonable. with modification and petitioner is ORDERED to pay private
respondents damages as follows:
As for Elfreda de la Victoria, the trial court found that, at the time
of her death, she was 26 years old, a teacher in a private school To private respondent Ramon Miranda:
in Malolos, Bulacan, earning P6,192.00 per annum. Although a
probationary employee, she had already been working in the P23,075.00 for actual damages;
school for two years at the time of her death and she had a general P109,038.96 as compensatory
efficiency rating of 92.85% and it can be presumed that, if not for damages for loss of earning
her untimely death, she would have become a regular teacher. capacity of his wife;
Hence, her loss of earning capacity is P111,456.00, computed as
follows: P150,000.00 as compensatory
damages for wrongful death
net earning capacity (x) = life expectancy x [ gross annual income of three (3) victims;
less reasonable & necessary living expenses (50%) ]
P300,000.00 as moral damages;
x = [ 2 (80-26) ] x [P6,192.00 - P3,096.00]
P300,000.00 as exemplary
3 damages, all in the total
= 36 x 3,096.00 amount of P882,113.96;
and
= P111,456.00
P40,000.00 as attorneys fees.
On the other hand, the award of actual damages in the amount
of P23,075.00 was determined by the Court of Appeals on the To private respondents Spouses Ricardo and Virginia de la
basis of receipts submitted by private respondents. This amount Victoria:
is reasonable considering the expenses incurred by private P12,000.00 for actual damages;
respondent Miranda in organizing three search teams to look for
his family, spending for transportation in going to places such as P111,456.00 as compensatory
Batangas City and Iloilo, where survivors and the bodies of other damages for loss of earning
victims were found, making long distance calls, erecting a capacity;
monument in honor of the four victims, spending for obituaries P50,000.00 as compensatory damages for
in the Bulletin Today and for food, masses and novenas. wrongful death;
Petitioners contention that the expenses for the erection of a P100,000.00 as moral damages;
monument and other expenses for memorial services for the
victims should be considered included in the indemnity for death P100,000.00 as exemplary
awarded to private respondents is without merit. Indemnity for damages, all in the total
death is given to compensate for violation of the rights of the amount of P373,456.00;
deceased, i.e., his right to life and physical integrity.iii[26] On the and
other hand, damages incidental to or arising out of such death P15,000.00 as attorneys fees.
are for pecuniary losses of the beneficiaries of the deceased.
Petitioners are further ordered to pay costs of suit.
As for the award of attorneys fees, we agree with the Court of
Appeals that the amount of P40,000.00 for private respondent In the event the Philippine National Oil Company and/or the
Ramon Miranda and P15,000.00 for the de la Victoria spouses is PNOC Shipping and Transport Corporation pay or are required to
justified. The appellate court correctly held: pay all or a portion of the amounts adjudged, petitioner Negros
Navigation Co., Inc. shall reimburse either of them such amount
The Mecenas case cannot be made the basis for determining the or amounts as either may have paid, and in the event of failure of
award for attorneys fees. The award would naturally vary or differ Negros Navigation Co., Inc., to make the necessary
in each case. While it is admitted that plaintiff-appellee Ramon reimbursement, PNOC and/or PNOC/STC shall be entitled to a
Miranda who is himself a lawyer, represented also plaintiffs- writ of execution without need of filing another action.
appellees Dela Victoria spouses, we note that separate
testimonial evidence were adduced by plaintiff-appellee Ramon SO ORDERED.
Miranda (TSN, February 26, 1982, p. 6) and plaintiffs-appellees Regalado, (Chairman), and Puno, JJ., concur.
spouses Dela Victoria (TSN, August 13, 1981, p. 43). Considering
the amount of work and effort put into the case as indicated by SECOND DIVISION
the voluminous transcripts of stenographic notes, we find no G.R. No. L-48264 February 21, 1980
reason to disturb the award of P40,000.00 for plaintiff-appellee
Ramon Miranda and P15,000.00 for plaintiffs-appellees Dela SWITZERLAND GENERAL INSURANCE COMPANY, LTD.,
Victoria spouses.iii[27] Petitioner, vs. HON. PEDRO A. RAMIREZ, Presiding Judge of
the Court of First Instance of Manila, Branch XXX, OYAMA
The award of exemplary damages should be increased to LINES, CITADEL LINES and MABUHAY BROKERAGE CO.,
P300,000.00 for Ramon Miranda and P100,000.00 for the de la INC., Respondents.
Victoria spouses in accordance with our ruling in the Mecenas
case:

Manuel N. Camacho, for petitioner.chanrobles virtual law library
Bito, Misa & Lozada for respondents Oyama Lines and Citadel
Lines.chanrobles virtual law library
Gregorio Gonzales for respondent Company.
ANTONIO, J.:
Petition for review of the decision, dated February 24, 1978 of the
Court of First Instance of Manila in Civil Case No. 100704,
entitled "Switzerland General Insurance Co., Ltd. v. Oyama Lines
and Citadel Lines, and/or Mabuhay Brokerage Co., Inc."
On December 24, 1975, petitioner, a foreign insurance company
authorized to do business in the Philippines thru its agent, F. E.
Zuellig Inc., filed an admiralty case (Civil Case No. 100704)
against private respondents Oyama Shipping Co., Ltd. (referred
to as Oyama Lines), a foreign firm doing business in the
Philippines, and Citadel Lines, Inc. which is the local agent of
private, respondent Oyama Shipping Co., Inc. and/or Mabuhay
Brokerage Co., Inc.chanroblesvirtualawlibrary chanrobles virtual
law library
The complaint alleged that on December 21, 1974, 60,000 bags
of Urea Nitrogen were shipped from Niihama Japan, on board the
S/S St. Lourdes", claimed to be owned and operated by defendant
Citadel Lines, Inc. The goods were consigned to Borden
International Phils., Inc., and insured by petitioner for the sum
of P9,319,105.00 against all risks.chanroblesvirtualawlibrary
chanrobles virtual law library
The shipment was discharged from the vessel S/S "St. Lourdes"
shipside into lighters owned by Mabuhay Brokerage Company,
Inc., but when the same was subsequently delivered to and
received by the consignee, it was found to have sustained losses
and/or damage amounting to P38.698.94. This amount was paid
by petitioner insurance company to the consignee/assured, by
virtue of which payment it became subrogated to the rights of the
latter.chanroblesvirtualawlibrary chanrobles virtual law library
Petitioner made repeated demands against herein private
respondents for payment of the aforesaid losses or damaged but
no payment was made and, uncertain in whose custody the goods
were damaged, impleaded the private respondents as alternative
defendants to determine their respective
liability.chanroblesvirtualawlibrary chanrobles virtual law library
Defendant Citadel Lines, Inc. filed an Answer with Compulsory
Counterclaim and Cross-claim, interposing special and
affirmative defenses and alleging that defendant Citadel Lines
was merely the civil agent in the Philippines for the Japanese firm
Oyama Shipping Co., Ltd., which was the charterer of the vessel
S/S "St. Lourdes", said vessel being owned by Companies
Maritime de Brios, Sociedad Anonima a Panamanian corporation.
It was further alleged that the principal agency relationship
between the said Oyama Shipping Co., Ltd. and defendant Citadel
Lines, Inc. was terminated on August 21, 1975 when the Tokyo
District Court declared and decreed the insolvency of the said
Oyama Shipping Co., Ltd.chanroblesvirtualawlibrary chanrobles
virtual law library
It was argued that defendant Citadel Lines "has always acted as
an agent of a disclosed principal and, therefore, the herein
defendant is without any liability at all" in connection with the
plaintiff's claim.chanroblesvirtualawlibrary chanrobles virtual
law library
By way of cross-claim, defendant Citadel Lines alleged that the
loss/damaged to the cargo took place while the latter was being
delivered to the consignee thereof by the Mabuhay Brokerage, Inc.
and said corporation should be held liable therefor, as well as for
all damages suffered and expenses incurred by defendant Citadel
Lines as a result of the filing of the suit. Defendant likewise
interposed a counterclaim for damages against plaintiff
Switzerland General Insurance Company, Ltd. (herein
petitioner).chanroblesvirtualawlibrary chanrobles virtual law
library
Defendant Oyama Shipping Co. Ltd. likewise filed its Answer,
denying the material averments of the complaint, alleging that it
ceased to be represented in the Philippines upon the declaration
of its insolvency by the Tokyo Court; that it was a mere charterer
of the S/S "St. Lourdes" which is owned by Companies Maritime
de Brios, Sociedad Anonima a Panamanian corporation; that due
to the insolvency of Oyama Shipping Co. Ltd., the case as against
it should be dismissed, the remedy for the plaintiff being to file its
claim before the insolvency court in Tokyo, Japan. Further, it
imputed the loss or damage to the shipment to the shipper,
Sumitomo Shoji Kaisha, Ltd. for failing to provide seaworthy
packages for the goods, and/or the Mabuhay Brokerage for
failure to exercise utmost diligence after it took possession of the
cargo from the vessel S/S "St. Lourdes". Finally, it was averred
that plaintiff's reinsurer had already paid the plaintiff's claim and,
hence, said reinsurer is the real party to the action, and that
assumming defendant Oyama Shipping Co., Ltd. to be liable, its
liability is limited to the amount of the loss in relation to the total
amount of the freight of the goods, which if computed, would be
a much lower amount. It was prayed that the complaint be
dismissed as against this defendant.chanroblesvirtualawlibrary
chanrobles virtual law library
After trial on the merits, respondent court rendered a decision,
dated February 23, 1978, in favor of petitioner as against therein
defendant Oyama Shipping Co., Ltd., but absolving Citadel Lines,
Inc. and Mabuhay Brokerage Co., Inc. from liability. The decision
reads, in part, as follows: chanrobles virtual law library
Since in the case at bar there is no question that the shipment in
question has suffered loss or damage while in the custody of the
carrier, the herein defendant Oyama Line, but it has not adduced
evidence to prove that it was caused by any of those factors or
reasons exempting it from liability, particularly that the bags
became torn or burst and the contents spilled because of the
character of the shipment or defects in the packing or in the
containers, or the nature or defect of the article itself. the
defendant Oyama Line, as carrier, cannot avoid liability to the
consignee or its subrogee the plaintiff
herein.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant Oyama Line pleads prescription of the plaintiff's
cause of action under Article 366 of the Code of Commerce. The
defense is untenable. to begin with, the required claim that the
owner of merchandise is supposed to make within 24 hours from
receipt is but in the nature of a limitation upon his right to
recovery and the burden of proof is accordingly on the carrier to
show that the limitation is reasonable and in proper form or
without the time stated (Southern Lines, Inc. vs. Court of Appeals,
4 SCRA 258, 261-262). And it is incumbent upon the said
defendant to prove its defense, particularly that no such claim
was filed within the required period. Without such proof of a
negative allegation, which it has failed to adduce, the pleader
must suffer defeat under the rules of evidence (section 1, Rule
131, Revised Rules of Court). Be that as it may, the survey report
submitted in evidence by the plaintiff states that after completion
of delivery the consignee signified its 'intention to file a claim for
the full value of the loss sustained by the shipment' (Exhibits 1,
1-1 to 1-5), a fact that has not at all been refuted by the defendant
Oyama Line.chanroblesvirtualawlibrary chanrobles virtual law
library
The fact that the defendant Oyama Line has been declared
insolvent by the Tokyo District Court of Japan since August 21,
1975, is no defense at all. For such declaration of insolvency, even
under Philippine Laws, does not bar recovery of damages based
on contract. Neither can it successfully ward off liability on a
claim that it is a mere charterer of the carrying vessel, having
represented on the face of the bill of lading as the carrier itself
(Exhibit A; Exhibit 1-Oyama) And even if it is but a charterer of
the vessel that it claims it is, it cannot avoid its liability as a
carrier for loss and damage suffered by the goods it has
transported.chanroblesvirtualawlibrary chanrobles virtual law
library
As a mere agent in the Philippines of the defendant Oyama Line,
the defendant Citadel Line (see paragraph 1, complaint) cannot
be held liable for the damages recoverable from its principal. But
for failure to substantiate it, its counterclaim against the plaintiff
should be dismissed. So must its crossclaim against its co-
defendant brokerage company be dismissed since it has not at all
been held liable to the plaintiff.chanroblesvirtualawlibrary
chanrobles virtual law library
Neither can the defendant Mabuhay Brokerage Company, Inc. be
held answerable for the loss and damage sustained by the cargo
in question while still in custody of the carrying vessel, for
obvious reasons. Nor can it be made liable, jointly and severally,
with the defendant Oyama Line for further loss and damage to
the contents of the torn or burst bags turned over to its custody
in that condition in view of the required extraordinary diligence
that it has observed to prevent further loss or damage to them.

According to the defendant brokerage's witness, Virgilio de Jesus,
as soon as the bags in bad order were received from the lighters
they were tied and the torn parts sewed the falsity of which the
plaintiff has failed to prove.chanroblesvirtualawlibrary
chanrobles virtual law library
WHEREFORE, the Court hereby renders judgment in favor of the
plaintiff Switzerland General Insurance Company, Ltd. and
against the defendant Oyama Line, ordering the latter to pay the
former the amount of P38,698.94, with interest thereon at the
legal rate from the date of the filing of the complaint on December
24, 1975, until fully paid, P5,000.00 as attorney's fees and the
costs of the suit. The plaintiff's complaint against the defendants
Citadel Line and Mabuhay Brokerage Company, Inc. are
dismissed. So is the defendant Citadel Lines' counterclaim
against the plaintiff and crossclaim against its co-defendant
brokerage company dismissed.
Petitioner filed a Motion for Reconsideration of the aforesaid
decision insofar as it absolves respondents Citadel Lines, Inc. and
Mabuhay Brokerage Co., Inc. from liability, but said Motion for
Reconsideration was denied on April 21, 1979; hence, the instant
petition for review.chanroblesvirtualawlibrary chanrobles virtual
law library
The main issue raised in the instant petition is whether or not
respondent Citadel Lines, Inc., the local agent of a foreign ocean
going vessel, the S/S "St. Lourdes", may be held primarily liable
for the loss/damage found to have been sustained by subject
shipment while on board and/or still in the custody of the said
vessel.chanroblesvirtualawlibrary chanrobles virtual law library
Petitioner contends that respondent Citadel Lines, Inc., being the
ship agent for the vessel S/S "St. Lourdes", is liable under the
pertinent provisions of the Code of Commerce and applicable
jurisprudence.chanroblesvirtualawlibrary chanrobles virtual law
library
Respondent Citadel Lines, Inc., in its Comment to the petition,
alleges that the lower court had made a finding that it is a mere
agent of Oyama Shipping Co., Ltd., and not a ship agent, and
this, being a finding of fact, can no longer be questioned in the
instant proceedings. Further, it argues that the provisions of the
Code of Commerce relied upon by petitioner are applicable to a
ship agent, but not to a mere agent like private respondent, and
that granting that it is a ship agent, it contends that it should not
be held liable because the principal, Oyama Shipping Co., Ltd.
has been declared insolvent. it is claimed that petitioner, upon
being informed of the insolvency of the Oyama Shipping Co., Ltd.,
should have filed its claim before the Trustee of the Oyama
Shipping Co., Ltd. in Japan.chanroblesvirtualawlibrary
chanrobles virtual law library
In fine, private respondents do not dispute that a ship agent is
liable to third persons under certain circumstances as provided
in the Code of Commerce, but insists that it is not a ship agent
but a mere agent and hence, not
liable.chanroblesvirtualawlibrary chanrobles virtual law library
We find the instant petition meritorious the error of the lower
court lies in its application of the general rule on agency to the
case a quo, when the applicable law is contained in the pertinent
provisions of the Code of Commerce as applied in relevant
decisions of this Court. Its finding. therefore, that respondent
Citadel Lines, Inc. was a mere agent of Oyama Shipping Co., Ltd.
was a result of its erroneous application of the law of agency to
the instant case. Considering the relationship of the parties,
respondent Citadel Lines, Inc. cannot be considered as a "mere
agent" under the civil law on agency as distinguished from a ship
agent, within the context of the Code of Commerce. In Yu Biao
Sontua & Co. v. Ossorio, 1 for example, it was held that the
doctrines having reference to the relations Between principal and
agent cannot be applied in the case of ship agents and ship
owners. For this reason, respondent cannot validly claim that the
court a quo made a finding of fact which is conclusive upon this
Court. A ship agent, according to Article 586 of the Code of
Commerce, is the person entrusted with the provisioning of a
vessel or who represents her in the port in which she happens to
be." (Emphasis supplied.) chanrobles virtual law library
It is not disputed by the private respondent that it is the local
representative in the Philippines of the Oyama Shipping Co., Ltd.
and, as alleged by petitioner, upon arrival of the vessel S/S "St.
Lourdes" in Manila, it took charge of the unloading of the cargo
and issued cargo receipts (or tally sheets) in its own name, for the
purpose of evidencing discharge of cargoes and the conditions
thereof from the vessel to the arrastre operators and/or unto
barges/lighters, and that claims against the vessel S/S "St.
Lourdes" for losses/damages sustained by shipments were in fact
filed and processed by respondent Citadel Lines, Inc. These facts
point to the inevitable conclusion that private respondent is the
entity that represents the vessel in the port of Manila and hence
is a ship agent within the meaning and context of Article 586 of
the Code of Commerce.chanroblesvirtualawlibrary chanrobles
virtual law library
The Code of Commerce provides, among others, that the ship
agent shall also be 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 freightage he may have earned during the voyage. (Article
587).chanroblesvirtualawlibrary chanrobles virtual law library
In addition, Article 618 of the same Code states: chanrobles
virtual law library
Art. 618. The captain shall be civilly liable to the ship agent and
the latter to the third persons who may have made contracts with
the former - chanrobles virtual law library
1. For all the damages sufferred by the vessel and its cargo by
reason of want of skill or negligence on his part. If a misdemeanor
or crime has been committed he shall be liable in accordance with
the Penal Code.chanroblesvirtualawlibrary chanrobles virtual law
library
2. For all the thefts and robberies committed by the crew,
reserving his right of action against the guilty
parties.chanroblesvirtualawlibrary chanrobles virtual law library
3. For the losses, fines, and confiscations imposed on account of
violation. of the laws and regulations of customs, police, health,
and navigation chanrobles virtual law library
4. For the losses and damages caused by mutinies on board the
vessel or by reason of faults committed by the crew in the service
and defense of the same, if he does not prove Chat, he made full
use of his authority to prevent or avoid
them.chanroblesvirtualawlibrary chanrobles virtual law library
5. For those arising by reason of a misuse of powers and non-
fulfillment of the duties which pertain to him in accordance with
Articles 610 and 612.chanroblesvirtualawlibrary chanrobles
virtual law library
6. For those arising by reason of his going out of his course or
taking a course which, in the opinion of the officers of the vessel,
at a meeting attended by the shippers or super cargoes who may
be on board, he should not have taken without sufficient
cause.chanroblesvirtualawlibrary chanrobles virtual law library
No exception whatsoever shall exempt him from his
obligation.chanroblesvirtualawlibrary chanrobles virtual law
library
7. For those arising by reason of his voluntarily entering a port
other than his destination, with the exception of the cases or
without the formalities referred to in Article
612.chanroblesvirtualawlibrary chanrobles virtual law library
8. For those arising by reason of the non-observance of the
provisions contained in the regulations for lights and maneuvers
for the purpose of preventing collisions.
The foregoing provisions have been repeatedly applied by this
Court in various cases, among them: Pons y Compañia v. La
Compania Maritima; 2 Behn, Meyer & Co. v. McMicking, et al.: 3 Yu
Biao Sontua & Co. v. Ossorio, 4 Wing Kee Compradoring Co. v. Bark
"Monongahela" 5 and The American Insurance Co., Inc. v.
Macondray & Co., Inc. 6
In Pons v. La Compania Maritima, supra, it was held that for
damages resulting to merchandize in transit due to negligence of
the officers of the ship, a cause of action arises against the owners
or agents of the vessels which may be prosecuted by the shipper
or consignor the damaged goods.chanroblesvirtualawlibrary
chanrobles virtual law library
At any rate, the liabilities of the ship agent are not disputed by
private respondent. It appearing that the Citadel Lines is the ship
agent for the vessel S/S "St. Lourdes" at the port of Manila, it is,
therefore, liable to the petitioner, solidarily with its principal,
 COURT OF APPEALS, THE HON.
Oyama Shipping Co., Ltd., in an amount representing the value JUDGE REMEGIO E. ZARI, in his
of the goods lost and or damaged, amounting to P38,698.94,
which was likewise the amount paid by petitioner, as insurer, to capacity as Presiding Judge of the
the insured consignee As found by the court a quo, there has RTC, Branch 20; ASIA TRADERS
been no proof presented to show that the officers of the vessel, in
whose custody the goods were lost or damaged, are exempt from INSURANCE CORPORATION,
liability therefrom and that the damage was caused by factors and ALLIED GUARANTEE
and circumstances exempting them from
liability.chanroblesvirtualawlibrary chanrobles virtual law library INSURANCE CORPORATION,

The insolvency of Oyama Lines has no bearing on the instant case Respondents.
insofar as the liability of Citadel Lines, Inc. is concerned. The law
does does not make the liability of the ship agent dependent upon
the solvency or insolvency of the ship x-----------------------------------------x
owner.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the decision appealed from is modified, and
private respondent Citadel Lines, Inc. is hereby ordered to pay,
solidarily with its principal, Oyama Lines (Oyama Shipping Co.,
LTD.), the amount of P38,698.94, with interest thereon at the ABOITIZ SHIPPING CORPORATION, G.R. No. 137801
legal rate from the date of the filing of the complaint on December Petitioner,
24, 1975 until fully paid, P5,000.00 as attorney's fees and the
costs of suit. The rest of the decision is affirmed. No
pronouncement as to costs.chanroblesvirtualawlibrary
- versus -
chanrobles virtual law library
SO ORDERED.
EQUITABLE INSURANCE
Barredo (Chairman), and Concepcion Jr., JJ.,
Promulgated:
concur.chanroblesvirtualawlibrary chanrobles virtual law library
CORPORATION,
Justice Vicente Abad Santos is on
leave.chanroblesvirtualawlibrary chanrobles virtual law library Respondent.
October 17, 2008
Justice Pacifico P. de Castro, a Member of the First Division was
designated to sit in the Second Division.
chanrobles virtual law library
SECOND DIVISION x-----------------------------------------------------------------------------
--x

ABOITIZ SHIPPING CORPORATION, G.R. No. 121833

DECISION
Petitioner,

TINGA, J.:

- versus -
Present:
Before this Court are three consolidated Rule 45
petitions all involving the issue of whether the real and
hypothecary doctrine may be invoked by the shipowner in relation
to the loss of cargoes occasioned by the sinking of M/V P. Aboitiz
COURT OF APPEALS, MALAYAN QUISUMBING, J., on 31 October 1980. The petitions filed by Aboitiz Shipping
Corporation (Aboitiz) commonly seek the computation of its
INSURANCE COMPANY, INC., liability in accordance with the Courts pronouncement in Aboitiz
Chairperson,
Shipping Corporation v. General Accident Fire and Life Assurance
COMPAGNIE MARITIME DES CARPIO Corporation, Ltd.iii[1] (hereafter referred to as the 1993 GAFLAC
MORALES, case).
CHARGEURS REUNIS, and F.E. TINGA,
ZUELLIG (M), INC., The three petitions stemmed from some of the several
*LEONARDO
DE CASTRO, and suits filed against Aboitiz before different regional trial courts by
shippers or their successors-in-interest for the recovery of the
Respondents. monetary value of the cargoes lost, or by the insurers for the
BRION, JJ. reimbursement of whatever they paid. The trial courts awarded
to various claimants the amounts of P639,862.02, P646,926.30,
and P87,633.81 in G.R. Nos. 121833, 130752 and 137801,
x-----------------------------------------x respectively.

ABOITIZ SHIPPING CORPORATION, G.R. No. 130752

Petitioner, ANTECEDENTS

G.R. No. 121833

- versus -
Respondent Malayan Insurance Company, Inc.
(Malayan) filed five separate actions against several defendants
for the collection of the amounts of the cargoes allegedly paid by

Malayan under various marine cargo policiesiii[2] issued to the
insurance claimants. The five civil cases, namely, Civil Cases No.
138761, No. 139083, No. 138762, No. R-81-526 and No. 138879,
were consolidated and heard before the Regional Trial Court
(RTC) of Manila, Branch 54.
The defendants in Civil Case No. 138761 and in Civil
Case No. 139083 were Malayan International Shipping
Corporation, a foreign corporation based in Malaysia, its local
ship agent, Litonjua Merchant Shipping Agency (Litonjua), and
Aboitiz. The defendants in Civil Case No. 138762 were Compagnie
Maritime des Chargeurs Reunis (CMCR), its local ship agent, F.E.
Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filed Civil
Case No. R-81-526 only against CMCR and Zuellig. Thus,
defendants CMCR and Zuellig filed a third-party complaint
against Aboitiz. In the fifth complaint docketed as Civil Case No.
138879, only Aboitiz was impleaded as defendant.
The shipments were supported by their respective bills
of lading and insured separately by Malayan against the risk of
loss or damage. In the five consolidated cases, Malayan sought
the recovery of amounts totaling P639,862.02.
Aboitiz raised the defenses of lack of jurisdiction, lack of
cause of action and prescription. It also claimed that M/V P.
Aboitiz was seaworthy, that it exercised extraordinary diligence
and that the loss was caused by a fortuitous event.
After trial on the merits, the RTC of Manila rendered a
Decision dated 27 November 1989, adjudging Aboitiz liable on the
money claims. The decretal portion reads:
WHEREFORE, judgment is hereby
rendered as follows:
1. In Civil Case No. 138072 (R-81-
526-CV), the defendants are adjudged liable
and ordered to pay to the plaintiffs jointly and
severally the amount of P128,896.79; the
third-party defendant Aboitiz is adjudged
liable to reimburse and ordered to pay the
defendants or whosoever of them paid the
plaintiff up to the said amount;
2. In Civil Case No. 138761, Aboitiz is
adjudged liable and ordered to pay plaintiff the
amount of One Hundred Sixty Three-
Thousand Seven Hundred Thirteen Pesos and
Thirty-Eight Centavos (P163,713.38).
3. In Civil Case No. 138762,
defendant Aboitiz is adjudged liable and
ordered to pay plaintiff the sum of Seventy
Three Thousand Five Hundred Sixty-Nine
Pesos and Ninety-Four Centavos (P73,569.94);
and Sixty-Four Thousand Seven Hundred Four
Pesos and Seventy-Seven Centavos
(P64,704.77);
4. In Civil Case No. 139083,
defendant Aboitiz is adjudged liable and
ordered to pay plaintiff the amount of One
Hundred Fifty-Six Thousand Two Hundred
Eighty-Seven Pesos and Sixty-Four Centavos
(P156,287.64);
In Civil Case No. 138879, defendant
Aboitiz is adjudged liable and ordered to pay
plaintiff the amount of Fifty-Two Thousand Six
Hundred Eighty-Nine Pesos and Fifty Centavos
(P52,689.50).
All the aforesaid award shall bear
interest at the legal rate from the filing of the
respective complaints. Considering that there
is no clear showing that the cases fall under
Article 2208, Nos. 4 and 5, of the Civil Code,
and in consonance with the basic rule that
there be no penalty (in terms of attorneys fees)
imposed on the right to litigate, no damages by
way of attorneys fees are awarded; however,
costs of the party/parties to whom judgment
awards are made shall be made by the party
ordered to pay the said judgment awards.
SO ORDERED.iii[3]
Aboitiz, CMCR and Zuellig appealed the RTC decision to
the Court of Appeals. The appeal was docketed as CA-G.R. SP No.
35975-CV. During the pendency of the appeal, the Court
promulgated the decision in the 1993 GAFLAC case.
On 31 March 1995, the Court of Appeals (Ninth Division)
affirmed the RTC decision. It disregarded Aboitizs argument that
the sinking of the vessel was caused by a force majeure, in view
of this Courts finding in a related case, Aboitiz Shipping
Corporation v. Court of Appeals, et al. (the 1990 GAFLAC
case).iii[4] In said case, this Court affirmed the Court of Appeals
finding that the sinking of M/V P. Aboitiz was caused by the
negligence of its officers and crew. It is one of the numerous
collection suits against Aboitiz, which eventually reached this
Court in connection with the sinking of M/V P. Aboitiz.
As to the computation of Aboitizs liability, the Court of
Appeals again based its ruling on the 1990 GAFLAC case that
Aboitizs liability should be based on the declared value of the
shipment in consonance with the exceptional rule under Section
4(5)iii[5] of the Carriage of Goods by Sea Act.
Aboitiz moved for reconsiderationiii[6] to no avail.
Hence, it filed this petition for review on certiorari docketed as
G.R. No. 121833.iii[7] The instant petition is based on the
following grounds:
THE COURT OF APPEALS SHOULD
HAVE LIMITED THE RECOVERABLE
AMOUNT FROM ASC TO THAT AMOUNT
STIPULATED IN THE BILL OF LADING.
IN THE ALTERNATIVE, THE COURT
OF APPEALS SHOULD HAVE FOUND THAT
THE TOTAL LIABILITY OF ASC IS LIMITED TO
THE VALUE OF THE VESSEL OR THE
INSURANCE PROCEEDS THEREOF.iii[8]
On 4 December 1995, the Court issued a Resolutioniii[9]
denying the petition. Aboitiz moved for reconsideration, arguing
that the limited liability doctrine enunciated in the 1993 GAFLAC
case should be applied in the computation of its liability. In the
Resolutioniii[10] dated 6 March 1996, the Court granted the
motion and ordered the reinstatement of the petition and the
filing of a comment.
G.R. No. 130752

Respondents Asia Traders Insurance Corporation (Asia
Traders) and Allied Guarantee Insurance Corporation (Allied) filed
separate actions for damages against Aboitiz to recover by way of
subrogation the value of the cargoes insured by them and lost in
the sinking of the vessel M/V P. Aboitiz. The two actions were
consolidated and heard before the RTC of Manila, Branch 20.
Aboitiz reiterated the defense of force majeure. The trial
court rendered a decisioniii[11] on 25 April 1990 ordering Aboitiz
to pay damages in the amount of P646,926.30. Aboitiz sought
reconsideration, arguing that the trial court should have
considered the findings of the Board of Marine Inquiry that the
sinking of the M/V P. Aboitiz was caused by a typhoon and should
have applied the real and hypothecary doctrine in limiting the
monetary award in favor of the claimants. The trial court denied
Aboitizs motion for reconsideration.
Aboitiz elevated the case to the Court of Appeals. While
the appeal was pending, this Court promulgated the decision in
the 1993 GAFLAC case. The Court of Appeals subsequently
rendered a decision on 30 May 1994, affirming the RTC
decision.iii[12]
Aboitiz appealed the Court of Appeals decision to this
Court.iii[13] In a Resolution dated 20 September 1995,iii[14] the
Court denied the petition for raising factual issues and for failure
to show that the Court of Appeals committed any reversible error.
Aboitizs motion for reconsideration was also denied in a
Resolution dated 22 November 1995.iii[15]
The 22 November 1995 Resolution became final and
executory. On 26 February 1996, Asia Traders and Allied filed a
motion for execution before the RTC of Manila, Branch 20. Aboitiz
opposed the motion. On 16 August 1996, the trial court granted
the motion and issued a writ of execution.
Alleging that it had no other speedy, just or adequate
remedy to prevent the execution of the judgment, Aboitiz filed
with the Court of Appeals a petition for certiorari and prohibition
with an urgent prayer for preliminary injunction and/or
temporary restraining order docketed as CA-G.R. SP No.
41696.iii[16] The petition was mainly anchored on this Courts
ruling in the 1993 GAFLAC case.
On 8 August 1997, the Court of Appeals (Special
Seventeenth Division) rendered the assailed decision dismissing
the petition.iii[17] Based on the trial courts finding that Aboitiz
was actually negligent in ensuring the seaworthiness of M/V P.
Aboitiz, the appellate court held that the real and hypothecary
doctrine enunciated in the 1993 GAFLAC case may not be applied
in the case.
In view of the denial of its motion for
reconsideration,iii[18] Aboitiz filed before this Court the instant
petition for review on certiorari docketed as G.R. No.
130752.iii[19] The petition attributes the following errors to the
Court of Appeals:
THE COURT OF APPEALS GRAVELY
ERRED WHEN IT RULED THAT THE LOWER
COURT HAD MADE AN EXPRESS FINDING OF
THE ACTUAL NEGLIGENCE OF ABOITIZ IN
THE SINKING OF THE M/V P. ABOITIZ
THEREBY DEPRIVING ABOITIZ OF THE
BENEFIT OF THE DOCTRINE OF THE REAL
AND HYPOTHECARY NATURE OF MARITIME
LAW.iii[20]
THE COURT OF APPEALS ERRED IN
NOT GIVING WEIGHT TO THE GAFLAC CASE
DECIDED BY THE HONORABLE COURT
WHICH SUPPORTS THE APPLICABILITY OF
THE REAL AND HYPOTHECARY NATURE OF
MARITIME LAW IN THE PRESENT CASE.iii[21]
G.R. No. 137801
On 27 February 1981, Equitable Insurance Corporation
(Equitable) filed an action for damages against Aboitiz to recover
by way of subrogation the value of the cargoes insured by
Equitable that were lost in the sinking of M/V P. Aboitiz.iii[22] The
complaint, which was docketed as Civil Case No. 138395, was
later amended to implead Seatrain Pacific Services S.A. and
Citadel Lines, Inc. as party defendants.iii[23] The complaint
against the latter defendants was subsequently dismissed upon
motion in view of the amicable settlement reached by the parties.
On 7 September 1989, the RTC of Manila, Branch 7,
rendered judgmentiii[24] ordering Aboitiz to pay Equitable the
amount of P87,633.81, plus legal interest and attorneys
fees.iii[25] It found that Aboitiz was guilty of contributory
negligence and, therefore, liable for the loss.
In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz
invoked the doctrine of limited liability and claimed that the
typhoon was the proximate cause of the loss. On 27 November
1998, the Court of Appeals rendered a decision, affirming the RTC
decision.iii[26]
The Court of Appeals (Fifteenth Division) ruled that the
loss of the cargoes and the sinking of the vessel were due to its
unseaworthiness and the failure of the crew to exercise
extraordinary diligence. Said findings were anchored on the 1990
GAFLAC case and on this Courts resolution dated November 13,
1989 in G.R. No. 88159, dismissing Aboitizs petition and
affirming the findings of the appellate court on the vessels
unseaworthiness and the crews negligence.
Its motion for reconsiderationiii[27] having been
denied,iii[28] Aboitiz filed before this Court a petition for review
on certiorari, docketed as G.R. No. 137801,iii[29] raising this sole
issue, to wit:
WHETHER OR NOT THE DOCTRINE
OF REAL AND HYPOTHECARY NATURE OF
MARITIME LAW (ALSO KNOWN AS THE
LIMITED LIABILITY RULE) APPLIES.iii[30]
ISSUES
The principal issue common to all three petitions is
whether Aboitiz can avail limited liability on the basis of the real
and hypothecary doctrine of maritime law. Corollary to this issue
is the determination of actual negligence on the part of Aboitiz.
These consolidated petitions similarly posit that Aboitizs
liability to respondents should be limited to the value of the
insurance proceeds of the lost vessel plus pending freightage and
not correspond to the full insurable value of the cargoes paid by
respondents, based on the Courts ruling in the 1993 GAFLAC
case.
Respondents in G.R. No. 121833 counter that the
limited liability rule should not be applied because there was a
finding of negligence in the care of the goods on the part of Aboitiz
based on this Courts Resolution dated 4 December 1995 in G.R.
No. 121833, which affirmed the trial courts finding of negligence
on the part of the vessels captain. Likewise, respondent in G.R.
No. 137801 relies on the finding of the trial court, as affirmed by
the appellate court, that Aboitiz was guilty of negligence.

Respondents in G.R No. 130752 argue that this Court
had already affirmed in toto the appellate courts finding that the
vessel was not seaworthy and that Aboitiz failed to exercise
extraordinary diligence in the handling of the cargoes. This being
the law of the case, Aboitiz should not be entitled to the limited
liability rule as far as this petition is concerned, respondents
contend.
RULING of the COURT
These consolidated petitions are just among the many
others elevated to this Court involving Aboitizs liability to
shippers and insurers as a result of the sinking of its vessel, M/V
P. Aboitiz, on 31 October 1980 in the South China Sea. One of
those petitions is the 1993 GAFLAC case, docketed as G.R. No.
100446.iii[31]
The 1993 GAFLAC case was an offshoot of an earlier
final and executory judgment in the 1990 GAFLAC case, where
the General Accident Fire and Life Assurance Corporation, Ltd.
(GAFLAC), as judgment obligee therein, sought the execution of
the monetary award against Aboitiz. The trial court granted
GAFLACs prayer for execution of the full judgment award. The
appellate court dismissed Aboitizs petition to nullify the order of
execution, prompting Aboitiz to file a petition with this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real
and hypothecary doctrine warranted the immediate stay of
execution of judgment to prevent the impairment of the other
creditors shares. Invoking the rule on the law of the case, private
respondent therein countered that the 1990 GAFLAC case had
already settled the extent of Aboitizs liability.
Following the doctrine of limited liability, however, the
Court declared in the 1993 GAFLAC case that claims against
Aboitiz arising from the sinking of M/V P. Aboitiz should be
limited only to the extent of the value of the vessel. Thus, the
Court held that the execution of judgments in cases already
resolved with finality must be stayed pending the resolution of all
the other similar claims arising from the sinking of M/V P. Aboitiz.
Considering that the claims against Aboitiz had reached more
than 100, the Court found it necessary to collate all these claims
before their payment from the insurance proceeds of the vessel
and its pending freightage. As a result, the Court exhorted the
trial courts before whom similar cases remained pending to
proceed with trial and adjudicate these claims so that the pro-
rated share of each claim could be determined after all the cases
shall have been decided.iii[32]
In the 1993 GAFLAC case, the Court applied the limited
liability rule in favor of Aboitiz based on the trial courts finding
therein that Aboitiz was not negligent. The Court explained, thus:
x x x 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 x x x. The pivotal question, thus, is
whether there is 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 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. x x x
The same is true of the decision of
this Court in G.R. No. 89757 affirming the
decision of the Court of Appeals in CA-G.R. CV
No. 10609 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.iii[33] (Citations
entitled) (Emphasis supplied)
The ruling in the 1993 GAFLAC case cited the real and
hypothecary doctrine in maritime law that the shipowner or
agents 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.iii[34]
In this jurisdiction, the limited liability rule is embodied
in Articles 587, 590 and 837 under Book III of the Code of
Commerce, thus:
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.
These articles precisely intend 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 the owner or
agent abandons the vessel.iii[35] When the vessel is totally lost in
which case there is no vessel to abandon, abandonment is not
required. Because of such total loss the liability of the shipowner
or agent for damages is extinguished.iii[36] However, despite the
total loss of the vessel, its insurance answers for the damages for
which a shipowner or agent may be held liable.iii[37]
Nonetheless, there are exceptional circumstances
wherein the ship agent could still be held answerable despite the
abandonment of the vessel, as where the loss or injury was due
to the fault of the shipowner and the captain. The international
rule is to the effect that the right of abandonment of vessels, as a
legal limitation of a shipowners liability, does not apply to cases
where the injury or average was occasioned by the shipowners
own fault.iii[38] Likewise, the shipowner may be held liable for
injuries to passengers notwithstanding the exclusively real and
hypothecary nature of maritime law if fault can be attributed to
the shipowner.iii[39]
As can be gleaned from the foregoing disquisition in the
1993 GAFLAC case, the Court applied the doctrine of limited
liability in view of the absence of an express finding that Aboitizs
negligence was the direct cause of the sinking of the vessel. The
circumstances in the 1993 GAFLAC case, however, are not
obtaining in the instant petitions.
A perusal of the decisions of the courts below in all three
petitions reveals that there is a categorical finding of negligence
on the part of Aboitiz. For instance, in G.R. No. 121833, the RTC
therein expressly stated that the captain of M/V P. Aboitiz was
negligent in failing to take a course of action that would prevent
the vessel from sailing into the typhoon. In G.R. No. 130752, the
RTC concluded that Aboitiz failed to show that it had exercised
the required extraordinary diligence in steering the vessel before,
during and after the storm. In G.R. No. 137801, the RTC
categorically stated that the sinking of M/V P. Aboitiz was
attributable to the negligence or fault of Aboitiz. In all instances,
the Court of Appeals affirmed the factual findings of the trial
courts.
The finding of actual fault on the part of Aboitiz is
central to the issue of its liability to the respondents. Aboitizs
contention, that with the sinking of M/V P. Aboitiz, its liability to
the cargo shippers and shippers should be limited only to the
insurance proceeds of the vessel absent any finding of fault on
the part of Aboitiz, is not supported by the record. Thus, Aboitiz
is not entitled to the limited liability rule and is, therefore, liable
for the value of the lost cargoes as so duly alleged and proven
during trial.
Events have supervened during the pendency of the
instant petitions. On two other occasions, the Court ruled on
separate petitions involving monetary claims against Aboitiz as a
result of the 1980 sinking
of the vessel M/V P. Aboitiz. One of them is the consolidated
petitions of Monarch Ins. Co., Inc v. Court of Appeals,iii[40] Allied
Guarantee Insurance Company v. Court of Appealsiii[41] and
Equitable Insurance Corporation v. Court of Appealsiii[42]
(hereafter collectively referred to as Monarch Insurance)
promulgated on 08 June 2000. This time, the petitioners
consisted of claimants against Aboitiz because either the
execution of the judgment awarding full indemnification of their
claims was stayed or set aside or the lower courts awarded
damages only to the extent of the claimants proportionate share
in the insurance proceeds of the vessel.
In Monarch Insurance, the Court deemed it fit to settle
once and for all this factual issue by declaring that the sinking of
M/V P. Aboitiz was caused by the concurrence of the
unseaworthiness of the vessel and the negligence of both Aboitiz
and the vessels crew and master and not because of force
majeure. Notwithstanding this finding, the Court did not reverse
but reiterated instead the pronouncement in GAFLAC to the effect
that the claimants be treated as creditors in an insolvent
corporation whose assets are not enough to satisfy the totality of
claims against it.iii[43] The Court explained that the peculiar
circumstances warranted that procedural rules of evidence be set
aside to prevent frustrating the just claims of shippers/insurers.
Thus, the Court in Monarch Insurance ordered Aboitiz to institute
the necessary limitation and distribution action before the proper
RTC and to deposit with the said court the insurance proceeds of
and the freightage earned by the ill-fated ship.
However, on 02 May 2006, the Court rendered a
decision in Aboitiz Shipping Corporation v. New India Assurance
Company, Ltd.iii[44] (New India), reiterating the well-settled
principle that the exception to the limited liability doctrine applies
when the damage is due to the fault of the shipowner or to the
concurrent negligence of the shipowner and the captain. Where
the shipowner fails to overcome the presumption of negligence,
the doctrine of limited liability cannot be applied.iii[45] In New
India, the Court clarified that the earlier pronouncement in
Monarch Insurance was not an abandonment of the doctrine of
limited liability and that the circumstances therein still made the
doctrine applicable.iii[46]
In New India, the Court declared that Aboitiz failed to
discharge its burden of showing that it exercised extraordinary
diligence in the transport of the goods it had on board in order to
invoke the limited liability doctrine. Thus, the Court rejected
Aboitizs argument that the award of damages to respondent
therein should be limited to its pro rata share in the insurance
proceeds from the sinking of M/V P. Aboitiz.
The instant petitions provide another occasion for the
Court to reiterate the well-settled doctrine of the real and
hypothecary nature of maritime law. As a general rule, a ship
owners liability is merely co-extensive with his interest in the
vessel, except where actual fault is attributable to the shipowner.
Thus, as an exception to the limited
liability doctrine, a shipowner or ship agent may be held liable for
damages when the sinking of the vessel is attributable to the
actual fault or negligence of the shipowner or its failure to ensure
the seaworthiness of the vessel. The instant petitions cannot be
spared from the application of the exception to the doctrine of
limited liability in view of the unanimous findings of the courts
below that both Aboitiz and the crew failed to ensure the
seaworthiness of the M/V P. Aboitiz.
WHEREFORE, the petitions in G.R. Nos. 121833,
130752 and 137801 are DENIED. The decisions of the Court of
Appeals in CA-G.R. SP No. 35975-CV, CA-G.R. SP No. 41696 and
CA-G.R. CV No. 43458 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
D
ANTE O. TINGA
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-1600 June 1, 1906
THE PHILIPPINE SHIPPING COMPANY, ET AL., plaintiffs-
appellants,
vs.
FRANCISCO GARCIA VERGARA, defendant-appellee.
Del-Pan, Ortigas and Fisher, for appellants.
Ledesma, Sumulong and Quintos, for appellee.
ARELLANO, C.J.:
The Philippine Shipping Company, the owner of the steamship
Nuestra Sra. de Lourdes, claims an indemnification of 44,000
pesos for the loss of the said ship as a result of a collision.
Ynchusti & Co. also claimed 24,705.64 pesos as an
indemnification for the loss of the cargo of hemp and coprax
carried by the said ship on her last trip. The defendant, Francisco

Garcia Vergara, was the owner of the steamship Navarra, which
collided with the Lourdes.
From the judgment of the trial court the Philippine Shipping
Company and the defendant Vergara appealed, but the latter has
failed to prosecute his appeal by a bill of exceptions or otherwise.
The only appellant who has prosecuted this appeal now reduced
its claim to 18,000 pesos, the value of the colliding vessel.
The court below found as a matter of fact that the steamship
Lourdes was sailing in accordance with law, but that the Navarra
was not, and was therefore responsible for the collision. (Bill of
exceptions, p. 7.) The court also found as a fact that "both ships
with their respective cargoes were entirely lost." Construing
article 837 of the Code Commerce, the court below held "that the
defendant was not responsible to the plaintiff for the value of the
steamship Lourdes, with the costs against the latter." (Bill of
exceptions, p. 8.)
But the appellant, the Philippine Shipping Company, contends
that the defendant should pay to 18,000 pesos, the value of the
Navarra at the time of its loss; that this is the sense in which the
provisions of article 837 of the Code of Commerce should be
understood; that said code has followed the principles of the
English law and not those of the American law, and that it was
immaterial whether the Navarra had been entirely lost, provided
her value at the time she was lost could be ascertained, since the
extent of the liability of the owner of the colliding vessel for the
damages resulting from the collision is to be determined in
accordance with such value.
Article 837 of the Code 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 the 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 who represents the interest 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 for
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 Navarra had not been entirely lost,
the agent, having 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 the 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 exist between the lawful acts and
lawful obligation 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 agent liable to the
extent of the value of the vessel, as to the codes of the principal
maritime nations provided, 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 interest 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 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 shipwrecks, 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 maritime
law, exclusively "real," according to which the liability of
the parties is limited to a thing to which is at 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 — 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 other liabilities
arising from collisions under article 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 of
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. 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.
Torres, Mapa, Johnson and Carson, JJ., concur.
The Lawphil Project - Arellano Law Foundation
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13695 October 18, 1921
STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellee,
vs.
MANUEL LOPEZ CASTELO, defendant-appellant.
Gabriel La O for appellant.
Lawrence and Ross for appellee.
STREET, J.:
By contract of character dated February 8, 1915, Manuel Lopez
Castelo, as owner, let the small interisland steamer Batangueño
for the term of one year to Jose Lim Chumbuque for use in the
conveying of cargo between certain ports of the Philippine Islands.
In this contract it was stipulated that the officers and crew of the
Batangueño should be supplied by the owner, and that the
charterer should have no other control over the captain, pilot, and
engineers than to specify the voyages that they should make and
to require the owner to discipline or relieve them as soon as
possible in case they should fail to perform the duties respectively
assigned to them.
While the boat was being thus used by the charterer in the
interisland trade, the standard Oil Company delivered to the
agent of the boat in Manila a quantity of petroleum to be conveyed
to the port of Casiguran, in the Province of Sorsogon. For this
consignment a bill of lading of the usual form was delivered, with
the stipulation that freight should be paid at the destination. Said
bill of lading contained no provision with respect to the storage of
the petroleum, but it was in fact placed upon the deck of the ship
and not in the hold.
While the boat was on her way to the port mentioned, and off the
western coast of Sorsogon, a violent typhoon passed over that
region, and while the storm was at its height the captain was
compelled for the safety of all to jettison the entire consignment
of petroleum consisting of two hundred cases. When the storm
abated the ship made port, and thirteen cases of the petroleum
were recovered, but the remainder was wholly lost.
To recover the value of the petroleum thus jettisoned but not
recovered, the present action was instituted by the Standard Oil
Company against the owner of the ship in the Court of First
Instance of Manila, where judgment was rendered in favor of the
plaintiff. From this judgment the defendant appealed.
No question is made upon the point that the captain exercised
proper discretion in casting this petroleum overboard, as a step
necessary to the salvation of the ship; and in fact it appears that
even after the vessel was thus eased, she was with difficulty
prevented from capsizing, so great was the intensity of the storm.
The first question for discussion is whether the loss of this
petroleum was a general average loss or a particular less to be
borne solely by the owner of the cargo. Upon this point it will be
observed that the cargo was carried upon deck; and it is a general
rule, both under the Spanish Commercial Code and under the
doctrines prevailing in the courts of admiralty of England
America, as well as in other countries, that ordinarily the loss of
cargo carried on deck shall not be considered a general average
loss. This is clearly expressed in Rule I of the York-Antwerp Rules,
as follows: "No jettison of deck cargo shall be made good as
general average." The reason for this rule is found in the fact that
deck cargo is in an extra-hazardous position and, if on a sailing
vessel, its presence is likely to obstruct the free action of the crew
in managing the ship. Moreover, especially in the case of small
vessels, it renders the boat top-heavy and thus may have to be
cast overboard sooner than would be necessary if it were in the
hold; and naturally it is always the first cargo to go over in case
of emergency. Indeed, in subsection 1 of article 815 of the Code
of Commerce, it is expressly declared that deck cargo shall be cast
overboard before cargo stowed in the hold.
But this rule, denying deck cargo the right to contribution by way
of general average in case of jettison, was first mad in the days of
sailing vessels; and with the advent of the steamship as the
principal conveyer of cargo by sea, it has been felt that the reason
for the rule has become less weighty, especially with reference to
coastwise trade; and it is now generally held that jettisoned goods
carried on deck, according to the custom of trade, by steam
vessels navigating coastwise and inland waters, are entitled to
contribution as a general average loss (24 R. C. L., 1419).
Recognition is given to this idea in two different articles in the
Spanish Code of Commerce. In the first it is in effect declared
that, if the marine ordinances allow cargo to the laden on deck in
coastwise navigation, the damages suffered by such merchandise
shall not be dealt with as particular average (art. 809 [3], Comm.
Code); and in the other it is stated that merchandise laden on the
upper deck of the vessel shall contribute in the general average if
it should be saved; but that there shall be no right to indemnity
if it should be lost by reason of being jettisoned for the general
safety, except when the marine ordinances allow its shipment in
this manner in coastwise navigation (art. 855, Comm. Code).
The Marine Regulations now in force in these Islands contain
provisions recognizing the right of vessels engaged in the
interisland trade to carry deck cargo; and express provision is
made as to the manner in which it shall be bestowed and
protected from the elements (Phil. Mar. Reg. [1913], par 23).
Indeed, there is one commodity, namely, gasoline, which from its
inflammable nature is not permitted to be carried in the hold of
any passenger vessel, though it may be carried on the deck if
certain precautions are taken. There is no express provision
declaring that petroleum shall be carried on deck in any case; but
having regard to its inflammable nature and the known practices
of the interisland boats, it cannot be denied that this commodity
also, as well as gasoline, may be lawfully carried on deck in our
coatwise trade.
The reason for adopting a more liberal rule with respect to deck
cargo on vessels used in the coastwise trade than upon those
used for ordinary ocean borne traffic is to be found of course in
the circumstance that in the coastwise trade the boats are small
and voyages are short, with the result that the coasting vessel can
use more circumspection about the condition of the weather at
the time of departure; and if threatening weather arises, she can
often reach a port of safety before disaster overtakes her. Another
consideration is that the coastwise trade must as a matter of
public policy be encouraged, and domestic traffic must be
permitted under such conditions as are practically possible, even
if not altogether ideal.
From what has been said it is evident that the loss of this
petroleum is a general and not a special average, with the result
that the plaintiff is entitled to recover in some way and from
somebody an amount bearing such proportion to its total loss as
the value of both the ship and the saved cargo bears to the value
of the ship and entire cargo before the jettison was effected. Who
is the person, or persons, who are liable to make good this loss,
and what are the conditions under which the action can be
maintained?
That the owner of the ship is a person to whom the plaintiff in
this case may immediately look for reimbursement to the extent
above stated is deducible not only from the general doctrines of
admiralty jurisprudence but from the provisions of the Code of
Commerce applicable to the case. It is universally recognized that
the captain is primarily the representative of the owner; and
article 586 of the Code of Commerce expressly declares that both
the owner of the vessel and the naviero, or charterer, shall be civil
liable for the acts of the master. In this connection, it may be
noted that there is a discrepancy between the meaning of naviero,
in articles 586 of the Code of Commerce, where the word is used
in contradistinction to the term "owner of the vessel" ( propietario),
and in article 587 where it is used alone, and apparently in a

sense broad enough to include the owner. Fundamentally the
word "naviero" must be understood to refer to the person
undertaking the voyage, who in one case may be the owner and
in another the charterer. But this is not vital to the present
discussion. The real point to which we direct attention is that, by
the express provision of the Code, the owner of the vessel is civilly
liable for the acts of the captain; and he can only escape from this
civil liability by abandoning his property in the ship and any
freight that he may have earned on the voyage (arts. 587, 588,
Code of Comm.).
Now, by article 852 of the Code of Commerce the captain is
required to initiate the proceedings for the adjustment,
liquidation, and distribution of any gross average to which the
circumstances of the voyage may have given origin; and it is
therefore his duty to take the proper steps to protect any shipper
whose goods may have been jettisoned for the general safety. In
ordinary practice this, we supposed, would be primarily
accomplished by requiring the consignees of other cargo, as a
condition precedent to the delivery of their goods to them, to give
a sufficient bond to respond for their proportion of the general
average. But it is not necessary here to inquire into details. It is
sufficient to say that the captain is required to take the necessary
steps to effect the adjustment, liquidation, and distribution of the
general average. In the case before us the captain of the vessel
did not take those steps; and we are of the opinion that the failure
of the captain to take those steps gave rise to a liability for which
the owner of the ship must answer.
But it is said — and the entire defense seems to be planted upon
this proposition — that the liquidation of the general average is,
under article 852 and related provisions, a condition precedent
to the liability of the defendant, and that at any rate the
defendant, as owner of the ship, should only be held liable for his
proportion of the general average. It is also suggested that if the
plaintiff has any right of action at all upon the state of facts here
presented, it is against the captain, who has been delinquent in
performing the duty which the law imposes on him.
This argument involves, we think, a misconception of the true
import of the provisions relating to the adjustment and
liquidation of general average. Clearly, for one thing, those
provisions are intended to supply the shipowner, acting of cause
in the person of the captain, with a means whereby he may escape
bearing the entire burden of the loss and may distribute it among
all the persons who ought to participate in sharing it; but the
making of the liquidation is not a condition precedent to the
liability of the shipowner of the shipper whose property has been
jettisoned.
It is true that if the captain does not comply with the article
relating to the adjustment, liquidation, and distribution of the
general average, the next article (852) gives to those concerned —
whether shipowner (naviero) or shipper — the right to maintain
an action against the captain for indemnification for the loss; but
the recognition of this right of action does not by any means
involve the suppression of the right of action which is elsewhere
recognized in the shipper against the ship's owner. The shipper
may in our opinion go at once upon the owner and the latter, if
so minded, may have his recourse for indemnization against his
captain.
In considering the question now before us it is important to
remember that the owner of the ship ordinarily has vastly more
capital embarked upon a voyage than has any individual shipper
of cargo. Moreover, the owner of the ship, in the person of the
captain, has complete and exclusive control of the crew and of the
navigation of the ship, as well as of the disposition of the cargo at
the end of the voyage. It is therefore proper that any person whose
property may have been cast overboard by order of the captain
should have a right of action directly against the ship's owner for
the breach of any duty which the law may have imposed on the
captain with respect to such cargo. To adopt the interpretation of
the law for which the appellant contends would place the
shipowner in a position to escape all responsibility for a general
average of this character by means of the delinquency of his own
captain. This cannot be permitted. The evident intention of the
Code, taken in all of its provisions, is to place the primary liability
upon the person who has actual control over the conduct of the
voyage and who has most capital embarked in the venture,
namely, the owner of the ship, leaving him to obtain recourse, as
it is very easy to do, from other individuals who have been drawn
into the venture as shippers.
It results that the plaintiff is entitled to recover in this action; and
the only additional point to be inquired into is the amount that
should be awarded. In this connection it appears that the total
value of the jettisoned cargo, belonging partly to the plaintiff to
another shipper, was P880.35, of which P719.95 represented the
value of the plaintiff's petroleum. Upon the apportionment of this
total loss among the different interests involved, to wit, value of
ship, value of cargo, and the earned but lost freight, it appears
that the amount of the loss apportionable to the plaintiff is
P11.28. Deducting this from the value of the petroleum, we have
as a result, the amount of P708.67, which is the amount for which
judgment should be given.
Accordingly, modifying the judgment appealed from to this extent,
we affirm the same, with costs. So ordered.
Johnson and Villamor, JJ., concur.
Mapa, C.J., concurs in the result.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47447-47449 October 29, 1941
TEODORO R. YANGCO, ETC., petitioner,
vs.
MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.
Powell & Vega for respondents.
MORAN, J.:
At about one o'clock in the afternoon of May 26, 1927, the
steamer S.S. Negros, belonging to petitioner here, Teodoro R.
Yangco, left the port of Romblon on its retun trip to Manila.
Typhoon signal No. 2 was then up, of which fact the captain was
duly advised and his attention thereto called by the passengers
themselves before the vessel set sail. The boat was overloaded as
indicated by the loadline which was 6 to 7 inches below the
surface of the water. Baggage, trunks and other equipments were
heaped on the upper deck, the hold being packed to capacity. In
addition, the vessel carried thirty sacks of crushed marble and
about one hundred sacks of copra and some lumber. The
passengers, numbering about 180, were overcrowded, the
vessel's capacity being limited to only 123 passengers. After two
hours of sailing, the boat encountered strong winds and rough
seas between the islands of Banton and Simara, and as the waves
splashed the ladies' dresses, the awnings were lowered. As the
sea became increasingly violent, the captain ordered the vessel to
turn left, evidently to return to port, but in the manuever, the
vessel was caught sidewise by a big wave which caused it to
capsize and sink. Many of the passengers died in the mishap,
among them being Antolin Aldaña 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 Basaña, son of Filomeno Basaña, 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 dueño 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 dueño 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 Española, 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 daños o perjuicios
que ocasionare esta desempeñando 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 daños
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.
Avanceña, C.J., Abad Santos, Diaz, Laurel, Horrilleno, and Ozaeta,
JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21495 March 18, 1924
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-
appellant,
vs.
THE INSULAR MARITIME CO., defendant-appellee.
Attorney-General Villa-Real for appellant.
Antonio M. Opisso for appellee.
MALCOLM, J.:
The Government of the Philippine Islands seeks by this action to
recover from The Insular Maritime Company the sum of
P30,437.91 for repairs made by the Bureau of Commerce and
Industry on the motor ship Insular.
The Insular Maritime Company was organized with a capital of
P150,000. It became the owner of one vessel only, the Insular,
valued at P150,000. On October 29, 1919, The Insular Maritime
Company asked the Bureau of Commerce and Industry to
perform certain repairs on the Insular. The Government
consented and terminated said repairs on November 29 of the
same year. Subsequent thereto, on April 15, 1920, the Insular
suffered a total loss by fire.
The bill prepared by the chief accountant of the Bureau of
Commerce and Industry for work done on the motor ship Insular
in the amount of P30,437.91, was dated July 31, 1920. Collection
of the claim was attempted pursuant to formal demand made by
the Acting Insular Auditor of date April 30, 1921.
It will thus be noted, as was emphasized by the defense and by
His Honor, the trial judge, that no steps were taken by the
Government to secure payment for the repairs until after the loss
of the vessel Insular. The first error assigned by the Attorney-
General addressed to this finding of fact is accordingly without
merit.
The trial judge further found in effect, as a legal conclusion, that
the loss of the vessel Insular extinguished the obligation. The
Attorney-General challenges the correctness of this view.
The decision of the trial judge was predicated on his
understanding of the provisions of article 591 of the Code of
Commerce in relation with other articles of the same Code, and
with the decision of this court in the case of Philippine Shipping
Co. vs. Garcia Vergara ([1906], 6 Phil., 281). As to the applicability
of article 591 of the Code of Commerce, there is nothing in the
language to denote that the liability of the owners of a vessel is
wiped out by the loss of that vessel. As to the applicability of the
decision in the case of Philippine Shipping Co. vs. Garcia Vergara,
supra, the facts are not the same. There, the owners and agents
of a vessel causing the loss of another vessel by collision were
held "not liable beyond the vessel itself causing the collision," but
were "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." Here; there
is a contractual relation which remains unaffected by the loss of
the thing concerned in the contract and which is governed
principally by the provisions of the Civil Code.
The rights and liabilities of owners of ships are in many respects
essentially the same as in the case of other owners of things. As
a general rule, the owners of a vessel and the vessel itself are
liable for necessary repairs. Naturally the total destruction of the
vessel extinguishes a maritime lien, as there is no longer any res
to which it can attach. But the total destruction of the vessel does
not affect the liability of the owners for repairs on the vessel
completed before its loss.
It is but fair to say that what has been stated in this decision
more accurately expresses the consensus of opinion in the court
than it does the views of the writer, who sees more in the
appellee's case than do his colleagues in the court.
The trial court was accordingly right in its exposition of the fact
but not in its application of the law. Judgment must therefore be
as it is hereby reversed, and in lieu of the judgment appealed
from, another shall be entered here in favor of the plaintiff and
against the defendant for the sum of P30,437.91 with legal
interest from July 20, 1921, when the complaint was presented,
 This is an appeal from a judgment rendered by the Court of First
Instance of Manila in the above-entitled cases awarding plaintiffs
until payment. Without special findings as to costs in either
instance, it is so ordered. the compensation provided for in the Workmen’s Compensation
Act.
Araullo, C.J., Johnson, Street, Avanceña, Ostrand, Johns and
Romualdez, JJ., concur. The record of the cases was forwarded the Court of Appeals for
review, but as there was no question of fact involved in the appeal,
EN BANC
said court forwarded the record to this Court. The appeal was
pending when the Pacific War broke out, and continued pending
[CA-No. 773. December 17, 1946.]
until after liberation, because the record of the cases was
destroyed as a result of the battle waged by the forces of liberation
DIONISIA ABUEG, ET AL., Plaintiffs-Appellees, v.
against the enemy. As provided by law, the record was
BARTOLOME SAN DIEGO, Defendant-Appellant.
reconstituted and we now proceed to dispose of the appeal.
[CA-No. 774. December 17, 1946.]
Appellant, who was the owner of the motor ships San Diego II and
Bartolome S, states in his brief the following:chanrob1es virtual
MARCIANA DE SALVACION, ET AL., Plaintiffs-Appellees, v.
1aw library
BARTOLOME SAN DIEGO, Defendant-Appellant.
There is no dispute as to the facts involved in these cases and
[CA-No. 775. December 17, 1946.]
they may be gathered from the pleadings and the decision of the
trial Court. In case CA-G. R. No. 773, Dionisia Abueg is the widow
ROSARIO OCHING, ET AL., Plaintiffs-Appellees, v.
of the deceased, Amado Nuñez; who was a machinist on board
BARTOLOME SAN DIEGO, Defendant-Appellant.
the M/S San Diego II belonging to the defendant-appellant. In
case CA-G. R. NO. 774, plaintiff-appellee, Marciana S. dc
Lichauco, Picazo & Mejia, for Appellant.
Salvacion, is the widow of the deceased, Victoriano Salvacion,
who was a machinist on board the M/S Bartolome S also
Cecilio I. Lim and Roberto P. Ancog, for Appellees.
belonging to the defendant-appellant. In case CA-G. R. NO. 775,
the plaintiff-appellee, Rosario R. Oching is the widow of Francisco
SYLLABUS
Oching who was captain or patron of the defendant-appellant’s
1. MARITIME LAW; SHIPOWNER OR AGENT, ORIGIN OF REAL M/S Bartolome S.
AND HYPOTHECARY NATURE OF LIABILITY OF. — The real and
hypothecary nature of the liability of the shipowner or agent The M/S San Diego II and the M/S Bartolome, while engaged in
embodied in provisions of the Maritime Law, Book III, Code of fishing operations around Mindoro Island on Oct. 1, 1941 were
Commerce, had its origin in the prevailing conditions of the caught by a typhoon as a consequence of which they were sunk
maritime trade and sea voyages during the medieval ages, and totally lost. Amado Nuñez, Victoriano Salvacion and
attended by innumerable hazards and perils. To offset against Francisco Oching while acting in their capacities perished in the
these adverse conditions and to encourage shipbuilding and shipwreck(Appendix A, p. IV).
maritime commerce, it was deemed necessary to confine the
liability of the owner or agent arising from the operation of a ship It is also undisputed that the above-named vessels were not
to the vessel, equipment, and freight, or insurance, if any, so that covered by any insurance. (Appendix A, p. IV.)
if the shipowner or agent abandoned the ship, equipment, and
freight, his liability was extinguished. Counsel for the appellant cite article 587 of the Code of Commerce
which provides that if the vessel together with all her tackle and
2. WORKMEN’S COMPENSATION ACT; PROVISIONS OF CODE freight money earned during the voyage are abandoned, the
OF COMMERCE REGARDING MARITIME COMMERCE agent’s liability to third persons for tortuous acts of the captain
WITHOUT EFFECT IN APPLICATION OF. — The provisions of the in the care of the goods which the ship carried is extinguished
Code of Commerce regarding maritime commerce have no room (Yangco v. Laserna, 73 Phil., 330); article 837 of the same Code
in the application of the Workmen’s Compensation Act which which provides that in cases of collision, the shipowners’ liability
seeks to improve, and aims at the amelioration of, the condition is limited to the value of the vessel with all her equipment and
of laborers and employees. Said Act creates a liability to freight during the voyage (Philippines Shipping Company v.
compensate employees and laborers in cases of injury received by Garcia, 6 Phil., 281); and article 643 of the same Code which
or inflicted upon them, while engaged in the performance of their provides that if the vessels and freight are totally lost, the agent’s
work or employment, or the heirs and dependents of such liability for wages of the crew is extinguished. From these
laborers and employees in the event of death caused by their premises counsel draw the conclusion that appellant’s liability,
employment. 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,
3. ID.; INDUSTRIAL EMPLOYEES; OFFICERS OF MOTOR SHIPS was extinguished.
ENGAGED IN FISHING EXCEPTIONS. — The officers of motor
ships engaged in fishing are industrial employees within the The real and hypothecary nature of the liability of the shipower
purview of section 39, paragraph (d), as amended, for industrial or agent embodied in the provisions of the Maritime Law, Book
employment "includes all employment or work at a trade, III, Code of Commerce, had its origin in the prevailing conditions
occupation or profession exercised by an employer for the of the maritime trade and sea voyages during the medieval ages,
purpose of gain." The only exceptions recognized by the attended by innumerable hazards and perils. to offset against
Workmen’s Compensation Act are agriculture, charitable these adverse conditions and to encourage shipbuilding and
institutions and domestic service. Even employees engaged in maritime commerce it was deemed necessary to confine the
agriculture for the operation of mechanical implements, are liability of the owner or agent arising from the operation of a ship
entitled to the benefits of the Workmen’s Compensation Act. to the vessel, equipment, and freight, or insurance, if any, so that
if the shipowner or agent abandoned the ship, equipment, and
4. ID.; COASTWISE AND INTERISLAND TRADE, MEANING OF; freight, his liability was extinguished.
FISHING, WHEN A TRADE . — The term "coastwise and
interisland trade" does not have such a narrow meaning as to But the provisions of the Code of Commerce invoked by appellant
confine it to the carriage for hire of passengers and/or have no room in the application of the Workmen’s Compensation
merchandise on vessels between ports and places in the Act which seeks to improve, and aims at the amelioration of, the
Philippines because while fishing is an industry, if the catch is condition of laborers and employees. It is not the liability for the
brought to a port for sale, it is at the same time a trade. 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
DECISION the responsibility for w ages 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
PADILLA, J.: 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 costs of production which
must be included in the budget of any well-managed industry.
Appellant’s assertion that in the case of Francisco v. Dy Liaco (57
Phil., 446), and Murillo v. 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 v. 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 Francisco v. Dy-Liacco, 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 v. 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.
In the memorandum filed by counsel for the appellant, a new
point not relied upon in the court below is raised. They contend
that the motorboats engaged in fishing could not be deemed to be
in the coastwise and interisland trade, as contemplated in section
38 of the Workmen’s Compensation Act (No. 3428), as amended
by Act No. 3812, in as much as, according to counsel, a craft
engaged in the coastwise and interisland trade is one that carries
passengers and/or merchandise for hire between ports and
places in the Philippine Islands.
This new point raised by counsel for the appellant is inconsistent
with the first, for, if the motor ships in question while engaged in
fishing, were to be considered as not engaged in interisland and
coastwise trade, the provisions or the Code of Commerce invoked
by them regarding limitation of the shipowner’s liability or
extinction thereof when the shipowner abandons the ship, cannot
be applied Lopez v. Duruelo, 52 Phil., 229). Granting however,
that the motor ships run and operated by the appellant were not
engaged in the coastwise and interisland trade, as contemplated
in section 38 of the Workmen’s compensation Act, as amended,
still the deceased officers of the motor ships in question were
industrial employees within the purview of section 39, paragraph
(d), as amended, for industrial employment "includes all
employment or work at a trade, occupation or profession
exercised by an employer for the purpose of gain." The only
exceptions recognized by the Act are agriculture, charitable
institutions and domestic service. Even employees engaged in
agriculture for the operation of mechanical implements, are
entitled to the benefits of the Workmen’s Compensation Act
Francisco v. Consing, 63 Phil., 354). In Murillo v. Mendoza,
supra, this Court held that "our Legislature has deemed it
advisable to include in the Workmen’s Compensation Act all
accidents that may occur to workmen or employees in factories,
shops and other industrial and agricultural workplaces as well as
in the interisland seas of the Archipelago." But we do not believe
that the term "coastwise and interisland trade" has such a narrow
meaning as to confine it to the carriage for hire of passengers
and/or merchandise, on vessels between Ports and Places in the
Philippines, because while fishing is an industry, if the catch is
brought to a port for sale, it is at the same time a trade.
Finding no merit in the appeal filed in these cases, we affirm the
judgment of the lower court, with costs against the Appellant.
Moran, C.J., Feria, Pablo, Perfecto, Hilado Bengzon, Briones and
Tuazon, JJ., concur.
FIRST DIVISION
[G.R. No. L-11407. October 30, 1917. ]
FAUSTO FUBISO and BONIFACIO GELITO, Plaintiffs-
Appellees, v. FLORENTINO E. RIVERA, Defendant-Appellant.
Francisco Sevilla for Appellant.
Salvador Q. Araullo for Appellees.
SYLLABUS
1. SHIPPING; REGISTRATION OF THE PURCHASE OF A
VESSES. — The requisite of registration in the registry of the
purchase of a vessel is necessary and indispensable in orderer
that the purchaser’s rights may be maintained against a claim
filed by a third person; pursuant to article 573 of the Code of
Commerce in connection with section 2 of Act No. 1900, which
Act, amending said article, provides that such registration,
instead of being made in the commercial registry, shall be entered
in the registry of the Insular Collector of Customs, who, since May
18 1909, has been performing the duties of commercial register.
2. ID.; ID. — The legal rule set down in the Code of Commerce,
subsist, inasmuch as the amendment solely refers to the official
who shall make the entry.
3. ID.; ID. — Ships or vessels, whether moved by steam or by sail,
partake to a certain extent, of the nature and conditions of real
property, on account of their value and importance in the world
commerce; and for this reason the provisions of article 573 of the
Code of Commerce are nearly identical with those of article 1473
of the Civil Code.
DECISION
TORRES, J. :
This appeal by bill of exceptions was filed by counsel for
Florentino E. Rivera against the judgment of September 6, 1915,
in which the defendant and appellant was ordered to place at the
disposal of the plaintiff Fausto Rubiso the pilot boat in litigation.
No special finding was made for costs.
On April 10, 1915, counsel for plaintiffs brought suit in the Court
of First Instance of this city and alleged in the complaint that his
clients were the owners of the pilot boat named Valentina, which
had been in bad condition since the year 1914 and, on the date
of the complaint, was stranded in the place called Tingloy, of the
municipality of Bauan, Batangas; that the defendant Florentino
E. Rivera took charge or possession of said vessel without the
knowledge or consent of the plaintiffs and refused to deliver it to
them, under claim that he was the owner thereof; and that such
procedure on the defendant’s part cause the plaintiffs to suffer
damages, not only because they could not proceed to repair the
vessel, but also because they were unable to derive profit from
the voyages for which said pilot boat was customarily used; and
that the net amount of such uncollected profit was P1,750. The
complaint terminated with a petition that judgment be rendered
by ordering the defendant to deliver said pilot boat to the plaintiffs
and indemnify them in the amount aforementioned or in such
amount as should be proven at trial, and to pay the costs.
Counsel for the defendant entered a general and specific denial of
all the facts set forth in the complaint, with the exception of those
admitted in the special defense and consisting in that said pilot
boat belonged to the concern named "Gelito & Co.," Bonifacio
Gilito being a copartner thereof to the extent of two-thirds, and
the Chinaman Sy Qui, to that of one-third, of the value of said
vessel; that subsequently Bonifacio Gelito sold his share to his
copartner Sy Qui, as attested by the instrument Exhibit A,

registered in the office of the Collector of Customs and made a
part of his answer; that later said Chinaman, the absolutely
owner of the vessel, sold it in turn to the defendant Rivera,
according to the public instrument, also attached to his answer
as Exhibit B; and that, for this reason, Rivera took possession of
the said pilot boat Valentina, as its sole owner. He therefore
petitioned that the defendant be absolve from the complaint, with
the costs against the plaintiffs.
After the hearing of the case and the introduction of documentary
evidence, the judgment of September 6, 1915, was rendered, from
which counsel for the defendant appealed and moved for a new
trial. This motion was denied and appellant excepted.
The record shows it to have been fully proven that Bonifacio Gelito
sold his share in the pilot boat Valentina, consisting of a two-
thirds interest therein, to the Chinaman Sy Qui, the co-owner of
the other one-third interest in said vessel; wherefore this vendor
is no longer entitled to exercise any action whatever in respect to
the boat in question. Gelito was one of the partnership owners of
the Valentina, as in fact his name appears in the certificate of
protection issued by the Bureau of Customs, and the rights he
held are evidenced by the articles of partnership; but, the whole
ownership in the vessel having been consolidated in behalf of the
Chinaman Sy Qui, this latter, in the use of his right as the sole
owner of the Valentina, sold this boat to Florentino E. Rivera for
P2d, 500, on January 4, 1915, which facts are set forth in a deed
ratified on the same date before a notary. This document was
registered in the Bureau of Customs on March 17th of the same
year.
On the 23d of that year, that is, after the sale of the boat to the
defendant Rivera, suit having been brought in the justice of the
peace court against the Chinaman Sy Qui to enforce payment of
a certain sum of money, the latter’s creditor Fausto Rubiso, the
herein plaintiff, acquired said vessel at a public auction sale and
for the sum of P55.45. The certificate of sale and adjudication of
the boat in question was issued by the sheriff on behalf of Fausto
Rubiso, in the office of the Collector of Customs, on January 27
of the same year and was also entered in the commercial registry
on the 14th of March, following:chanrob1es virtual 1aw library
So that the pilot boat Valentina was twice said: first privately by
its owner Sy Qui to the defendant to the defendant Florentino E.
Rivera, on January 4, 1915, and afterwards by the sheriff at
public auction in conformity with the order contained in the
judgment rendered by the justice of the peace court, on January
23 of the same year, against the Chinaman Sy Qui and in behalf
of the plaintiff, Fausto Rubiso.
It is undeniable that the defendant Rivera acquired by purchase
the pilot boat Valentina on behalf of the plaintiff Rubiso; but it is
no less true that the sale of the vessel by Sy Qui to Florentino E.
Rivera, on January 4, 1915, was entered in the customs registry
only on March 17, 1915, while its sale is public auction to Fausto
Rubiso on the 23d of January of the same year, 1915, was
recorded in the office of the Collector of Customs on the 27th of
the same month, and in the commercial registry on the 4th of
March, following; that is, the sale on behalf of the defendant
Rivera was prior to that made at public auction to Rubiso, but
the registration of this latter sale was prior by may days to the
sale made to the defendant.
Article 573 of the Code of Commerce provides, in its first
paragraph:jgc:chanrobles.com.ph
"Merchant vessels constitute property which may be acquired an
transferred by any of the means recognized by law. The
acquisition of a vessel must be included in a written instrument,
which shall not produce any effect with regard to third persons if
not recorded in the commercial registry."cralaw virtua1aw library
So that, pursuant to the above-quoted article, inscription in the
commercial registry was indispensable , in order that said
acquisition might affect, and produce consequences with respect
to third persons.
However, since the enactment of Act No. 1900, on May 18, 1909,
said article of the Code of Commerce was amended, as appears
by section 2 of that Act, herebelow transcribed.
"The documenting, registering, enrolling, and licensing of vessels
in accordance with the Customs Administrative Act and customs
rules and regulations shall be deemed to be a 900, on May 18,
1909, said article of the Code of Commerce was amended, as
appears by section 2 of that Act, herebelow transcribed.
"The documenting, registering, enrolling, and licensing of vessels
in accordance with the Customs Administrative Act and customs
rules and regulations shall be deemed to be a registry of vessels
within the meaning of title two of the Code of Commerce, unless
otherwise provided in said Customs Administrative Act or in said
customs rules and regulations, and the Insular Collector of
Customs shall perform the duties of commercial register
concerning the registering of vessels, as defined in title two of the
Code of Commerce."cralaw virtua1aw library
The requisite of registration on the registry, of the purchase of a
vessel, is necessary and indispensable in order that the
purchaser’s rights may be maintained against a claim filed by a
third person. Such registration is required both by the Code of
Commerce and by Act No. 1900. The amendment solely consisted
in charging the Insular Collector of Customs, as at present, with
the fulfillment of the duties of the commercial register concerning
the registering of vessels; so that the registration of a bill of sale
of a vessel shall be made in the office of the Insular Collector of
Customs, who, since May 18, 1909, has been performing the
duties of the commercial register in place of this latter official.
In view of said legal provisions, it is undeniable that the defendant
Florentino E. Rivera’s rights cannot prevail over those acquired
by Fausto Rubiso in the ownership of the pilot boat Valentina,
inasmuch as, though the latter’s acquisition of the vessel at
public auction, on January 23, 1915, was subsequent to its
purchase by the defendant Rivera, nevertheless said sale at
public auction was antecedently record in the office of the
Collector of Customs, on January 27, and entered in the
commercial registry. — An unnecessary proceeding-on March
4th; while the private and voluntary purchase made by Rivera on
a prior date was not recorded in the office of the Collector of
Customs until many days afterwards, that is, not until March 17,
1915.
The legal rule set down in the Mercantile Code subsists,
inasmuch as the amendment solely refers to the official who shall
make the entry; but, with respect to the rights of the two
purchases, whichever of them first registered his acquisition of
the vessel in the one entitled to enjoy the protection of the law,
which considers him the absolute owner of the purchased boat,
an this latter to be free of all encumbrance and all claims by
strangers for, pursuant to article 582 of the said code, after the
bill of the judicial sale at auction has been executed and recorded
in the commercial registry, all the other liabilities of the vessel in
favor of the creditors shall be considered canceled.
The purchaser at public auction, Fausto Rubiso, who was careful
to record his acquisition, opportunely and on prior date, has,
according to the law, a better right than the defendant Rivera who
subsequently recorded his purchase. The latter is a third person,
who was directly affected by the registration which the plaintiff
made of the acquisition.
Ships or vessels, whether moved by steam or by sail, partake, to
a certain extent, of the nature and conditions of real property, on
account of their value and importance in the world commerce;
and for this reason the provisions of article 573 of the Code of
Commerce are nearly identical with article 1473 of the Civil Code.
With respect to the indemnity for losses and damages, requested
by the plaintiff, aside from the fact, ad shown by the evidence,
that, subsequent to the date when the judgment appealed from
was rendered, the vessel in question emerged unharmed from the
place where it was stranded, and was, at the time of the trial,
anchored in the port of Maricaban, the record certainly does not
furnish any positive evidence of the losses and damages alleged
to have been occasioned. On the other hand, it cannot be affirmed
that the defendant acted in bad faith specifically because he
acquired the vessel on a date prior to that of its acquisition at
public auction by the plaintiff Rubiso, who, for the reasons
aforestated, is true and sole owner of said pilot boat.
For the foregoing considerations, whereby the errors assigned to
the judgment appealed from are deemed to have been refuted, it
is our opinion that said judgment should be, as it is hereby,
affirmed, with the costs against the appellant. So ordered.

Arrellano, C.J., Johnson, Carson, Street, and Malcolm, JJ.,

concur.

Araullo, J., did not take part.