G.R. No.

L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE
INSURANCE CO., LTD., respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship
and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at
Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages
valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare
parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and
Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa
Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of
ship and cargo. The respective respondent Insurers paid the corresponding marine insurance
values to the consignees concerned and were thus subrogated unto the rights of the latter as
the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed

suit against petitioner Carrier for the recovery of the amounts it had paid to the insured before
the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which,
on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and
Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed
suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then
Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness
of the ship and non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking
of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by
Sea Act (COGSA); and that when the loss of fire is established, the burden of proving
negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the
amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the
First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course
on March 25, 1985, and the parties were required to submit their respective Memoranda, which
they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No. 69044,
the lower-numbered case, which was then pending resolution with the First Division. The same
was granted; the Resolution of the Second Division of September 25, 1985 was set aside and
the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica
but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its
Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where
various plaintiffs are represented by various counsel representing various
consignees or insurance companies. The common defendant in these cases is
petitioner herein, being the operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are deemed admissions of that party
2
and binding upon it. And an admission in one pleading in one action may be received in evidence against the pleader

or his successor-in-interest on the trial of another action to which he is a party, in favor of a party to the latter action.
3

The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on Common
carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the
carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common carrier in case
of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the
Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not
regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce
and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the
Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each
case. 8 Common carriers are responsible for the loss, destruction, or deterioration of the goods unless the same is
due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster
or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This
must be so as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of
an act of God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier.
13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the rent is
allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases than those
mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost. Petitioner Carrier has
also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary diligence
required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel, Boatswain Ernesto
Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was
already big; that the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide was ordered released and

the crew was ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort were
not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The evidence of the
defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches
numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the care of
the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their condition
during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the
Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the
occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it under
Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability
for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the
same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the carrier shown by "lack of diligence"
in that "when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24) hours before the same was noticed; " and
that "after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent in connection
therewith. Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in bill of lading. This declaration if embodied in the bill of
lading shall be prima facie evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that mentioned in
this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the
carrier be Liable for more than the amount of damage actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the bill of lading, unless
the shipper or owner declares a greater value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package although the Code expressly
permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by
establishing a statutory provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of
lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as much a
part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss or
destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per
package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of damage actually
sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the amount of the insurance coverage by
Development Insurance (Exhibit "A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2")

Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or
"more than the amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is likewise the insured value of the
cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the present
prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those
spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA which was already reduced to
$1,000 by the Appellate Court following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate Court also limited Petitioner
Carrier's liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500
to arrive at the figure of $64,000, and explained that "since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was
correct in awarding said amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of floor covering brought action
against the vessel owner and operator to recover for loss of ingots and floor covering, which had been shipped in vessel supplied containers. The U.S.
District Court for the Southern District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals,
Second Division, modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units
is disclosed in the shipping documents, each of those units and not the container constitutes the "package" referred to in liability
limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished containers whose
contents are disclosed should be treated as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package is inconsistent with
the congressional purpose of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It
gives needed recognition to the responsibility of the courts to construe and apply the statute as enacted,
however great might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's
package limitation scheme suffers from internal illness, Congress alone must undertake the surgery. There is,
in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not warrant a distortion or artificial construction of
the statutory term "package." A ruling that these large reusable metal pieces of transport equipment qualify as
COGSA packages at least where, as here, they were carrier owned and supplied would amount to just
such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be
considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in
a carrier's container. I would liken these containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers'
packages are quite literally "stowed" in the containers utilizing stevedoring practices and materials analogous
to those employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979), another
district with many maritime cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional economics
test. Judge Kellam held that when rolls of polyester goods are packed into cardboard cartons which are then placed in containers,
the cartons and not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then placed by the shipper
into a carrier- furnished container. The number of cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the
Mitsui test and treated the cartons, not the container, as the COGSA packages. However, Eurygenes indicated that a carrier could
limit its liability to $500 per container if the bill of lading failed to disclose the number of cartons or units within the container, or if the
parties indicated, in clear and unambiguous language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery
Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or units, as well as the nature of the
goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be considered as the
shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually, however, containers are provided by
the carrier. 19 In this case, the probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if
they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are not already packed
into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry them in any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the goods could probably fit in two
(2) containers only. It cannot mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have
sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the interpretation of obscure words
20
or stipulations in a contract shall not favor the party who caused the obscurity.
This applies with even greater force in a contract of

adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this
case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in
Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this
point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27,
1978, when its answer was prepared and filed in Court, until September 26, 1978, when the pretrial conference was conducted for the last time, the defendant had more than nine months to
prepare its evidence. Its belated notice to take deposition on written interrogatories of its witnesses
in Japan, served upon the plaintiff on August 25th, just two days before the hearing set for August
27th, knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only proves the
lack of merit of the defendant's motion for postponement, for which reason it deserves no sympathy
from the Court in that regard. The defendant has told the Court since February 16, 1979, that it was
going to take the deposition of its witnesses in Japan. Why did it take until August 25, 1979, or
more than six months, to prepare its written interrogatories. Only the defendant itself is to blame for
its failure to adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was
denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due
process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the
Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in
favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of
P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay
the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of
calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the
date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.

G.R. No. L-31087 September 27, 1979

EASTERN SHIPPING LINES, INC., petitioner,
vs.
MARGARINE-VERKAUFS-UNION GmbH, respondent.
Ross, Salcedo, Del Rosario, Bito & Misa for petitioner.
Lichauco Picazo & Agcaoili for respondent.

TEEHANKEE, Acting C.J.:

The Court affirms the appealed judgment holding petitioner liable under the terms of its own bill
of lading for the damage suffered by respondent's copra cargo on board petitioner's vessel, but
sets aside the award of attorney's fees to respondent-plaintiff for lack of any statement or reason
in the lower court's judgment that would justify the award.
Respondent corporation, a West German corporation not engaged in business in the
Philippines, was the consignee of 500 long tons of Philippine copra in bulk with a total value of
US$ 108,750.00 shipped from Cebu City on board petitioner's (a Philippine corporation) vessel,
the SS "EASTERN PLANET" for discharge at Hamburg, Germany. Petitioner's bill of lading for
the cargo provided as follows:

... Except as otherwise stated herein and in - the Charter Party, this contract shag
be governed by the laws of the Flag of the Ship carrying the goods. In case of
average, same shall be adjusted according to York-Antwerp Rules of 1950.
While the vessel was off Gibraltar, a fire broke out aboard the and caused water damage to the
copra shipment in the amount of US$ 591.38. Petitioner corporation rejected respondent's claim
for payment of the and respondent filed on June 18, 1966 in the Manila court of first instance its
complaint against petitioner as defendant for recovery of the same and US$ 250.00 - attorney's
fees and expenses of litigation.

After trial, the lower court rejected petitioner's defense that did not exceed 5% of respondent's
interest in the cargo it was not liable under Philippine Law for the damage which I rendered
judgment on April 25, 1969 "ordering the defendant, Eastern Shipping Lines, Inc. to pay to the
plaintiff, Margarine-Verkaufs-Union GMBH, the sum of US$ 591.38, with interest at the legal rate
from the date of the filing of the complaint until fully paid, plus US$ 250.00 as attorney's fees
and the costs of the suit."
In this review on questions of law, petitioner reiterates as its first assignment t of error its
submittal that Article 848 of the Code of Commerce 1 which would bar claims for averages not exceeding
5% of the claimant's interest should be applied rather than the lower court's ruling that petitioner's bill of lading
expressly contained "an agreement to the contrary," i.e. for the application of the York-Antwerp Rules which provide
for respondent's fun recovery of the damage loss.
The Court finds no error and upholds the lower court's ruling sustaining respondent's damage claim although the
amount thereof did not exceed 5% of respondent's interest in the cargo and would have been barred by the cited
article of the Commerce Code. We hold that the lower court correctly ruled the cited codal article to be "not
applicable in this particular case for the reason that the bill of lading (Exhibit "F") contains "an agreement to the
contrary" for it is expressly provided in the last sentence of the first paragraph (Exhibit "1-A") that "In case of
average, same shall be adjusted according to York-Antwerp Rules of 1950." The insertion of said condition is
expressly authorized by Commonwealth Act No. 65 which has adopted in toto the U.S. Carriage of Goods by Sea
Act. Now, it has not been shown that said rules limit the recovery of damage to cases within a certain percentage or
proportion that said damage may bear to claimant's interest either in the vessel or cargo as provided in Article 848
of the Code of Commerce On the contrary, Rule 3 of said York-Antwerp Rules expressly states that "Damage done
to a ship and cargo, or either of them, by water or otherwise, including damage by breaching or scuttling a burning
ship, in extinguishing a fire on board the ship, shall be made good as general average. ... "
There is a clear and irreconcilable inconsistency between the York-Antwerp Rules expressly adopted by the parties
as their contract under the bill of lading which sustains respondent's claim and the codal article cited by petitioner
which would bar the same. Furthermore, as correctly contended by respondent, what is here involved is a contract
of adhesion as embodied in the printed bill of lading issued by petitioner for the shipment to which respondent as
the consignee merely adhered, having no choice in the matter, and consequently, any ambiguity therein must be
construed against petitioner as the author.
We find, however, petitioner's second and only other assignment of error against the award of attorney's fees of
US$ 250.00 to be well taken. The text of the lower court's decision stated no justification nor reason for the award of
attorney's fees and should therefore be disallowed. As restated in Buan vs. Camaganacan 2 , the general rule is
that it is contrary to sound public policy to place a penalty on the right to litigate nor should attorney's fees be
awarded everytime a party wins a lawsuit. Hence, Article 2208 of the Civil Code provides that "in the absence of
stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered," save for the
eleven exceptions therein expressly provided.

Insofar as the present case is concerned, the lower court made no finding that it falls within any of the exceptions
that would justify the award for attorney's fees, such as gross and evident bad faith in refusing to satisfy a plainly
valid, just and demandable claim. Even under the broad eleventh exception of the cited article which allows the
imposition of attorney's fees "in any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered," the Court stressed in Buan, supra, that "the conclusion must be borne
out by findings of facts and law. What is just and equitable in a given case is not a mere matter of feeling but of
demonstration .... Hence, the exercise of judicial discretion in the award of attorney's fees under Article 2208 (11) of
the Civil Code demands a factual, legal or equitable justification upon the basis of which the court exercises its
discretion. Without such a justification, the award is a conclusion without a premise, its basis being improperly left to
speculation and conjecture." The summary award of counsel's fees made in the appealed judgment must therefore
be set aside.
A final observation. The appealed judgment ordered petitioner to pay respondent the sum of US$591.38 with
interest at the legal rate (which we hold to be the rate of six [6%] per cent under Article 2209 of the Civil Code in
force at the time of the judgment of April 25, 1969) from the filing of the complaint on June 18, 1966 until fully paid.
Petitioner did not appeal from nor question this portion of the judgment requiring that it pay respondent-creditor the
damage claim with interest in U.S. currency (with reference to the general rule of discharging obligations in
Philippine currency measured at the prevailing rate of exchange 3 ). Consequently, we find no necessity to make
any further pronouncement thereon. We merely affirm the judgment in U.S. currency in favor of respondent
corporation, a foreign corporation not engaged in business herein, in view of petitioner's acquiescence therein and
view the judgment as one wherein the lower court sentenced petitioner to pay and remit to respondent as a nonresident foreign corporation the amount due under the judgment in U S. currency.
ACCORDINGLY, the appealed judgment is hereby affirmed with the modification that the award of attorney's fees is
set aside. With costs against petitioner.

G.R. No. L-5554

May 27, 1953

BENITO CHUA KUY, petitioner,

vs.
EVERRETT STEAMSHIP CORPORATION, respondent.
Carolina C. Grio, Deogracias Castaeda, Jr. and Sevilla, Aquino, Paras and Aguilla for petitioner.
Ozaeta, Roxas, Lichauco and Picazo for respondent.
BAUTISTA ANGELO, J.:
This is a petition for review of the decision of the Court of Appeals dated February 15, 1952 affirming
that of the Court of First Instance of Manila which holds that the action of petitioner "has already been
barred by operation of law."
The pertinent facts of this case as found by the Court of Appeals are:
It appears from the evidence that prior to January 6, 1947 the plaintiff placed with the indent or
Cumbrero and Sons and order for 500 cases of evaporated milk of 90 babies. The incident bought

the merchandise for the plaintiff from the Columbia Pacific Distributing Company of Portland,
Oregon, and its purchase price or the sum of $3,825, including the freight charges thereafter
amounting 4127.94, were paid by the plaintiff to said company through the China Banking
Corporation of Manila. On January 6, 1947, the Columbia Pacific Distributing Company loaded at
the port of Portland, Oregon, n board the S/S H.H. Raymond of the American Mail Line, Ltd.,
consigned to the order of the China Banking Corporation and Min Sheng Trading, Manila, a
quantity of goods described in the bill of lading as follows:

Loading Description of goods Gross Measurement

weight
cu. ft.

MTCO 500 Cases

evaporated milk 96
babies loaded on
board, January 6,
1947.

11,500

500

(Sgd.) Illegible

The S/S H.H. Raymond arrived at the port of Manila on February 21,1947, discharged the cargo
covered by the above bill of lading and delivered it to the custody of the Manila Terminal
Company. On February 26, 1947, the Manila Terminal Company delivered the cargo to Mun
Sheng Trading, through the Serrano Transportation, a local broker, under a receipt of the following
tenor:
Received from the Serrano Transportation the following merchandise in good order and condition:

Marks & No. of

packages

MTCO
500
Manila

(Exh. "B")

Contends

Remarks

Ctns. Evap. Milk

(48 Babies)
CPH, 62026

Five hundred only

When the contends of the cases were unpacked, the plaintiff discovered that the cargo delivered to
him consisted of 500 cases of 48 babies of evaporated milk, and not 96 babies as ordered by him.
The plaintiff immediately gave notice to the defendant of the shortage in the cargo delivered, and

later on filed with the latter a formal claim for said loss which amounted to P3,911.06. Certain
negotiations for the amicable settlement of the matter having failed, this action was instituted on
May 7, 1948.
The main issues raised in this appeal are: (1) Whether the Carriage of Goods by Sea Act is applicable to
this particular case, as claimed by respondent, or the same should be governed by the Code of Commerce
or other laws, as claimed by petitioner; (2) Whether the action of petitioner has already prescribed; and (3)
Whether respondent should pay the indemnity claimed in the complaint.
(1) The Carriago of Goods by Sea Act was enacted by the United States Congress on April 16, 1936 (46
U.S.C.A. 1300). Section 13 of said Act provides that it shall apply "to all contracts of carriage of goods
byes to or from ports of the United States in foreign trade." The term "United States" was therein defined
as including its districts, territories and possessions.
When said Act was enacted by the United States Congress the political status of the Philippines was then a
Commonwealth Government and, therefore, was a territory of the United States. In view of the particular
then existing between the United States and the Philippines, Congress gave the latter the choice of making
or not making the provisions of said Act applicable to transportation to or from ports of the Philippines by
inserting in section 13 thereof a proviso to the effect that "the Philippine Legislature may, by law, exclude
its application to transportation to or from ports of the Philippines Islands". The Commonwealth
Government, however, elected to accept and make applicable to the Philippines said Act through
Commonwealth Act No. 65 approved on April 22, 1936, wherein it was provided (section 1)that the
provisions of the Carriage of Goods by Sea Act are 'hereby accepted to be made applicable to all contracts
for the carriage of goods by sea to and from Philippine ports in foreign trade; Provided, That nothing in
this Act shall be construed as repailing any existing provisions of the Code of Commerce which is now in
force, or as limiting its application".

In view of the fact that section 13 of the Carriage of Goods by Sea Ac provides, among other things, that
"Nothing in this Act shall be held to apply to contracts for carriage of goods by sea between any port of
the United States or its possession, and, any other port of the United States or its possessions," petitioner
now contends that said Act cannot apply to the contract for carriage of the goods in question because at
the time said Act was made applicable to the Philippines the latter was still a possession or territory of the
United States. In other words, it is contended that the Acts has applicable only to transporation of goods in
foreign trade, or between ports of the United States and ports of foreign countries, and since the
Philippines was not a a foreign country at that time, it does not come within the purview of said Act,
unless proper amendment is previously made in the law.
Granting arguendo that the Philippines was a territory or possession of the United States for the purposes
of said Act, a different situation obtained after it had become an independent state on July 4 18936, which
eventuality fully places it within the purview of said Act. If before its declaration of independence, the
trade relations between the Philippines and the United States could only be considered in a domestic
sense, after it had become independent said trade relations must have of necessity acquired the character
of foreign within the meaning of said Act. And there is no need of an express legislation to have the
provisions of said Act applicable to the Philippines upon the advent of independence, as claimed by
petitioner, for the simple reason that, foreseeing that eventuality, our legislative body, in enacting
Commonwealth Act No. 65, already provided therein that said provisions should be made applicable "to
all contracts for the carriage of goods by sea to and from Philippine ports of foreign trade." This express
proviso clearly paves the way for the application of the Carriage of Goods Sea Act to all contracts from

Philippine ports to her foreign countries, including the United States. We therefore find that the Court of
Appeals did not erring holding that Act applicable to the transaction under consideration.
(2) Having arrived at the foregoing conclusion, the next question to consider is whether the present action
has already prescribed. To answer this question we need to resort to the provisions of said Act which as
already stated, applies to the present case. Section 3, subsection 6, of this Act provides in part:
In any event the carrier and the ship shall be discharged from all liability in respect or damage
unless suit is brought within the one year after delivery of the goods or the date when the goods
should have been delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or prejudice the
right of the shipper to bring suit which one year after the delivery of the goods or the date when
the goods should have been delivered.
There is no dispute in the evidence that the cargo in question was brought to the City of Manila,
Philippines, from Portland, Oregon, U.S.A., on board a foreign ship; that the cargo was unloaded at the
port of Manila and delivered to petitioner on February 26, 1947; that the alleged shortage in the cargo was
discovered by petitioner on the same date; and that this action was given to respondent, as local agent of
the owner of the ship, also on the same date; and that this action was commenced only on May 7, 1948, or
after the lapse one year, two months and nine days from the delivery of the goods to petitioner.
Considering that, under the provision above-quoted, an action for recovery of loss or damage in
connection with certain within one year after delivery of said cargo, it would seem evident that the action
of petitioner has already prescribed.
Petitioner, however, contends that the prescriptive period embodied in the Carriage of Goods by Sea Act
has no application to the case at bar because the period of prescription that should be considered is that
embodies in the Code of Civil Procedure, which repealed the provisions of the Code of Commerce on the
subject and because, even assuming that the Carriage of Goods by Sea Act applies to this particular
transaction, the prescriptive period provided therein could not apply to petitioner upon the theory that
"such time-bar applies to the shipper only, and not to a person other than the shipper." In other words, it is
contended that, under said Act, the action to recover loss or damage can only be brought by the shipper
and not any other person interested in the transaction.
The claim that the prescriptive period to be considered in this case is that embodied in the Code of Civil
Procedure is untenable for the simple reason that this is a general law which only applies to cases not
covered by any special act. As we have already stated, the transaction under consideration is covered by
the Carriage of Goods by Sea Act, and since this is a special act, its general application. To hold otherwise
would be render nugatory the prescriptive provision contained in that special Act.
Neither do we find tenable the claim that the prescriptive period contained in said act can only invoked by
the shipper, excluding all other parties to the transaction. While apparently the proviso contained in the
portion of section 3(6) of the act we have quoted gives the impression that the right to file suit within one
year after delivery of the goods applies to the shipper alone, however, reading the proviso in conjunction
with the rest of section 3(6), it at once becomes apparent that the conclusion drawn by petitioner is
unwarranted. In the first place, said section provides that the notice of loss or damage for which a claim
for indemnity maybe made should be given in writing to the carrier at the port of discharge before or at
the time of the removal of the goods, and if the loss or damage is not apparent said notice should be given
"within three days of the delivery." From the language of this section, it seems clear that the notice of loss
or damage is required to be filed not necessarily by the shipper but also by the consignee or any legal
holder of the bill of lading. In fact, said section requires that the notice be given at the port of discharge

and the most logical party to file the notice is either the consignee or the endorsee of the bill of lading. In
the second place, a study of the historical background of this particular provision will show that although
the word shipper is used in the proviso referred to by petitioner, the intention of the law was not to
exclude the consignee or endorsee of the bill of lading from bringing the action but merely to limit the
filing of the same within one year after the delivery of the goods at the port of discharge. [The Southern
Cross, 1940 A. M. C. 59 (SDNY); Lindgren vs. Farley, 1938 A. M. C. 805 (SDNY)].
Arnold W. Knauth, an eminent authority on admiral commenting on this proviso, says:
The American Act contains an added proviso, which is not in any other Hague Rules text, intended
to clarify the foregoing. This was one of the American amendments agreed to at the 1930 Chamber
of Commerce Conference. It provides, in addition to the text of the Rule, that
If a notice of loss or damage, either apparent or concealed is not given as provided for in this
section, the fact shall not affect or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should have been delivered.
It seems evident that this language does not alter the sense of the text of the Hague Rules; it
merely reiterates in another form the rule already laid down. Curiously, the proviso seems limited
to the rights of shippers, and might strictly be construed not to any rights to consignees,
representatives, or surrogated parties; whereas the Hague Rules phraseology is broader. As the Act
contains both phrases, it would seem to be as broad as the broader of the two forms of words."
(Ocean Bills of Lading, by Knauth, p. 229.)
Petitioner finally contends that the negotiations between petitioner and respondent conducted with a view
to reaching an amicable settlement between them and which caused the delay in the filing of the present
action constitute a waiver on the part of the respondent to set up the prescriptive period or operates as a
estoppel on his part to rely on such prescriptive period to the prejudice of petitioner. This contention is
also untenable. The rule is well-settled that a mere proposal for arbitration or the fact that negotiations
have been made for the adjustment of a controversy, even if the proposal is not acted upon, or the
adjustment is not carried out, does not suspend the running of the period of prescription, unless there is an
express agreement to the contrary. Here there is no such agreement.
The mere pendency of negotiations for the adjustment of a controversy does not suspend the
statutory prescription against an action on the claim involved. Where the negotiations result in an
agreement to submit a controversy to the attorneys of the respective parties for them to advise a
plan of settlement, but the attorneys do not act on such agreement, limitations are not tolled during
the period of submission in the absence of a provision of the agreement specifically tolling
limitations, and the mere fact that there are negotiations with a view of referring a disputed matter
to arbitrators does not suspend the running of the statute, there being no express agreement to
suspend legal remedies to await the issue of the negotiation. (54 C. J. S., pp. 284-285.)
Having reached the foregoing conclusion, the other issues raised by petitioner need not be considered.
Wherefore, the decision appealed fr

om is hereby affirmed, with costs against the petitioner.

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.

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.

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 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 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 precondition. 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.

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.

[G.R. No. 71929 : December 4, 1990.]

192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO,
Respondents.
DECISION
NARVASA, J.:
Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a research
grantee of the Philippine Atomic Energy Agency was invited to take part at a meeting of the
Department of Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and
Agriculture of the United Nations in Ispra, Italy. 2 She was invited in view of her specialized
knowledge in "foreign substances in food and the agriculture environment." She accepted the
invitation, and was then scheduled by the organizers, to read a paper on "The Fate of Radioactive
Fusion Products Contaminating Vegetable Crops." 3 The program announced that she would be the
second speaker on the first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked
passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time table
set for her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her
luggage was "delayed inasmuch as the same . . . (was) in one of the succeeding flights from Rome
to Milan." 5 Her luggage consisted of two (2) suitcases: one contained her clothing and other
personal items; the other, her scientific papers, slides and other research material. But the other
flights arriving from Rome did not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired
about her suitcases in the domestic and international airports, and filled out the forms prescribed by
ALITALIA for people in her predicament. However, her baggage could not be found. Completely
distraught and discouraged, she returned to Manila without attending the meeting in Ispra, Italy.
: nad

Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by
her. ALITALIA offered her "free airline tickets to compensate her for any alleged damages. . . ." She
rejected the offer, and forthwith commenced the action 6 which has given rise to the present
appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only
on the day after her scheduled appearance and participation at the U.N. meeting there. 8 Of course
Dr. Pablo was no longer there to accept delivery; she was already on her way home to Manila. And
for some reason or other, the suitcases were not actually restored to Prof. Pablo by ALITALIA until
eleven (11) months later, and four (4) months after institution of her action. 9

After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's
favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND
PESOS (P20,000.00), Philippine Currency, by way of nominal damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00),
Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the
judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's decision but also
increased the award of nominal damages payable by ALITALIA to P40,000.00. 12 That increase it
justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed by
defendant, the amount of P20,000.00 under present inflationary conditions as awarded . . . to
the plaintiff as nominal damages, is too little to make up for the plaintiff's frustration and
disappointment in not being able to appear at said conference; and for the embarrassment
and humiliation she suffered from the academic community for failure to carry out an official
mission for which she was singled out by the faculty to represent her institution and the
country. After weighing carefully all the considerations, the amount awarded to the plaintiff
for nominal damages and attorney's fees should be increased to the cost of her round trip air
fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the same points it
tried to make before the Trial Court and the Intermediate Appellate Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages
and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have
refused to pass on all the assigned errors and in not stating the facts and the law on which its
decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing it took
place on board the aircraft or in the course of its operations of embarking or disembarking;
17
2) the destruction or loss of, or damage to, any registered luggage or goods, if the
occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however, founded, can
only be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1. In the carriage of passengers the liability of the carrier for each passenger is limited to the
sum of 250,000 francs . . . Nevertheless, by special contract, the carrier and the passenger
may agree to a higher limit of liability.
: nad

2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited
to a sum of 250 francs per kilogramme, unless the passenger or consignor has made, at the
time when the package was handed over to the carrier, a special declaration of interest in
delivery at destination and has paid a supplementary sum if the case so requires. In that case
the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that
sum is greater than the actual value to the consignor at delivery.

b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any
object contained therein, the weight to be taken into consideration in determining the amount
to which the carrier's liability is limited shall be only the total weight of the package or
packages concerned. Nevertheless, when the loss, damage or delay of a part of the
registered baggage or cargo, or of an object contained therein, affects the value of other
packages covered by the same baggage check or the same air way bill, the total weight of
such package or packages shall also be taken into consideration in determining the limit of
liability.
3. As regards objects of which the passenger takes charge himself the liability of the carrier is
limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its
own law, in addition, the whole or part of the court costs and of the other expenses of
litigation incurred by the plaintiff. The foregoing provision shall not apply if the amount of the
damages awarded, excluding court costs and other expenses of the litigation, does not
exceed the sum which the carrier has offered in writing to the plaintiff within a period of six
months from the date of the occurrence causing the damage, or before the commencement
of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or
limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered to be equivalent to wilful
misconduct," or "if the damage is (similarly) caused . . by any agent of the carrier acting within the
scope of his employment." 22 The Hague Protocol amended the Warsaw Convention by removing
the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it is proved that the
damage resulted from an act or omission of the carrier, its servants or agents, done with intent to
cause damage or recklessly and with knowledge that damage would probably result." The same
deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could
recover unlimited damages upon proof of wilful misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an airline's
liability, or as an absolute limit of the extent of that liability. Such a proposition is not borne out by
the language of the Convention, as this Court has now, and at an earlier time, pointed out. 25
Moreover, slight reflection readily leads to the conclusion that it should be deemed a limit of liability
only in those cases where the cause of the death or injury to person, or destruction, loss or damage
to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad
faith, recklessness, or otherwise improper conduct on the part of any official or employee for which
the carrier is responsible, and there is otherwise no special or extraordinary form of resulting injury.
The Convention's provisions, in short, do not "regulate or exclude liability for other breaches of
contract by the carrier" 26 or misconduct of its officers and employees, or for some particular or
exceptional type of damage. Otherwise, "an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage,
which is absurd." 27 Nor may it for a moment be supposed that if a member of the aircraft
complement should inflict some physical injury on a passenger, or maliciously destroy or damage the
latter's property, the Convention might successfully be pleaded as the sole gauge to determine the
carrier's liability to the passenger. Neither may the Convention be invoked to justify the disregard of
some extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond
the limits set by said Convention. It is in this sense that the Convention has been applied, or
ignored, depending on the peculiar facts presented by each case.
:-cralaw

In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was applied
as regards the limitation on the carrier's liability, there being a simple loss of baggage without any
otherwise improper conduct on the part of the officials or employees of the airline or other special
injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not
restrictive of the carrier's liability, where there was satisfactory evidence of malice or bad faith

attributable to its officers and employees. 29 Thus, an air carrier was sentenced to pay not only
compensatory but also moral and exemplary damages, and attorney's fees, for instance, where its
employees rudely put a passenger holding a first-class ticket in the tourist or economy section, 30
or ousted a brown Asiatic from the plane to give his seat to a white man, 31 or gave the seat of a
passenger with a confirmed reservation to another, 32 or subjected a passenger to extremely rude,
even barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of
petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but
without appreciable damage. The fact is, nevertheless, that some special species of injury was
caused to Dr. Pablo because petitioner ALITALIA misplaced her baggage and failed to deliver it to her
at the time appointed a breach of its contract of carriage, to be sure with the result that she
was unable to read the paper and make the scientific presentation (consisting of slides,
autoradiograms or films, tables and tabulations) that she had painstakingly labored over, at the
prestigious international conference, to attend which she had traveled hundreds of miles, to her
chagrin and embarrassment and the disappointment and annoyance of the organizers. She felt, not
unreasonably, that the invitation for her to participate at the conference, extended by the Joint
FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations, was a singular
honor not only to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of scientific activity.
The opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's
breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety,
which gradually turned to panic and finally despair, from the time she learned that her suitcases
were missing up to the time when, having gone to Rome, she finally realized that she would no
longer be able to take part in the conference. As she herself put it, she "was really shocked and
distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be
restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As already
mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely. She is however
entitled to nominal damages which, as the law says, is adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated and recognized,
and not for the purpose of indemnifying the plaintiff for any loss suffered and this Court agrees
that the respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the
purely technical argument that the award to her of such nominal damages is precluded by her
omission to include a specific claim therefor in her complaint, it suffices to draw attention to her
general prayer, following her plea for moral and exemplary damages and attorney's fees, "for such
other and further just and equitable relief in the premises," which certainly is broad enough to
comprehend an application as well for nominal damages. Besides, petitioner should have realized
that the explicit assertion, and proof, that Dr. Pablo's right had been violated or invaded by it
absent any claim for actual or compensatory damages, the prayer thereof having been voluntarily
deleted by Dr. Pablo upon the return to her of her baggage necessarily raised the issue of nominal
damages.
: rd

This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr.
Pablo, and the amount of P5,000.00 set by it is reasonable in the premises. The law authorizes
recovery of attorney's fees inter alia where, as here, "the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur expenses to protect his interest," 34 or "where
the court deems it just and equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it
appearing on the contrary to be entirely in accord with the facts and the law, said decision is hereby
AFFIRMED, with costs against the petitioner.
SO ORDERED.

G.R. No. 74978 September 8, 1989

MARKET DEVELOPERS, INC. (MADE), petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and GAUDIOSO UY, respondents.
Tanjuatco, Oreta, Tanjuatco & Factoran for petitioner.
Rodolfo M. Morelos for private respondent.

CRUZ, J.:
What one rnay notice at the outset about this case is that the private respondent, although the
plaintiff in the court a quo, seems to have lost all interest after the decision in his favor was
appealed to the respondent court. He did not even submit a brief. 1 Later, when this petition was filed
and he was required to comment, he also failed to do so. Required to show cause for his non-compliance, he
explained that his records of the case had been misplaced. Anyway, he said, he could not add to the evidence
presented at the trial; hence, he was submitting the case for resolution by this Court without further pleadings. 2
It is not as simple as that. The petitioner has raised substantial arguments not touched in the decision under
challenge. It was in the private respondent's interest to refute these arguments if he was to maintain his advantage.
Notably, the issues raised by the petitioner are mainly legal and could have been answered without much need of
referring to the records. If there was such a need, it would have been easy for the private respondent to consult the
records in this Court, which were available to him. But it is now too late for him to do so because of his waiver.
The private respondent's seeming indifference becomes an the more costly to him in the light of the challenged
decision of the respondent court. 3 It was rather sketchy, to say the least. Hardly an original idea or finding was
volunteered. The appellate court made a brief recital of the facts, summarized the allegations of the plaintiff and the
defendant, quoted at length the findings and conclusions of the trial court 4 declared them well-taken and
meritorious," and concluded by aiming the appealed decision in toto. It was a mistake for the private respondent to
fully rely on that unsatisfactory decision.
It appears that on June 20, 1978, petitioner Market Developers, Inc. (MADE) entered into a written barging and to
wage contract with private respondent Gaudioso Uy for the shipment of the former's cargo from Iligan City to
Kalibo, Aklan, at the rate of P 1.45 per bag. The petitioner was allowed 4 lay days and agreed to pay demurrage at
the rate of P5,000.00 for every day of delay, or in excess of the stipulated allowance. 5 On June 26, 1978, Uy sent a
barge and a tugboat to Iligan City and loading of the petitioner's cargo began immediately. It is not clear who made
the request, but upon completion of the loading on June 29, 1978, the parties agreed to divert the barge to Culasi,
Roxas City, with the cargo being consigned per bill of lading to Modem Hardware in that City. 6 This new agreement
was not reduced to writing. The shipment arrived in Roxas City on July 13, 1978, and the cargo was eventually
unloaded and duly received by the consignee. There is some dispute as to the time consumed for such unloading.
At any rate, about six months later, Uy demanded payment of demurrage charges in the sum of P40,855.40 for an
alleged delay of eight days and 4/25 hours. 7 MADE ignored this demand, and Uy filed suit. He was sustained by
the trial court, which ordered the petitioner to pay him the said amount with interest plus P4,000.00 attomey's fees
and the cost of the suit. 8 As earlier stated, this decision was fully affirmed on appeal to the respondent court, which
is the reason for this petition.
Agreeing with the trial court, the respondent court held that since the diversion of tile cargo to Roxas City was not
covered by a new written agreement, the original agreement must prevail.
It is this conclusion that is now disputed by the petitioner, which contends that the first written contract was replaced
by a new verbal agreement that did not contain any stipulation for demurrage. There is the further insistence that
the alleged delay in the unloading of the cargo in Roxas City should not have been readily assumed as a fact by the
trial and respondent courts because it had not been established by competent evidence and was based on mere
hearsay. The petitioner also argues that the claim for demurrage was barred by laches, the private respondent
having asserted it tardily and obviously only as an afterthought. 9

After considering the issues and the arguments of the parties, we find that it was erroneous for the respondent
courts to affirm that the original contract concluded on June 20, 1978, continued to regulate the relations of the
parties. What it should have held instead was that the first written contract had been cancelled and replaced by the
second verbal contract because of the change in the destination of the cargo.
In his testimony, the private respondent said he felt there was no need to draft another agreement as anyway the
rates remained unchanged at P1.45 per sack of the petitioner's cargo. He did not consider, however, that there was
a substantial difference between Roxas City and Kalibo, Aklan, as ports of destination, that affected the continued
existence of the first contract.
As correctly pointed out by the petitioner, Roxas City is a much busier poet, than Kalibo, Aklan, where unloading of
its cargo could have been accomplished faster because of the lighter traffic. That is why he agreed to pay
demurrage charges under the original contract but not under the revised verbal agreement. Testifying for the
petitioner, Julian Chua, its sales manager, declared that he had expressed misgivings about paying demurrage
charges in Roxas City but was assured by Uy that there would be no such charges. 10 This testimony was never
denied by the private respondent.
Indeed, it would have been foolhardy for the petitioner to assume demurrage charges in Roxas City, considering the
crowded condition of the port in that place. Such assumption should not have been lightly inferred, especially since
it is based on the resurrection of a contract already voided because of the change in the port of destination. To hold
that the old agreement was still valid and subsisting notwithstanding this substantial change was to impose upon
the petitioner a condition he had not, and would not have, accepted under the new agreement.
In ruling that in the absence of a new written agreement the old agreement must prevail, the courts a quo were
saying that the first agreement continued to be valid because the second was void. That is hardly a logical
conclusion. If the first contract was, indeed, still valid, then it was clearly violated because of the diversion of the
cargo which, if we follow the reasoning of the courts a quo, could not have been agreed upon verbally.
Was the second contract invalid because it was not in writing?
Article 1356 of the Civil Code provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable. ...
We affirmed this rule only recently when we said in Tong v. Intermediate Appellate Court 11 that "a contract may be
entered into in whatever form except where the law requires a document or other special form as in the contracts
enumerated in Article 1388 of the Civil Code. The general rule, therefore, is that a contract may be oral or written."
The contract executed by MADE and Uy was a contract of affreightment. As defined, a contract of affreightment is a
contract with the shipowner to hire his ship or part of it, for the carriage of goods, and generally takes the form
either of a charter party or a bin of lading. 12
Article 652 of the Code of Commerce provides that "a charter party must be drawn in duplicate and signed by the
contracting parties" and enumerates the conditions and information to be embodied in the contract, including "the
lay days and extra lay days to be allowed and the demurrage to be paid for each of them."
But while the rule clearly shows that this kind of contract must be in writing, the succeeding Article 653 just as
clearly provides:
If the cargo should be received without a charter party having been signed, the contract shall be
understood as executed in accordance with what appears in the bill of lading, the sole evidence of
title with regard to the cargo for determining the rights and obligations of the ship agent, of the
captain and of the charterer.

We read this last provision as meaning that the charter party may be oral, in which case the terms thereof, not
having been reduced to writing, shall be those embodied in the bin of lading.
Conformably, we recognized in Compania Maritima v. Insurance Company of North America, 13 the existence of a
contract of affreightment entered into by telephone, where it was shown that this oral agreement was later
confirmed by a formal and written booking issued by the shipper's branch office and later carried out by the carrier.
We see no reason why the second agreement of the parties to deliver the petitioner's cargo to Roxas City instead of
Kalibo, Aklan, should not be recognized simply because it was not in writing. Law and jurisprudence support the
validity of such a contract. And there is no justification either to incorporate in such contract the stipulation for
demurrage in the original written contract which provided for a different port of destination than that later agreed
upon by the parties. It was precisely this vital change in the second contract that rendered that first contract
ineffectual.
If the rate provided for in the old written contract was maintained in the new oral contract, it was simply because, as
the private respondent himself declared, the rates for Kalibo, Aklan and Culasi, Roxas City, where the same. But
the demurrage charges cannot be deemed stipulated also in the verbal contract because the conditions in the ports
of Aklan and Roxas City were, unlike the rates, not the same. In fact, they were vastly different.
The parol evidence rule is clearly inapplicable because that involves the verbal modification usually not allowed a
written agreement admittedly still valid and subsisting. In the case at bar, the first written agreement had not merely
been modified but actually replaced by the second verbal agreement, which is perfectly valid even if not in writing
like the first. As has been correctly held:
No principle of law makes it necessary that a new contract upon the same subject between the
same persons shall be reduced to writing because the old contract was written. 14
Regarding the bill of lading, an examination thereof will reveal that there is no condition or requirement therein for
the payment of demurrage charges. Under the afore-quoted Article 653 of the Code of Commerce, therefore, there
was no reason to read any stipulation for demurrage into the second contract.
At that, even assuming that the original agreement for demurrage had been carried over in the second contract,
there is no acceptable evidence of the delay allegedly incurred by the petitioner in the unloading of its cargo in
Roxas City. Uy's testimony on this matter is self-serving, let alone the fact that he admittedly was not present at the
unloading. His corroboration is hearsay. This consisted merely of Exhibits B and C, 15 the so-called statement of
facts regarding the unloading of the cargo from the barge, prepared by the barge patron, a certain Ding Julian. This
person was not presented at the trial to testify on his report and could therefore not be subjected to cross
examination.
A no less important consideration is the timeliness of the private respondent's demand for the payment of
demurrage charges as this would indicate the real intention of the parties regarding this matter.
The petitioner points out that the original bill sent by the private respondent charged it only for the freight but made
no mention of the demurrage charges. The trial court correctly noted, and the respondent court agreed, that "this is
so because at the time Exhibit '2' was made which was on July 8, 1978, there was yet no demurrage. As a matter of
fact, unloading had not yet started. The unloading started on July 13, 1978. (Exh. "D")
True. But accepting arguendo the facts stated in the mentioned exhibits, we find that after sending the petitioner the
billing dated July 8, 1978, the private respondent did not make any additional billing for demurrage following the
completion of the unloading on July 24, 1978, as alleged. It is also a matter of record that on September 1, 1978,
the petitioner remitted to Uy a check "in full payment of our account," 16 which was accepted without protest and
eventually encashed by the private respondent. Furthermore, the petitioner's sales manager testified that MADE
and Uy entered into at least one more voyage afterwards, and there was no demand made then for the demurrage
charges for the voyage to Roxas City. 17 This has not been denied. Uy says he made such demand verbally several
times but offered no corroboration. It was only on February 5, 1979, that he made his demand in writing. 18

Considering that Uy's original billing for freightage was made even while the petitioner's cargo was still being
unloaded in Roxas City, one can only wonder why the billing for the demurrage charges was not made with similar
dispatch, that is, soon after the alleged delay. Uncharacteristically, that billing was not at all prompt; indeed, it was
inexplicably deferred. It is not explained either why, when the petitioner remitted what it expressly described as "fun
payment" of its account, Uy did not make haste to say that the demurrage charges were still outstanding nor did he
mention this claim when he later entered into another freightage contract with the petitioner. More curiously, it took
all of six months before it occurred to Uy to make a written demand for demurrage although he says his several
verbal demands had been consistently ignored.
The Court finds that while this delay, standing by itself, is not long enough to constitute laches, it nevertheless
clearly reflects on the private respondent's credibility when assessed in relation to the facts above narrated.
The sum of it all is that while private respondent could have met all the arguments of the petitioner frontally, he
elected to rely merely on the decisions of the trial court and the respondent court, perhaps feeling smuggly that he
had already won. That was his error. He misjudged those judgments. It should never be assumed that when this
Court sits to review the decisions of the lower courts, it will merely and automatically affirm them without further
inquiry on the convenient assumption that they are correct. That may be a presumption, and it is often valid, but it is
never conclusive upon us. Such decisions are always examined carefully and thoroughly by this Court, in the light
of the issues and arguments raised by the parties before it, and may be modified or even reversed whenever
warranted to give the deserving suitor the appropriate relief As in this case.
WHEREFORE, the petition is GRANTED. The decision of the respondent court is REVERSED. Civil Case No. R
18095 in the Regional Trial Court of Cebu is hereby dismissed, with costs against the private respondent.
SO ORDERED.

G.R. No. L-51910 August 10, 1989

LITONJUA SHIPPING COMPANY INC., petitioner
vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.
Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.
Estratonico S. Anano for private respondent.

FELICIANO, J.:
In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks to
annul and set aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB") in
NSB Case No. 1331-77 affirming the decision dated 17 February 1977 of the NSB hearing
officer which adjudged petitioner Litonjua liable to private respondent for violation of the latter's
contract of employment and which ordered petitioner to pay damages.
Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping
Corporation ('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign registry owned
by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the

Dufton Bay was in the port of Cebu and while under charter by Fairwind, the vessel's master
contracted the services of, among others, private respondent Gregorio Candongo to serve as
Third Engineer for a period of twelve (12) months with a monthly wage of US$500.00. This
agreement was executed before the Cebu Area Manning Unit of the NSB. Thereafter, private
respondent boarded the vessel. On 28 December 1976, before expiration of his contract, private
respondent was required to disembark at Port Kelang, Malaysia, and was returned to the
Philippines on 5 January 1977. The cause of the discharge was described in his Seaman's Book
as 'by owner's arrange". 1
Shortly after returning to the Philippines, private respondent filed a complaint before public respondent NSB, which
complaint was docketed as NSB-1331-77, for violation of contract, against Mullion as the shipping company and
petitioner Litonjua as agent of the shipowner and of the charterer of the vessel.
At the initial hearing, the NSB hearing officer held a conference with the parties, at which conference petitioner
Litonjua was represented by one of its supercargos, Edmond Cruz. Edmond Cruz asked, in writing, that the hearing
be postponed for a month upon the ground that the employee of Litonjua in charge of the case was out of town. The
hearing officer denied this request and then declared petitioner Litonjua in default. At the hearing, private
respondent testified that when he was recruited by the Captain of the Dufton Bay, the latter was accompanied to the
NSB Cebu Area Manning Unit by two (2) supercargos sent by petitioner Litonjua to Cebu, and that the two (2)
supercargos Edmond Cruz and Renato Litonjua assisted private respondent in the procurement of his National
Investigation and Security Agency (NISA) clearance. Messrs. Cruz and Litonjua were also present during private
respondent's interview by Captain Ho King Yiu of the Dufton Bay.
On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, 2 the dispositive portion of
which read:
Wherefore, premises considered, judgment is hereby rendered ordering the respondents R.D.
Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc., jointly and solidarily to pay the
complainant the sum of four thousand six hundred fifty seven dollars and sixty three cents
($4,657.63) or its equivalent in the Phil. currency within 10 days from receipt of the copy of this
Decision the payment of which to be coursed through the then NSB.
The above conclusion was rationalized in the following terms:
From the evidence on record it clearly appears that there was no sufficient or valid cause for the
respondents to terminate the services of complainant prior to 17 September 1977, which is the
expiry date of the contract. For this reason the respondents have violated the conditions of the
contract of employment which is a sufficient justification for this Board to render award in favor of
the complainant of the unpaid salaries due the latter as damages corresponding to the unexpired
portion of the contract including the accrued leave pay computed on the basis of five [51 days pay
for every month of service based at $500.00 monthly salary. Complainant's wages account further
show that he has an undrawn wage amounting to US$13.19 to be paid by the respondents
Philippine agency together with his accrued leave pay. 3
Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the motion was denied.
Petitioner next filed an "Appeal and/or Motion for Reconsideration of the Default Judgment dated 9 August 1977"
with the central office of the NSB. NSB then suspended its hearing officer's decision and lifted the order of default
against petitioner Litonjua, thereby allowing the latter to adduce evidence in its own behalf The NSB hearing officer,
on 26 April 1978, made the following findings:
While it appears that in the preparation of the employment papers of the complainant, what was
indicated therein was R.D. Mullion Co. (HK) Ltd. referring to Exhibit "B" (Standard Format of a
Service Agreement) and Exhibit "C" (Affidavit of Undertaking), as thecompany whom Captain Ho
King Yiu, the Master of the vessel Dufton Bay, was representing to be the shipowner, the fact
remains that at the time of the recruitment of the complainant, as duly verified by the National
Seamen Board, Cebu Area Manning Unit, the Litonjua Shipping Company was the authorized

agent of the vessel's charterer, the Fairwind Shipping Corporation, and that in the recruitment
process, the Litonjua Shipping Company through its supercargos in the persons of Edmund Cruz
and Renato Litonjua, had knowledge thereof and in fact assisted in the interviews conducted by the
Master of the crew applicants as admitted by Renato Litonjua including the acts of facilitating the
crew's NISA clearances as testified to by complainant. Moreover, the participation of the Litonjua
Shipping Corporation in the recruitment of complainant, together with the other crewmembers, in
Cebu in September 1976 can be traced to the contents of the letter of April 5, 1976 by the Fairwind
Shipping Limited, thru its Director David H.L. Wu addressed to the National Seamen Board, copy of
which is on file with Contracts and Licensing Division, quote:
This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local crewing Managing
Office to attend on our Crew requirements as well as attend to our ship's requirements when in
Philippine ports.
We further authorized Litonjua Shipping Co., Inc. to act as local representative who can sue and be
sued, and to bind and sign contracts for our behalf. 4
The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.
Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public respondent NSB rendered a
decision 5 which affirmed its hearing offices decision of 17 February 1977 and which read in part as follows:
It is clear that respondent Litonjua Shipping Co., Inc. is the authorized Philippine agent of Fairwind
Shipping Corporation, charterer of the vessel 'Dufton Bay, wherein complainant, served as 3rd
Engineer from 17 September until disembarkation on December 28, 1976. It is also clear from the
complainant's wages account bearing the heading 'Fairwind Shipping Corporation', signed by the
Master of the vessel that the Philippine agency referred to herein directed to pay the said
withdrawn wages of $13.19 is no other than Litonjua Shipping Company, Inc.
From this observation, it can be reasonably inferred that the master of the vessel acted for and in
behalf of Fairwind Shipping Corporation who had the obligation to pay the salary of the
complainant. It necessarily follows that Fairwind Shipping Corporation is the employer of said
complainant. Moreover, it had been established by complainant that Litonjua Shipping Company,
Inc., had knowledge of and participated, through its employee, in the recruitment of herein
complainant.
xxx xxx xxx
In view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the Philippines, which
provides that, 'The state shall afford protection to labor . . .' as well as the provisions of Art. 4
thereof, that 'all doubts in the implementation and interpretation of the provisions of the Code,
including its implementing rules and regulations, shall be resolved in favor of labor', it is our
conclusion, that the decision dated February 17, 1977, is based on evidence formally offered and
presented during the hearing and that there was no grave abuse of discretion committed by the
hearing officer in finding respondent Litonjua Shipping Company, Inc., liable to complainant.
(Emphasis supplied)
In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent NSB declaring the
charterer Fairwind as employer of private respondent, and for whose liability petitioner was made responsible, as
constituting a grave abuse of discretion amounting to lack of jurisdiction. The principal if not the sole issue to be
resolved here is whether or not the charterer Fairwind was properly regarded as the employer of private respondent
Candongo.
Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit:
1) As a general rule, admiralty law as embodied in the Philippine Code of Commerce fastens
liability for payment of the crew's wages upon the ship owner, and not the charterer; and

2) The evidence of record is grossly inadequate to shift such liability from the shipowner to the
petitioner. 6
Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private respondent; and that
liability for damages cannot be imposed upon petitioner which was a mere agent of the charterer. It is insisted that
private respondent's contract of employment and affidavit of undertaking clearly showed that the party with whom
he had contracted was none other than Mullion, the shipowner, represented by the ship's master. 7 Petitioner also
argues that its supercargos merely assisted Captain Ho King Yiu of the Dufton Bay in being private respondent as
Third Engineer. Petitioner also points to the circumstance that the discharge and the repatriation of private
respondent was specified in his Seaman's Book as having been "by owner's arrange." Petitioner Litonjua thus
argues that being the agent of the charterer and not of the shipowner, it accordingly should not have been held
liable on the contract of employment of private respondent.
We are not persuaded by petitioner's argument. We believe that there are two (2) grounds upon which petitioner
Litonjua may be held liable to the private respondent on the contract of employment.
The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the charterer. In
modern maritime law and usage, there are three (3) distinguishable types of charter parties: (a) the "bareboat" or
"demise" charter; (b) the "time" charter; and (c) the "voyage" or "trip" charter. A bareboat or demise charter is a
demise of a vessel, much as a lease of an unfurnished house is a demise of real property. The shipowner turns
over possession of his vessel to the charterer, who then undertakes to provide a crew and victuals and supplies and
fuel for her during the term of the charter. The shipowner is not normally required by the terms of a demise charter
to provide a crew, and so the charterer gets the "bare boat", i.e., without a crew. 8 Sometimes, of course, the
demise charter might provide that the shipowner is to furnish a master and crew to man the vessel under the
charterer's direction, such that the master and crew provided by the shipowner become the agents and servants or
employees of the charterer, and the charterer (and not the owner) through the agency of the master, has
possession and control of the vessel during the charter period. A time charter, upon the other hand, like a demise
charter, is a contract for the use of a vessel for a specified period of time or for the duration of one or more specified
voyages. In this case, however, the owner of a time-chartered vessel (unlike the owner of a vessel under a demise
or bare-boat charter), retains possession and control through the master and crew who remain his employees.
What the time charterer acquires is the right to utilize the carrying capacity and facilities of the vessel and to
designate her destinations during the term of the charter. A voyage charter, or trip charter, is simply a contract of
affreightment, that is, a contract for the carriage of goods, from one or more ports of loading to one or more ports of
unloading, on one or on a series of voyages. In a voyage charter, master and crew remain in the employ of the
owner of the vessel. 9
It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of the vessel,
the charterer assuming in large measure the customary rights and liabilities of the shipowner in relation to third
persons who have dealt with him or with the vessel. 10 In such case, the Master of the vessel is the agent of the
charterer and not of the shipowner. 11 The charterer or owner pro hac vice, and not the general owner of the vessel,
is held liable for the expenses of the voyage including the wages of the seamen. 12
It is important to note that petitioner Litonjua did not place into the record of this case a copy of the charter party
covering the M/V Dufton Bay. We must assume that petitioner Litonjua was aware of the nature of a bareboat or
demise charter and that if petitioner did not see fit to include in the record a copy of the charter party, which had
been entered into by its principal, it was because the charter party and the provisions thereof were not supportive of
the position adopted by petitioner Litonjua in the present case, a position diametrically opposed to the legal
consequence of a bareboat charter. 13 Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed to
show that it was not such, we believe and so hold that petitioner Litonjua, as Philippine agent of the charterer, may
be held liable on the contract of employment between the ship captain and the private respondent.
There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the contract of
employment of private respondent. The charterer of the vessel, Fairwind, clearly benefitted from the employment of
private respondent as Third Engineer of the Dufton Bay, along with the ten (10) other Filipino crewmembers
recruited by Captain Ho in Cebu at the same occasion. 14 If private respondent had not agreed to serve as such
Third Engineer, the ship would not have been able to proceed with its voyage. The equitable consequence of this
benefit to the charterer is, moreover, reinforced by convergence of other circumstances of which the Court must
take account. There is the circumstance that only the charterer, through the petitioner, was present in the

Philippines. Secondly, the scope of authority or the responsibility of petitioner Litonjua was not clearly delimited.
Petitioner as noted, took the position that its commission was limited to taking care of vessels owned by Fairwind.
But the documentary authorization read into the record of this case does not make that clear at all. The words "our
ships" may well be read to refer both to vessels registered in the name of Fairwind and vessels owned by others
but chartered by Fairwind. Indeed the commercial, operating requirements of a vessel for crew members and for
supplies and provisions have no relationship to the technical characterization of the vessel as owned by or as
merely chartered by Fairwind. In any case, it is not clear from the authorization given by Fairwind to petitioner
Litonjua that vessels chartered by Fairwind (and owned by some other companies) were not to be taken care of by
petitioner Litonjua should such vessels put into a Philippine port. The statement of account which the Dufton Bay's
Master had signed and which pertained to the salary of private respondent had referred to a Philippine agency
which would take care of disbursing or paying such account. 'there is no question that Philippine agency was the
Philippine agent of the charterer Fairwind. Moreover, there is also no question that petitioner Litonjua did assist the
Master of the vessel in locating and recruiting private respondent as Third Engineer of the vessel as well as ten (10)
other Filipino seamen as crew members. In so doing, petitioner Litonjua certainly in effect represented that it was
taking care of the crewing and other requirements of a vessel chartered by its principal, Fairwind. 15
Last, but certainly not least, there is the circumstance that extreme hardship would result for the private respondent
if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to private respondent upon the contract
of employment. Clearly, the private respondent, and the other Filipino crew members of the vessel, would be
defenseless against a breach of their respective contracts. While wages of crew members constitute a maritime lien
upon the vessel, private respondent is in no position to enforce that lien. If only because the vessel, being one of
foreign registry and not ordinarily doing business in the Philippines or making regular calls on Philippine ports
cannot be effectively held to answer for such claims in a Philippine forum. Upon the other hand, it seems quite clear
that petitioner Litonjua, should it be held liable to private respondent for the latter's claims, would be better placed to
secure reimbursement from its principal Fairwind. In turn, Fairwind would be in an indefinitely better position (than
private respondent) to seek and obtain recourse from Mullion, the foreign shipowner, should Fairwind feel entitled to
reimbursement of the amounts paid to private respondent through petitioner Litonjua.
We conclude that private respondent was properly regarded as an employee of the charterer Fairwind and that
petitioner Litonjua may be held to answer to private respondent for the latter's claims as the agent in the Philippines
of Fairwind. We think this result, which public respondent reached, far from constituting a grave abuse of discretion,
is compelled by equitable principles and by the demands of substantial justice. To hold otherwise would be to leave
private respondent (and others who may find themselves in his position) without any effective recourse for the
unjust dismissal and for the breach of his contract of employment.
WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National Seamen Board dated
31 May 1979 is hereby AFFIRMED. No pronouncement as to costs.

G.R. No. L-8325

March 10, 1914

C. B. WILLIAMS, plaintiff-appellant,
vs.
TEODORO R. YANGCO, defendant-appellant.
William A. Kincaid and Thomas L. Hartigan for plaintiff.
Haussermann, Cohn, & Fisher fro defendant.
CARSON, J.:

The steamer Subic, owned by the defendant, collided with the lunch Euclid owned by the plaintiff, in the
Bay of Manila at an early hour on the morning of January 9, 1911, and the Euclid sank five minutes
thereafter. This action was brought to recover the value of the Euclid.
The court below held from the evidence submitted that the Euclid was worth at a fair valuation P10,000;
that both vessels were responsible for the collision; and that the loss should be divided equally between
the respective owners, P5,000 to be paid the plaintiff by the defendant, and P5,000 to be borne by the
plaintiff himself. From this judgment both defendant and plaintiff appealed.
After a careful review of all the evidence of record we are all agreed with the trial judge in his holding
that the responsible officers on both vessels were negligent in the performance of their duties at the time
when the accident occurred, and that both vessels were to blame for the collision. We do not deem it
necessary to review the conflicting testimony of the witnesses called by both parties, the trial also having
inserted in his opinion a careful and critical summary and analysis of the testimony submitted to him,
which, to our minds, fully and satisfactorily disposes of the evidence are set forth in the following
language (translated):
In view of the negligence of which the patron Millonario (of defendant's vessel) has been guilty as
well as that imputable to the patron of the launch Euclid, both contributed in a decided manner and
beyond all doubt to the occurrence of the accident and the consequent damages resulting therefrom
in the loss of the launch Euclid.
With a little diligence which either of the two patrons might have practiced under the
circumstances existing at the time of the collision, if both had not been so distracted and so
negligent in the fulfillment of their respective duties, the disaster could have been easily avoided,
since the sea was free of obstacles and the night one which permitted the patron Millonario to
distinguish the hull of the launch twenty minutes before the latter entered upon his path . . .
There is proven, therefore, the negligence of which the patron of the Euclid has been guilty.
If the negligence by which the patron of the launch Euclid has contributed to the cause of the
accident and to the resulting damages is patent, none the less so is the negligence of the patron of
the steamer Subic, Hilarion Millonario by name, as may be seen from his own testimony which is
here copied for the better appreciation thereof.
It will be seen that the trial judge was of opinion that the vessels were jointly liable for the loss resulting
from the sinking of the launch. But actions for damages resulting from maritime collisions are governed
in this jurisdiction by the provisions of section 3, title 4, Book III of the Code of Commerce, and among
these provisions we find the following:
ART. 827. If both vessels may be blamed for the collision, each one shall be liable for its own
damages, and both shall be jointly responsible for the loss and damages suffered by their cargoes.
In disposing of this case the trial judge apparently had in mind that portion of the section which treats of
the joint liability of both vessels for loss or damages suffered by their cargoes. In the case at bar, however,
the only loss incurred was that of the launch Euclid itself, which went to the bottom soon after the
collision. Manifestly, under the plain terms of the statute, since the evidence of record clearly discloses, as
found by the trail judge, that "both vessels may be blamed for the collision," each one must be held may

be blamed for it own damages, and the owner of neither one can recover from the other in an action for
damages to his vessel.
Counsel for the plaintiff, basing his contention upon the theory of the facts as contended for by him,
insisted that under he doctrine of "the last clear chance," the defendant should be held liable because, as
he insists, even if the officers on board the plaintiff's launch were negligence in failing to exhibit proper
lights and in failing to take the proper steps to keep out of the path of the defendant's vessel, nevertheless
the officers on defendant's vessel, by the exercise of due precautions might have avoided the collision by a
very simple manuever. But it is sufficient answer to this contention to point out that the rule of liability in
this jurisdiction for maritime accidents such as that now under consideration is clearly, definitely, and
unequivocally laid down in the above-cited article 827 of the Code of Commerce; and under that rule, the
evidence disclosing that both vessels were blameworthy, the owners of either can successfully maintain an
action against the other for the loss or injury of his vessel.
In cases of a disaster arising from the mutual negligence of two parties, the party who has a last clear
opportunity of avoiding the accident, notwithstanding the negligence of his opponent, is considered
wholly responsible for it under the common-law rule of liability as applied in the courts of common law
of the United States. But this rule (which is not recognized in the courts of admiralty in the United States,
wherein the loss is divided in cases of mutual and concurring negligence, as also where the error of one
vessel has exposed her to danger of collision which was consummated by he further rule, that where the
previous application by the further rule, that where the previous act of negligence of one vessel has
created a position of danger, the other vessel is not necessarily liable for the mere failure to recognize the
perilous situation; and it is only when in fact it does discover it in time to avoid the casualty by the use of
ordinary care, that it becomes liable for the failure to make use of this last clear opportunity to avoid the
accident. (See cases cited in Notes, 7 Cyc., pp. 311, 312, 313.) So, under the English rule which conforms
very nearly to the common-law rule as applied in the American courts, it has been held that the fault of the
first vessel in failing to exhibit proper lights or to take the proper side of the channel will relieve from
liability one who negligently runs into such vessels before he sees it; although it will not be a defense to
one who, having timely warning of the danger of collision, fails to use proper care to avoid it. (Pollock on
Torts, 374.) In the case at bar, the most that can be said in support of plaintiff's contention is that there was
negligence on the part of the officers on defendant's vessel in failing to recognize the perilous situation
created by the negligence of those in charge of plaintiff's launch, and that had they recognized it in time,
they might have avoided the accident. But since it does not appear from the evidence that they did, in fact,
discover the perilous situation of the launch in time to avoid the accident by the exercise of ordinary care,
it is very clear that under the above set out limitation to the rule, the plaintiff cannot escape the legal
consequences of the contributory negligence of his launch, even were we to hold that the doctrine is
applicable in the jurisdiction, upon which point we expressly reserve our decision at this time.
The judgment of the court below in favor of the plaintiff and against the defendant should be reserved,
and the plaintiff's complaint should be dismissed without day, without costs to either party in this instance.
So ordered.

G.R. No. L-6393

January 31, 1955
A. MAGSAYSAY INC., plaintiff-appellee,
vs.
ANASTACIO AGAN, defendant-appellant.

Custodio A. Villava for appellant.

Quijano, Alidio and Azores for appellee.
REYES, A. J.:
The S S "San Antonio", vessel owned and operated by plaintiff, left Manila on October 6, 1949, bound for
Basco, Batanes, vis Aparri, Cagayan, with general cargo belonging to different shippers, among them the
defendant. The vessel reached Aparri on the 10th of that month, and after a day's stopover in that port,
weighed anchor to proceed to Basco. But while still in port, it ran aground at the mouth of the Cagayan
river, and, attempts to refloat it under its own power having failed, plaintiff have it refloated by the Luzon
Stevedoring Co. at an agreed compensation. Once afloat the vessel returned to Manila to refuel and then
proceeded to Basco, the port of destination. There the cargoes were delivered to their respective owners or
consignees, who, with the exception of defendant, made a deposit or signed a bond to answer for their
contribution to the average.
On the theory that the expenses incurred in floating the vessel constitute general average to which both
ship and cargo should contribute, plaintiff brought the present action in the Court of First Instance of
Manila to make defendant pay his contribution, which, as determined by the average adjuster, amounts to
P841.40. Defendant, in his answer, denies liability to his amount, alleging, among other things, that the
stranding of the vessel was due to the fault, negligence and lack of skill of its master, that the expenses
incurred in putting it afloat did not constitute general average, and that the liquidation of the average was
not made in accordance with law. After trial, the lower court found for plaintiff and rendered judgment
against the defendant for the amount of the claim, with legal interests. From this judgment defendant had
appealed directly to this Court.
Although appellant assigns various errors, under our view of the case only the following need be
considered:
The trial court erred in allowing the general average for floating a vessel unintentionally stranded
inside a port and at the mouth of a river during a fine weather.
For the purposes of this assignment of error we may well accept the finding below that the stranding of
plaintiff's vessel was due to the sudden shifting of the sandbars at the mouth of the river which the port
pilot did not anticipate. The standing may, therefore, be regarded as accidental, and the question is
whether the expenses incurred in floating a vessel so stranded should be considered general average and
shared by the cargo owners.
The law on averages is contained in the Code of Commerce. Under that law, averages are classified into
simple or particular and general or gross. Generally speaking, simple or particular averages include all
expenses and damages caused to the vessel or cargo which have not inured to the common benefit (Art.
809), and are, therefore, to be borne only by the owner of the property gave rise to same (Art. 810); while
general or gross averages include "all the damages and expenses which are deliberately caused in order to
save the vessel, its cargo, or both at the same time, from a real and known risk" (Art. 811). Being for the
common benefit, gross averages are to be borne by the owners of the articles saved (Art. 812).
In classifying averages into simple o particular and general or gross and defining each class, the Code
(Art. 809 and 811) at the same time enumerates certain specific cases as coming specially under one or the
other denomination. Going over the specific cases enumerated we find that, while the expenses incurred
in putting plaintiff's vessel afloat may well come under number 2 of article 809-which refers to expenses
suffered by the vessel "by reason of an accident of the sea of the force majuere" and should therefore

be classified as particular average, the said expenses do not fit into any of the specific cases of general
average enumerated in article 811. No. 6 of this article does mention "expenses caused in order to float a
vessel," but it specifically refers to "a vessel intentionally stranded for the purpose of saving it" and would
have no application where, as in the present case, the stranding was not intentional.
Let us now see whether the expenses here in question could come within the legal concept of the general
average. Tolentino, in his commentaries on the Code of Commerce, gives the following requisites for
general average:
First, there must be a common danger. This means, that both the ship and the cargo, after has been
loaded, are subject to the same danger, whether during the voyage, or in the port of loading or
unloading; that the danger arises from the accidents of the sea, dispositions of the authority, or
faults of men, provided that the circumstances producing the peril should be ascertained and
imminent or may rationally be said to be certain and imminent. This last requirement exclude
measures undertaken against a distant peril.
Second, that for the common safety part of the vessel or of the cargo or both is sacrificed
deliberately.
Third, that from the expenses or damages caused follows the successful saving of the vessel and
cargo.
Fourth, that the expenses or damages should have been incurred or inflicted after taking proper
legal steps and authority. (Vol. 1, 7th ed., p. 155.)
With respect to the first requisite, the evidence does not disclose that the expenses sought to be recovered
from defendant were incurred to save vessel and cargo from a common danger. The vessel ran aground in
fine weather inside the port at the mouth of a river, a place described as "very shallow". It would thus
appear that vessel and cargo were at the time in no imminent danger or a danger which might "rationally
be sought to be certain and imminent." It is, of course, conceivable that, if left indefinitely at the mercy of
the elements, they would run the risk of being destroyed. But as stated at the above quotation, "this last
requirement excludes measures undertaken against a distant peril." It is the deliverance from an
immediate, impending peril, by a common sacrifice, that constitutes the essence of general average. (The
Columbian Insurance Company of Alexandria vs. Ashby & Stribling et al., 13 Peters 331; 10 L. Ed., 186).
In the present case there is no proof that the vessel had to be put afloat to save it from imminent danger.
What does appear from the testimony of plaintiff's manager is that the vessel had to be salvaged in order
to enable it "to proceed to its port of destination." But as was said in the case just cited it is the safety of
the property, and not of the voyage, which constitutes the true foundation of the general average.
As to the second requisite, we need only repeat that the expenses in question were not incurred for the
common safety of vessel and cargo, since they, or at least the cargo, were not in imminent peril. The cargo
could, without need of expensive salvage operation, have been unloaded by the owners if they had been
required to do so.
With respect to the third requisite, the salvage operation, it is true, was a success. But as the sacrifice was
for the benefit of the vessel to enable it to proceed to destination and not for the purpose of saving
the cargo, the cargo owners are not in law bound to contribute to the expenses.

The final requisite has not been proved, for it does not appear that the expenses here in question were
incurred after following the procedure laid down in article 813 et seq.
In conclusion we found that plaintiff not made out a case for general average, with the result that its claim
for contribution against the defendant cannot be granted.
Wherefore, the decision appealed from is reversed and plaintiff's complaint ordered dismissed with costs.

EPITACIO SAN PABLO V. PANTRANCO SOUTH EXPRESS, INC. G.R. NO. L-61461 August 21,
1987 Gancayco, J
FACTS: Pantranco engaged in the land transportation business with PUB service for passengers and
freight and various certificates for public conveniences to operate passenger buses from Metro Manila to
Bicol Region and Eastern Samar; through its counsel, it wrote to Maritime Industry Authority (MARINA)
requesting authority to lease/purchase a vessel named M/V Black Double to be used for its project to
operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company
buses and freight trucks that have to cross San Bernardo Strait; request was denied by MARINA. It
nevertheless acquired the vessel MV Black denied by MARINA Double; it wrote the Chairman of the
Board of Transportation that it proposes to operate a ferry service to carry its passenger buses and freight
trucks between Allen and Matnog in connection with its trips to Tacloban City for the purpose of
continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation
being merely a necessary and incidental service to its main service and obligation of transporting its
passengers; that being so, it believed that there was no need for it to obtain a separate certificate for public
convenience to operate a ferry service Matnog to cater exclusively to its passenger buses and freight
trucks. BOT granted the request. Cardinal Shipping Corporation and the heirs of San Pablo filed separate
motions for reconsideration.
ISSUES: 1. WON a ferry service is an extension of the highway and thus is a part of the authority
originally granted PANTRANCO;

2. WON a land transportation company can be authorized to operate a ferry service or coastwise or
interisland shipping service along its authorized route as an incident to its franchise without the need of
filing a separate application for the same ferry - continuation by means of boats, barges, or
HELD: 1. No. rafts, of a highway or the connection of highways located on the opposite banks of a
stream or other body of water. The term necessarily implies transportation for a short distance, almost
invariably between ferry service - two points, which is unrelated to other transportation service either by
barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the
highway which is interrupted by the body of water, or in some cases to connect two points on opposite
shores of an arm of the sea such as bay or lake which does not involve too great a distance or too long a
time to navigate coastwise or interisland service - service which involves motorship, steamboat or
motorboat service crossing the open sea (engaged in the coastwise trade) service between the different
islands, involving more or less great distance and over more or less turbulent and dangerous waters of the
open sea, to be coastwise or inter-island service; considered coastwise or inter-island service conveyance
of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise
or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be
considered a continuation of the highway. While a ferry boat service has been considered as a
continuation of the highway when crossing rivers or even lakes, which are small body of waters separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by
an open sea it can not be considered as a continuation of the highway. PANTRANCO should secure a
separate CPC for the operation of an interisland or coastwise shipping. Its CPC as a bus transportation
cannot be merely amended to include this water service under the guise that it is a mere private ferry
service.

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the
material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in Pangasinan. For that service,
respondent charged freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General
Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of
750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970,

respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven
by respondent himself, while 600 cartons were placed on board the other truck which was driven by
Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise,
plus damages and attorney's fees. Petitioner argued that private respondent, being a common carrier,
and having failed to exercise the extraordinary diligence required of him by the law, should be held liable
for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be
held responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P
4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him
a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged
in
transporting
return
loads
of
freight
"as
a
casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this
Court by way of a Petition for Review assigning as errors the following conclusions of the Court of
Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts
earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general

community or population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion
of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he
merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done
on a periodic or occasional rather than regular or scheduled manner, and even though private respondent's
principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged
his customers a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant
here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite
for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied
with the requirements of the applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound
public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory
requirements. The business of a common carrier impinges directly and intimately upon the safety and well being
and property of those members of the general community who happen to deal with such carrier. The law imposes
duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the
law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain
the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree
of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific
import of extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733,
"further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or
deterioration of the goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the
common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they
appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed extraordinary diligence as required
in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case
the hijacking of the carrier's truck does not fall within any of the five (5) categories of exempting causes listed
in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the
provisions of Article 1735, in other words, that the private respondent as common carrier is presumed to have been
at fault or to have acted negligently. This presumption, however, may be overthrown by proof of extraordinary
diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.
Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in
the instant case, the standard of extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his
helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in
the vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given
additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article
1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his
or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with
or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car vehicle, ship,
airplane or other equipment used in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to
diminish such responsibility even for acts of strangers like thieves or robbers, except where such thieves or
robbers in fact acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of
the duty of extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's
cargo. The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac,
Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno,
Armando Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully
taking and carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of

Liberty filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court
shows that the accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) holduppers were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the
driver and his helper, detaining them for several days and later releasing them in another province (in Zambales).
The hijacked truck was subsequently found by the police in Quezon City. The Court of First Instance convicted all
the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the
control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even
common carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not
held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with
the rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable
for the value of the undelivered merchandise which was lost because of an event entirely beyond private
respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals
dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-30805 December 26, 1984

DOMINGO ANG, plaintiff-appellant,
vs.
COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L.
DIOKNO, defendants-appellees.

AQUINO, J.:
This case involves the recovery of damages by the consignee from the carrier in case
of misdelivery of the cargo which action was dismissed by the trial court on the grounds of lack
of cause of action and prescription.
It should be noted that that legal point is already res judicata. In 1967 it was decided in favor of
plaintiff-appellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125 Phil. 543
and 125 Phil. 1040, three cases. As observed by Ang's counsel, the facts of those cases and the
instant case are the same mutatis mutandis. It was held that Ang has a cause of action against
the carrier which has not prescribed
In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau
Yue Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the

Philippines and C.L. Diokno. He prayed that the defendants be ordered to pay him solidarily the
sum of US$130,539.68 with interest from February 9, 1963 plus attorney's fees and damages.
Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain
conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was loaded on
May 25, 1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by the
defendants, to be transported to Manila and consigned "to order" of the shipper, Tokyo Boeki,
Ltd., which indorsed the bill of lading issued by Compania Maritima to the order of Yau Yue
Commercial Bank.
Ang further alleged that the defendants, by means of a permit to deliver imported articles,
authorized the delivery of the cargo to Teves who obtained delivery from the Bureau of Customs
without the surrender of the bill of lading and in violation of the terms thereof. Teves dishonored
the draft drawn by Yau Yue against him.
The Hongkong and Shanghai Banking Corporation made the corresponding protest for the
draft's dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang.
The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of
action. Ang opposed the motion. As already stated, the trial court on May 22, 1964 dismissed
the complaint on the grounds of lack of cause of action and prescription since the action was
filed beyond the one-year period provided in the Carriage of Goods by Sea Act.
In the American Steamship Agencies cases, it was held that the action of Ang is based
on misdelivery of the cargo which should be distinguished from loss thereof. The one-year
period provided for in section 3 (6) of the Carriage of Goods by Sea Act refers to loss of the
cargo. What is applicable is the four-year period of prescription for quasi-delicts prescribed in
article 1146 (2) of the Civil Code or ten years for violation of a
written contract as provided for in article 1144 (1) of the same Code.
As Ang filed the action less than three years from the date of the alleged misdelivery of the
cargo, it has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in interest
with a cause of action for damages.
WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the
trial court for further proceedings. Costs against the defendants.
SO ORDERED.

G.R. No. L-22491

January 27, 1967

DOMINGO ANG, plaintiff-appellant,

vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
Juan T. David and M.C. Ginigundo for plaintiff-appellant.
Ross, Salcedo, Del Rosario, Bito & Misa for defendant-appellee.

BENGZON, J.P., J.:

Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue agreed to sell
140 packages of galvanized steel durzinc sheets to one Herminio G. Teves (the date of said
agreement is not shown in the record here) for the sum of $32,458.26 (US). Said agreement
was subject to the following terms and arrangements: (a) the purchase price should be covered
by a bank draft for the corresponding amount which should be paid by Herminio G. Teves in
exchange for the delivery to him of the corresponding bill of lading to be deposited with a local
bank, the Hongkong & Shanghai Bank of Manila (b) upon arrival of the articles in Manila, Teves
would be notified and he would have to pay the amount called for in the corresponding demand
draft, after which the bill of lading would be delivered to him; and (c) Teves would present said
bill of lading to the carrier's agent, American Steamship Agencies, Inc. which would then issue
the corresponding "Permit To Deliver Imported Articles" to be presented to the Bureau of
Customs to obtain the release of the articles.
Pursuant to said terms and arrangements, Yau Yue through Tokyo Boeki Ltd. of Tokyo, Japan,
shipped the articles at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU,
Manila, belonging to the Nissho Shipping Co., Ltd. of Japan, of which the American Steamship
Agencies, Inc. is the agent in the Philippines, under a shipping agreement, Bill of Lading No.
WM-2 dated April 30, 1961, consigned "to order of the shipper with Herminio G. Teves as the
party to be notified of the arrival of the 140 packages of galvanized steel durzinc sheets in
Manila.
The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon
receipt thereof, Yau Yue drew a demand draft together with the bill of lading against Herminio G.
Teves, through the Hongkong & Shanghai Bank.
When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank
notified Teves, the "notify party" under the bill of lading, of the arrival of the goods and requested
payment of the demand draft representing the purchase price of the articles. Teves, however,
did not pay the demand draft, prompting the bank to make the corresponding protest. The bank
likewise returned the bill of lading and demand draft to Yau Yue which indorsed the said bill of
lading to Domingo Ang.
Meanwhile, despite his non-payment of the purchase price of the articles, Teves was able to
obtain a bank guaranty in favor of the American Steamship Agencies, Inc., as carrier's agent, to
the effect that he would surrender the original and negotiable bill of lading duly indorsed by Yau
Yue. On the strength of this guaranty, Teves succeeded in securing a "Permit To Deliver

Imported Articles" from the carrier's agent, which he presented to the Bureau of Customs which
in turn released to him the articles covered by the bill of lading.
Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc.,
by presenting the indorsed bill of lading, but he was informed by the latter that it had delivered
the articles to Teves.
On October 30, 1963 Domingo Ang filed a complaint in the Court of First Instance of Manila
against the American Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or
converted the goods covered by the bill of lading belonging to plaintiff Ang, to the damage and
prejudice of the latter.
On December 2, 1963, defendant filed a motion to dismiss upon the ground that plaintiff's cause
of action has prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65),
more particularly Section 3 (6), paragraph 4, which provides:
In any event, the carrier and the ship shall be discharged from all liability in respect to
loss or damage unless suit is brought within one year, after delivery of the goods or the
date when the goods should have been delivered.
It argued that the cargo should have been delivered to the person entitled to the delivery
thereof (meaning the plaintiff) on May 9, 1961, the date of the vessel's arrival in Manila,
and that even allowing a reasonable time (even one month) after such arrival within
which to make delivery, still, the action commenced on October 30, 1963 was filed
beyond the prescribed period of one year.
By order dated December 21, 1963, copy of which was received by plaintiff on December 26,
1963, the lower court dismissed the action on the ground of prescription. His motion for
reconsideration dated December 26, 1963 having been denied by the lower court in its order
dated January 13, 1964, plaintiff appealed directly to this Court on a question of law: Has
plaintiff-appellant's cause of action prescribed under Section 3(6), paragraph 4 of the Carriage
of Goods by Sea Act?
The provision of law involved in this case speaks of "loss or damage". That there was no
damage caused to the goods which were delivered intact to Herminio G. Teves who did not file
any notice of damage, is admitted by both parties in this case. What is to be resolved in order
to determine the applicability of the prescriptive period of one year to the case at bar is
whether or not there was "loss" of the goods subject matter of the complaint.
Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be
had to the Civil Code which provides in Article 18 thereof that, "In matters which are governed
by the Code of Commerce and special laws, their deficiency shall be supplied by the provisions
of this Code."
Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been
imposed with the intention of suspending the efficacy of an obligation to give. The contract of
carriage under consideration entered into by and between American Steamship Agencies, Inc.
and the Yau Yue (which later on endorsed the bill of lading covering the shipment to plaintiff
herein Domingo Ang), is one involving an obligation to give or to deliver the goods "to the order

of shipper", that is, upon the presentation and surrender of the bill of lading. This being so, said
article can be applied to the present controversy, more specifically paragraph 2 thereof which
provides that, "... it is understood that a thing is lost when it perishes, or goes out of commerce,
or disappears in such a way that its existence unknown or it cannot be recovered."
As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of
Goods by Sea Act, "loss" contemplates merely a situation where no delivery at all was made by
the shipper of the goods because the same had perished, gone out of commerce, or
disappeared that their existence is unknown or they cannot be recovered. It does not include a
situation where there was indeed delivery but delivery to the wrong person, or a misdelivery,
as alleged in the complaint in this case.
The distinction between non-delivery and misdelivery has reference to bills of lading. As this
Court shall in Tan Pho vs. Hassamal Dalamal, 67 Phil. 555, 557-558:
Considering that the bill of lading covering the goods in question has been made to order,
which means that said goods cannot be delivered without previous payment of the value
thereof, it is evident that, the said goods having been delivered to Aldeguer without
paying the price of the same, these facts constitute misdelivery and not nondelivery,
because their was in fact delivery of merchandise. We do not believe it can be seriously
and reasonably argued that what took place, as contended of by the petitioner, is a case
of misdelivery with respect to Aldeguer and at the same time nondelivery with respect to
the PNB who had the bill of lading, because the only thing to consider in this question is
whether Enrique Aldeguer was entitled to get the merchandise or whether, on the
contrary, the PNB is the one entitled thereto. Under the facts, the defendant petitioner
should not have delivered the goods to Aldeguer but to the Philippine National Bank.
Having made the delivery to Aldeguer, the delivery is a case of misdelivery. If the goods
have been delivered, it cannot at the same time be said that they have not been
delivered.
According to the bill of lading which was issued in the case at bar to the order of the
shipper, the carrier was under a duty not to deliver the merchandise mentioned in the bill
of lading except upon presentation of the bill of lading duly endorsed by the shipper. (10
C.J., 259) Hence, the defendant-petitioner Tan Pho having delivered the goods to
Enrique Aldeguer without the presentation by the latter of the bill of lading duly endorsed
to him by the shipper, the said defendant made a misdelivery and violated the bill of
lading, because his duty was not only to transport the goods entrusted to him safely, but
to deliver them to the person indicated in the bill of lading. (Emphasis supplied)
Now, it is well settled in this jurisdiction that when a defendant files a motion to dismiss, he
thereby hypothetically admits the truth of the allegations of fact contained in the complaint
(Philippine National Bank v. Hipolito, et al., L-16463, Jan. 30, 1965; Republic v. Ramos, L15484, Jan. 31, 1963; Pascual v. Secretary of Public Works & Communications, L-10405, Dec.
29, 1960; Pangan v. Evening News Publishing Co., Inc., L-13308, Dec. 29, 1960). Thus,
defendant-appellant having filed a motion to dismiss, it is deemed to have admitted,
hypothetically, paragraphs 6, 7 and 8 of the complaint, and these alleges:
6. That, when the said articles arrived in Manila, the defendant authorized the delivery
thereof to Herminio G. Teves, through the issuance of the corresponding Permit To
Deliver Imported Articles, without the knowledge and consent of the plaintiff, who is the

holder in due course of said bill of lading, notwithstanding the fact that the said Herminio
G. Teves could not surrender the corresponding bill of lading; .
7. That, without any evidence of the fact that Herminio G. Teves is the holder of the
corresponding bill of lading in due course; without the surrender of the bill of lading
without the knowledge and consent of the plaintiff, as holder thereof in due course, and in
violation of the provision on the bill of lading which requires that the articles are only to be
delivered to the person who is the holder in due course of the said bill of lading, or his
order, the defendant issued the corresponding 'Permit To Deliver Imported Articles' in
favor of the defendant, without the knowledge and consent of the plaintiff as holder in due
course of said bill of lading, which, originally was Yau Yue subsequently, the plaintiff
Domingo Ang;
8. That, as a result of the issuance by the defendant of said permit, Herminio G. Teves
was able to secure the release of the articles from the Bureau of Customs, which is not
legally possible without the presentation of said permit to the said Bureau; ...
From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were
delivered to Herminio G. Teves, so that there can only be either delivery, if Teves really was
entitled to receive them, or misdelivery, if he was not so entitled. It is not for Us now to resolve
whether or not delivery of the goods to Teves was proper, that is, whether or not there was
rightful delivery or misdelivery.
The point that matters here is that the situation is either delivery or misdelivery, but not
nondelivery. Thus, the goods were either rightly delivered or misdelivered, but they were not
lost. There being no loss or damage to the goods, the aforequoted provision of the Carriage of
Good by Sea Act stating that "In any event, the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one year after delivery of the
goods or the date when the goods should have been delivered," does not apply. The reason is
not difficult to see. Said one-year period of limitation is designed to meet the exigencies of
maritime hazards. In a case where the goods shipped were neither last nor damaged in transit
but were, on the contrary, delivered in port to someone who claimed to be entitled thereto, the
situation is different, and the special need for the short period of limitation in cases of loss or
damage caused by maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or
conversion) of the goods, the applicable rule on prescription is that found in the Civil Code,
namely, either ten years for breach of a written contract or four years for quasi-delict. (Arts.
1144[1], 1146, Civil Code) In either case, plaintiff's cause of action has not vet prescribed, since
his right of action would have accrued at the earliest on May 9, 1961 when the ship arrived in
Manila and he filed suit on October 30, 1963.
Wherefore, the dismissal order appealed from is hereby reversed and set aside and this case is
remanded to the court a quo for further proceedings. No costs. So ordered.

[ G . R . No . 110668 . February 6 , 1997 ] paragraph

SMITH , BELL & CO . , INC . , petitioner , vs . COURT OF APPEALS and

JOSEPH BENGZON CHUA , respondents . paragraph
[1]

D E C I S I O N paragraph
PANGANIBAN , J . : paragraph

The main issue raised in this case is whether a local claim or settling agent is
personally and / or solidarily liable upon a marine insurance policy issued by its
disclosed foreign principal . paragraph
This is a petition for review on certiorari of the Decision of respondent
Court promulgated on January 20 , 1993 in CA - G . R . CV No . 31812 affirming
the decision of the trial court which disposed as follows : paragraph
[2]

[3]

[4]

[5]

Wherefore , the Court renders judgment condemning the defendants ( petitioner and
First Insurance Co . Ltd . ) jointly and severally to pay the plaintiff (private respondent) the
amount of US$7 , 359 . 78 . plus 24% interest thereon annually until the claim is fully
paid, 10% as and for attorney s fees, and the cost . paragraph
The Facts paragraph
The facts are undisputed by the parties , and are narrated by respondent
Court , quoting the trial court , as follows : paragraph
[6]

[7]

The undisputed facts of the case have been succintly ( sic ) summarized by the lower court
( , ) as follows : paragraph
x x x in July 1982 , the plaintiffs , doing business under the style of Tic Hin
Chiong , Importer , bought and imported to the Philippines from the firm Chin Gact
Co . , Ltd . of Taipei , Taiwan , 50 metric tons of Dicalcium Phospate , Feed Grade F - 15%
valued at US$13 , 000 . 00 CIF Manila . These were contained in 1 , 250 bags and shipped
from the Port of Kaohsiung , Taiwan on Board S . S . GOLDEN WEALTH for the Port on (
sic ) Manila . On July 27 , 1982 , this shipment was insured by the defendant First
Insurance Co . for US$19 , 500 . 00 `against all risks at port of departure under Marine
Policy No . 1000M82070033219 , with the note `Claim , if any , payable in U .
S . currency at Manila ( Exh . `1 , `D for the plaintiff ) and with defendant
Smith , Bell , and Co . stamped at the lower left side of the policy as `Claim
Agent . paragraph
The cargo arrived at the Port of Manila on September 1 , 1982 aboard the above - mentioned
carrying vessel and landed at port on September 2 , 1982 . Thereafter , the entire cargo was
discharged to the local arrastre contractor , Metroport Services Inc . with a number of the
cargo in apparent bad order condition . On September 27 , 1982 , the plaintiff secured the
services of a cargo surveyor to conduct a survey of the damaged cargo which

were ( sic ) delivered by plaintiff s broker on said date to the plaintiff s premises at 12th
Avenue , Grace Park , Caloocan City . The surveyor s report ( Exh . `E ) showed that of
the 1 , 250 bags of the imported material , 600 were damaged by tearing at the sides of the
container bags and the contents partly empty . Upon weighing , the contents of the damaged
bags were found to be 18 , 546 . 0 kg short . Accordingly , on October 16 following , the
plaintiff filed with Smith , Bell , and Co . , Inc . a formal statement of
claim ( Exh . `G ) with proof of loss and a demand for settlement of the corresponding
value of the losses , in the sum of US$7 , 357 . 78 . 00 . ( sic ) After purportedly conveying
the claim to its principal , Smith , Bell , and Co . , Inc . informed the plaintiff by letter
dated February 15 , 1983 ( Exh . `G - 2 ) that its principal offered only 50% of the claim or
US$3 , 616 . 17 as redress , on the alleged ground of discrepancy between the amounts
contained in the shipping agent s reply to the claimant of only US$90 . 48 with that of
Metroport s . The offer not being acceptable to the plaintiff , the latter wrote
Smith , Bell , & Co . expressing his refusal to the `redress offer , contending that the
discrepancy was a result of loss from vessel to arrastre to consignees warehouse which losses
were still within the `all risk insurance cover . No settlement of the claim having been
made , the plaintiff then caused the instant case to be filed . ( p . 2 , RTC
Decision ; p . 142 , Record ) . paragraph
Denying any liability , defendant - appellant averred in its answer that it is merely a settling
or claim agent of defendant insurance company and as such agent , it is not personally liable
under the policy in which it has not even taken part of . It then alleged that plaintiff appellee has no cause of action against it . paragraph
Defendant The First Insurance Co . Ltd . did not file an Answer , hence it was declared in
default . paragraph
After due trial and proceeding , the lower court rendered a decision favorable to plaintiff appellee . It ruled that plaintiff - appellee has fully established the liability of the insurance
firm on the subject insurance contract as the former presented concrete evidence of the
amount of losses resulting from the risks insured against which were supported by reliable
report and assessment of professional cargo surveyor . As regards defendant - appellant , the
lower court held that since it is admittedly a claim agent of the foreign insurance firm doing
business in the Philippines justice is better served if said agent is made liable without
prejudice to its right of action against its principal , the insurance firm . x x x paragraph
The Issue paragraph
Whether or not a local settling or claim agent of a disclosed principal - - a foreign insurance
company - - can be held jointly and severally liable with said principal under the latter s marine cargo
insurance policy , given that the agent is not a party to the insurance contract - - is the sole issue
raised by petitioner . paragraph
[8]

Petitioner rejects liability under the said insurance contract , claiming that : ( 1 ) it is merely an agent
and thus not personally liable to the party with whom it contracts on behalf of its principal ; ( 2 ) it had

no participation at all in the contract of insurance ; and ( 3 ) the suit is not brought against the real party
- in - interest . paragraph
[9]

On the other hand , respondent Court in ruling against petitioner disposed of the main issue by citing a
case it decided in 1987 , where petitioner was also a party - litigant . In that case , respondent Court
held that petitioner as resident agent of First Insurance Co . Ltd . was authorized to settle claims against
its principal . Its defense that its authority excluded personal liability must be proven
satisfactorily . There is a complete dearth of evidence supportive of appellant s non - responsibility as
resident agent . The ruling continued with the statement that the interest of justice is better served by
holding the settling or claim agent jointly and severally liable with its principal .
paragraph
[10]

[11]

Likewise , private respondent disputed the applicability of the cases

of E . Macias & Co . vs . Warner , Barnes & Co . and Salonga
vs . Warner , Barnes & Co . , Ltd . invoked by petitioner in its appeal . According
to private respondent , these two cases impleaded only the insurance agent and
did not include the principal . While both the foreign principal - - which was
declared in default by the trial court - - and petitioner , as claim agent , were found
to be solidarily liable in this case , petitioner still had recourse against its foreign
principal . Also , being a contract of adhesion , an insurance agreement must be
strictly construed against the insurer . paragraph
[12]

[13]

[14]

The Court s Ruling paragraph

There are three reasons why we find for petitioner . paragraph
First Reason : Existing Jurisprudence paragraph
Petitioner , undisputedly a settling agent acting within the scope of its
authority , cannot be held personally and / or solidarily liable for the obligations of its
disclosed principal merely because there is allegedly a need for a speedy settlement
of the claim of private respondent . In the leading case of Salonga
vs . Warner , Barnes & Co . , Ltd . this Court ruled in this wise : paragraph
[15]

We agree with counsel for the appellee that the defendant is a settlement and adjustment
agent of the foreign insurance company and that as such agent it has the authority to settle all
the losses and claims that may arise under the policies that may be issued by or in behalf of
said company in accordance with the instructions it may receive from time to time from its
principal , but we disagree with counsel in his contention that as such adjustment and
settlement agent , the defendant has assumed personal liability under said
policies , and , therefore , it can be sued in its own right . An adjustment and settlement
agent is no different from any other agent from the point of view of his
responsibilty ( sic ) , for he also acts in a representative capacity . Whenever he adjusts or
settles a claim , he does it in behalf of his principal , and his action is binding not upon
himself but upon his principal . And here again , the ordinary rule of agency applies . The
following authorities bear this out : paragraph

An insurance adjuster is ordinarily a special agent for the person or company for whom he
acts , and his authority is prima facie coextensive with the business intrusted to him . * *
* paragraph
An adjuster does not discharge functions of a quasi - judicial nature , but represents his
employer , to whom he owes faithful service , and for his acts , in the employer s
interest , the employer is responsible so long as the acts are done while the agent is acting
within the scope of his employment .
( 45 C . J . S . , 1338 - 1340 . ) paragraph
It , therefore , clearly appears that the scope and extent of the functions of an
adjustment and settlement agent do not include personal liability . His functions are
merely to settle and adjusts claims in behalf of his principal if those claims are proven
and undisputed , and if the claim is disputed or is disapproved by the principal , like
in the instant case , the agent does not assume any personal liability . The recourse
of the insured is to press his claim against the principal .
( Underscoring
supplied ) . paragraph
The foregoing doctrine may have been enunciated by this Court in 1951 , but the
passage of time has not eroded its value or merit . It still applies with equal force
and vigor . paragraph
Private respondent s contention that Salonga does not apply simply because only
the agent was sued therein while here both agent and principal were impleaded and
found solidarily liable is without merit . Such distinction is immaterial . The agent
can not be sued nor held liable whether singly or solidarily with its principal . paragraph
Every cause of action ex contractu must be founded upon a contract , oral or
written , either express or implied . The only involvement of petitioner in the
subject contract of insurance was having its name stamped at the bottom left portion
of the policy as Claim Agent . Without anything else to back it up , such stamp
cannot even be deemed by the remotest interpretation to mean that petitioner
participated in the preparation of said contract . Hence , there is no privity of
contract , and correspondingly there can be no obligation or liability , and thus no
cause of action against petitioner attaches . Under Article 1311 of the Civil
Code , contracts are binding only upon the parties ( and their assigns and
heirs ) who execute them . The subject cargo insurance was between the First
Insurance Company , Ltd . and the Chin Gact Co . , Ltd . , both of Taiwan , and
was signed in Taipei , Taiwan by the president of the First Insurance
Company , Ltd . and the president of the Chin Gact Co . , Ltd . There is
absolutely nothing in the contract which mentions the personal liability of
petitioner . paragraph
[16]

[17]

[18]

Second Reason : Absence of Solidary Liability paragraph

May then petitioner , in its capacity as resident agent ( as found in the case cited
by the respondent Court ) be held solidarily liable with the foreign insurer ? Article
1207 of the Civil Code clearly provides that ( t ) here is a solidary liability only when
the obligation expressly so states , or when the law or the nature of the obligation
requires solidarity . The well - entrenched rule is that solidary obligation cannot
lightly be inferred . It must be positively and clearly expressed . The contention that
, in the end , it would really be First Insurance Company , Ltd . which would be held
liable is specious and cannot be accepted . Such a stance would inflict injustice
upon petitioner which would be made to advance the funds to settle the claim without
any assurance that it can collect from the principal which disapproved such claim , in
the first place . More importantly , such position would have absolutely no legal
basis . paragraph
[19]

The Insurance Code is quite clear as to the purpose and role of a resident
agent . Such agent , as a representative of the foreign insurance company , is
tasked only to receive legal processes on behalf of its principal and not to answer
personally for any insurance claims . We quote : paragraph
SEC . 190 . The Commissioner must require as a condition precedent to the transaction of
insurance business in the Philippines by any foreign insurance company , that such company
file in his office a written power of attorney designating some person who shall be a resident
of the Philippines as its general agent , on whom any notice provided by law or by any
insurance policy , proof of loss , summons and other legal processes may be served in all
actions or other legal proceedings against such company , and consenting that service upon
such general agent shall be admitted and held as valid as if served upon the foreign company
at its home office . Any such foreign company shall , as further condition precedent to the
transaction of insurance business in the Philippines , make and file with the Commissioner an
agreement or stipulation , executed by the proper authorities of said company in form and
substance as follows : paragraph
The ( name of company ) does hereby stipulate and agree in consideration of the permission
granted by the Insurance Commissioner to transact business in the Philippines , that if at any
time such company shall leave the Philippines , or cease to transact business therein , or shall
be without any agent in the Philippines on whom any notice , proof of loss , summons , or
legal process may be served , then in any action or proceeding arising out of any business or
transaction which occurred in the Philippines , service of any notice provided by law , or
insurance policy , proof of loss , summons , or other legal process may be made upon the
Insurance Commissioner shall have the same force and effect as if made upon the
company . paragraph
Whenever such service of notice , proof of loss , summons , or other legal
process shall be made upon the Commissioner he must , within ten days
thereafter , transmit by mail , postage paid , a copy of such notice , proof of
loss , summons , or other legal process to the company at its home or principal

office . The sending of such copy of the Commissioner shall be necessary part of
the service of the notice , proof of loss , or other legal process .
( Underscoring
supplied ) . paragraph
Further , we note that in the case cited by respondent Court , petitioner was
found to be a resident agent of First Insurance Co . Ltd . In the instant case
however , the trial court had to order the service of summons upon First Insurance
Co . , Ltd . which would not have been necessary if petitioner was its resident agent
. Indeed , from our reading of the records of this case , we find no factual and legal
bases for the finding of respondent Court that petitioner is the resident agent of First
Insurance Co . , Ltd . . paragraph
Third Reason : Not Real Party - In - Interest paragraph
Lastly , being a mere agent and representative , petitioner is also not the real
party - in - interest in this case . An action is brought for a practical purpose , that
is , to obtain actual and positive relief . If the party sued is not the proper
party , any decision that may be rendered against him would be futile , for the
decision cannot be enforced or executed . Section 2 , Rule 3 of the Rules of Court
identifies who the real parties - in - interest are , thus : paragraph
Section 2 . Parties in interest . - Every action must be prosecuted and defended in the
name of the real party in interest . All persons having an interest in the subject of the action
and in obtaining the relief demanded shall be joined as plaintiffs . All persons who claim an
interest in the controversy or the subject thereof adverse to the plaintiff , or who are necessary
to a complete determination or settlement of the questions involved therein shall be joined as
defendants . paragraph
The cause of action of private respondent is based on a contract of insurance
which as already shown was not participated in by petitioner . It is not a person
who claim ( s ) an interest adverse to the plaintiff nor is said respondent necessary
to a complete determination or settlement of the questions involved in the
controversy . Petitioner is improperly impleaded for not being a real - party interest . It will not benefit or suffer in case the action prospers . paragraph
[20]

Resort to Equity Misplaced paragraph

Finally , respondent Court also contends that the interest of justice is better
served by holding the settling agent jointly and severally liable with its principal . As
no law backs up such pronouncement , the appellate Court is thus resorting to equity
. However , equity which has been aptly described as justice outside legality , is
availed of only in the absence of , and never against , statutory law or judicial
pronouncements . Upon the other hand , the liability of agents is clearly provided
for by our laws and existing jurisprudence . paragraph
[21]

WHEREFORE , in view of the foregoing considerations , the Petition

is GRANTED and
the
Decision
appealed
from
is REVERSED and SET
ASIDE . paragraph
No costs . paragraph
SO ORDERED . paragraph

MARIMPERIO COMPAIA NAVIERA, S.A., petitioner,

vs.
COURT OF APPEALS and UNION IMPORT & EXPORT CORPORATION and PHILIPPINES
TRADERS CORPORATION, respondents.

PARAS, J.:
This is a petition for certiorari under Section 1, Rule 65 of the Rules of Court seeking the
annulment and setting aside of the decision of the Court of Appeals * and promulgated on
September 2, 1974 in CA-G.R. No. 48521-R entitled "Union Import and Export Corporation, et
al., Plaintiffs-Appellees v. Marimperio Compaia Naviera, S.A., Defendant-Appellant", ordering
petitioner to pay respondent the total sum of US $265,482.72 plus attorney's fees of
US$100,000.00 and (b) the resolution of the said Court of Appeals in the same case, dated
February 17, 1975 fixing the amount of attorney, s fees to Pl00,000.00 instead of $100,000.00
as erroneously stated in the decision but denying petitioner's motion for reconsideration and/or
new trial.
The dispositive portion of the decision sought to be annulled (Rollo, p. 215) reads as follows:
For all the foregoing, and in accordance therewith, let judgment be entered (a)
affirming the decision appealed from insofar as it directs the defendant-appellant:
(1) to pay plaintiffs the sum of US $22,500.00 representing the remittance of
plaintiffs to said defendant for the first 15-day hire of the vessel "SS PAXOI"
including overtime and an overpayment of US $254.00; (2) to pay plaintiffs the
sum of US $16,000.00, corresponding to the remittance of plaintiffs to defendant
for the second 15-day hire of the aforesaid vessel; (3) to pay plaintiffs the sum of
US $6,982.72, representing the cost of bunker oil, survey and watering of the said
vessel; (4) to pay plaintiffs the sum of US $100,000.00 as and for attorney's fees;
and, (b) reversing the portion granting commission to the intervenor-appellee and
hereby dismissing the complaint-in-intervention. The order of the court a quo
denying the plaintiffs' Motion for Partial Reconsideration, is likewise, affirmed,
without any special pronouncement as to costs.
The facts of the case as gathered from the amended decision of the lower court (Amended
Record on Appeal, p. 352), are as follows:

agents N. & J. Vlassopulos Ltd. and Matthews Wrightson, Burbridge, Ltd. to be referred to
simply as Matthews, representing Interocean Shipping Corporation, which was made to appear
as charterer, although it merely acted in behalf of the real charterers, private respondents
herein.
The pertinent provisions or clauses of the Charter Party read:
1. The owners let, and the Charterers hire the Vessel for a period of 1 (one) trip via
safe port or ports Hong Kong, Philippine Islands and/or INDONESIA from the time
the Vessel is delivered and placed at the disposal of the Charterers on sailing
HSINKANG ... .
4. The Charterers are to provide and pay for oil-fuel, water for boilers, port
charges, pilotages ... .
6. The Charterers to pay as hire s.21 (Twenty-one Shillings per deadweights ton
per 30 days or pro rata commencing in accordance with Clause 1 until her
redelivery to the owners.
Payment of hire to be made in cash as per Clause 40 without discount, every 15
days in advance.
In default of payment of the Owners to have the right of withdrawing the vessel
from the services of the Charterers, without noting any protest and without
interference by any court or any formality whatsoever and without prejudice the
Owners may otherwise have on the Charterers under the Charter.
7. The Vessel to be redelivered on the expiration of the Charter in the same good
order as when delivered to the Charterers (fair wear and tear expected) in the
Charterer's option in ANTWERP HAMBURG RANGE.
20. The Charterers to have the option of subletting the Vessel, giving due notice to
the Owners, but the original Charterers always to remain responsible to the
Owners for due performance of the Charter.
29. Export and/or import permits for Charterers'cargo to the Charterers'risk and
expense. Charterers to obtain and be responsible for all the necessary permits to
enter and/or trade in and out of all ports during the currency of the Charter at their
risk and expense. ...
33. Charterers to pay as overtime, bonus and premiums to Master, Officers and
crew, the sum of 200 (Two Hundred Pounds) per month to be paid together with
hire.
37. Bunkers on delivery as on board. Bunkers on redelivery maximum 110 tons.
Prices of bunkers at 107' per long ton at both ends.
38. Upon sailing from each loading port, Master to cable SEASHIPS MANILA
advising the quantity loaded and the time of completion.

40. The hire shall be payable in external sterling or at Charterers' option in U.S.
dollars in London; - Williams Deacon's Vlassopulos Ltd., Account No. 861769.
In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a firm offer to P.T.
Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same to be loaded either in
April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable letters of Credit
in favor of P.T. Karkam
On March 29, 1965, the Charterer was notified by letter by Vlassopulos through Matthews that
the vessel "PAXOI" had sailed from Hsinkang at noontime on March 27, 196-5 and that it had
left on hire at that time and date under the Uniform Time-Charter.
The Charterer was however twice in default in its payments which were supposed to have been
done in advance. The first 15-day hire comprising the period from March 27 to April 1-1, 1965
was paid despite follow-ups only on April 6, 1965 and the second 15-day hire for the period from
April 12 to April 27, 1965 was paid also despite follow-ups only on April 26, 1965. On April 14,
1965 upon representation of Toeg, the Esso Standard Oil (Hongkong) Company supplied the
vessel with 400 tons of bunker oil at a cost of US $6,982.73.
Although the late payments for the charter of the vessel were received and acknowledged by
Vlassopulos without comment or protest, said agent notified Matthews, by telex on April 23,
1965 that the shipowners in accordance with Clause 6 of the Charter Party were withdrawing
the vessel from Charterer's service and holding said Charterer responsible for unpaid hirings
and all legal claims.
On April 29, 1965, the shipowners entered into another charter agreement with another
Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which was around
May 3, 1965 for a trip viaIndonesia to Antwep/Hamburg at an increase charter cost.
Meanwhile, the original Charterer again remitted on April 30, 1965, the amount corresponding to
the 3rd 15-day hire of the vessel "PAXOI" but this time the remittance was refused.
On May 3,1965, respondents Union Import and Export Corporation and Philippine Traders
Corporation filed a complaint with the Court of First Instance of Manila, Branch VIII, against the
Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for preliminary
attachment, alleging, among other things, that the defendants (unknown owners) through their
duly authorized agent in London, the N & J Vlassopulos Ltd., ship brokers, entered into a
contract of Uniform Time-Charter with the Interocean Shipping Company of Manila through the
latter's duly authorized broker, the Overseas Steamship Co., Inc., for the Charter of the vessel
SS PAXOI' under the terms and conditions appearing therein ...; that, immediately thereafter, the
Interocean Shipping Company sublet,the said vessel to the plaintiff Union Import & Export,
Corporation which in turn sublet the same to the other plaintiff, the Philippine Traders
Corporation (Amended Record on Appeal, p. 17). Respondents as plaintiffs in the complaint
obtained a writ of preliminary attachment of vessel PAXOI' " which was anchored at Davao on
May 5, 1969, upon the filing of the corresponding bond of P1,663,030.00 (Amended Record on
Appeal, p. 27). However, the attachment was lifted on May 15, 1969 upon defendant's motion
and filing of a counterbond for P1,663,030 (Amended Record on Appeal, p. 62).

On May 11, 1965, the complaint was amended to Identify the defendant as Marimperio
Compania Naviera S.A., petitioner herein (Amended Record on Appeal, p. 38). In answer to the
amended complaint, by way of special defenses defendant (petitioner herein) alleged among
others that the Charter Party covering its vessel "SS PAXOI" was entered into by defendant with
Interocean Shipping Co. which is not a party in the complaint; that defendant has no agreement
or relationship whatsoever with the plaintiffs; that plaintiffs are unknown to defendant; that the
charter party entered into by defendant with the Interocean Shipping Co. over the vessel "SS
PAXOI" does not authorize a sub-charter of said vessel to other parties; and that at any rate,
any such sub-charter was without the knowledge or consent of defendant or defendant's agent,
and therefore, has no effect and/or is not binding upon defendant. By way of counterclaim,
defendant prayed that plaintiffs be ordered to pay defendant (1) the sum of 5,085.133d or its
equivalent, in Philippine currency of P54,929.60, which the defendant failed to realize under the
substitute charter, from May 3, 1965 to May 16, 1965, while the vessel was under attachment;
(2) the sum of E68.7.10 or its equivalent of P7,132.83, Philippine currency, as premium for
defendant's counterbond for the first year, and such other additional premiums that will have to
be paid by defendant for additional premiums while the case is pending; and (3) a sum of not
less than P200,000.00 for and as attomey's fees and expenses of litigations (Amended Record
on Appeal, p. 64).
On March 16, 1966, respondent Interocean Shipping Corporation filed a complaint-inintervention to collect what it claims to be its loss of income by way of commission and
expenses in the amount of P15,000.00 and the sum of P2,000.00 for attorney's fees (Amended
Record on Appeal, p. 87). In its amended answer to the complaint-in-intervention petitioner, by
way of special defenses alleged that (1) the plaintiff-in-intervention, being the charterer, did not
notify the defendant shipowner, petitioner, herein, about any alleged sub-charter of the vessel
"SS PAXOI" to the plaintiffs; consequently, there is no privity of contract between defendant and
plaintiffs and it follows that plaintiff-in-intervention, as charterer, is responsible for defendant
shipowner for the proper performance of the charter party; (2) that the charter party provides
that any dispute arising from the charter party should be referred to arbitration in London; that
Charterer plaintiff-in-intervention has not complied with this provision of the charter party;
consequently its complaint-in intervention is premature; and (3) that the alleged commission of 2
1/2 and not become due for the reason, among others, that the charterer violated the contract,
and the full hiring fee due the shipowner was not paid in accordance with the terms and
conditions of the charter party. By way of counterclaim defendant shipowner charged the
plaintiff-in-intervention attorney's fees and expenses of litigation in the sum of P10,000.00
(Amended Record on Appeal, p. 123).
On November 22, 1969 the Court of First Instance of Manila, Branch VIII rendered its
decision ** in favor of defendant Marimperio Compania Naviera, S.A., petitioner herein, and
against plaintiffs Union Import and Export Corporation and Philippine Traders Corporation,
respondents herein, dismissing the amended complaint, and ordering said plaintiff on the
counterclaim to pay defendant, jointly and severally, the amount of f 8,011.38 or its equivalent in
Philippine currency of P75,303.40, at the exchange rate of P9.40 to 1 for the unearned charter
hire due to the attachment of the vessel "PAXOI" in Davao, plus premiums paid on the
counterbond as of April 22, 1968 plus the telex and cable charges and the sum of P10,000.00
as attorney's fees and costs. The trial court dismissed the complaint-in-intervention, ordering the
intervenor, on the counterclaim, to pay defendant the sum of P10,000.00 as attorney's fees, and
the costs (Amended Record on Appeal, p. 315).

Plaintiffs filed a Motion for Reconsideration and/or new trial of the decision of the trial court on
December 23, 1969 (Amended Record on Appeal, p. 286); the intervenor filed its motion for
reconsideration and/or new trial on January 7, 1970 (Amended Record on Appeal, p. 315).
Acting on the two motions for reconsideration, the trial court reversed its stand in its amended
decision dated January 24, 1978. The dispositive portion of the amended decision states:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment for
the plaintiffs Union Import & Export Corporation and Philin Traders Corporation,
and plaintiff-in-intervention, Interocean Shipping Corporation, and consequently
orders the defendant, Marimperio Compania Naveria S.A.:
(1) To pay plaintiffs the sum of US$22,500.00 representing the
remittance of plaintiffs to said defendant for the first 15-day hire of
the vessel "SS PAXOI" including overtime and an overpayment of
US$254.00;
(2) To pay plaintiffs the sum of US$16,000.00 corresponding to the
remittance of plaintiffs to defendant for the second 15-day hire of the
aforesaid vessel;
(3) To pay plaintiffs the sum of US$6,982.72 representing the cost of
bunker oil, survey and watering of the said vessel;
(4) To pay plaintiffs the sum of US$220,0,00.00 representing the
unrealized profits; and
(5) To pay plaintiffs the sum of P100,000.00, as and for attorney's
fees (Moran, Comments on the Rules of Court, Vol. III, 1957 5d 644,
citing Haussermann vs. Rahmayer, 12 Phil. 350; and others)"
(Francisco vs. Matias, G.R. No. L-16349, January 31, 1964; Sison
vs. Suntay, G.R. No. L-1000 . December 28, 1957).
The Court further orders defendant to pay plaintiff-in-intervention the
amount of P15,450.44, representing the latter's commission as
broker, with interest thereon at 6% per annum from the date of the
filing of the complaint-in-intervention, until fully paid, plus the sum of
P2,000.00 as attorney's fees.
The Court finally orders the defendant to pay the costs.
In view of the above conclusion, the Court orders the dismissal of the
counterclaims filed by defendant against the plaintiffs and plaintiff-in- intervention,
as wen as its motion for the award of damages in connection with the issuance of
the writ of preliminary attachment.
Defendant (petitioner herein), filed a motion for reconsideration and/or new trial of the amended
decision on February 19, 1970 (Amended Record on Appeal, p. 382). Meanwhile a new Judge
was assigned to the Trial Court (Amended Record on Appeal, p. 541). On September 10, 1970

the trial court issued its order of September 10, 1970 *** denying defendant's motion for
reconsideration (Amended Record on Appeal, p. 583).
On Appeal, the Court of Appeals affirmed the amended decision of the lower court except the
portion granting commission to the intervenor- appellee, which it reversed thereby dismissing
the complaint-in- intervention. Its two motions (1) for reconsideration and/or new trial and (2) for
new trial having been denied by the Court of Appeals in its Resolution of February 17, 1975
which, however, fixed the amount of attorney's fees at P100,000.00 instead of $100,000.00
(Rollo, p. 81), petitioner filed with this Court its petition for review on certiorari on March 19, 197
5 (Rollo, p. 86).
After deliberating on the petition, the Court resolved to require the respondents to comment
thereon, in its resolution dated April 2, 1975 (rollo, p. 225).
The comment on petition for review by certiorari was filed by respondents on April 21, 1975,
praying that the petition for review by certiorari dated March 18, 1975 be dismissed for lack of
merit Rollo p. 226). The reply to comment was filed on May 8, 1975 (Rollo, p. 259). The
rejoinder to reply to comment was filed on May 13, 197 5 (Rollo, p. 264).
On October 20, 1975, the Court resolved (a) to give due course to the petition; (b) to treat the
petition for review as a special civil action; and (c) to require both parties to submit their
respective memoranda within thirty (30) days from notice hereof (Rollo, p. 27).
Respondents filed their memoranda on January 27, 1976 (Rollo, p. 290); petitioner, on February
26, 1976 (Rollo, p. 338). Respondents' reply memorandum was filed on April 14, 1976 (Rollo, p.
413) and Rejoinder to respondents' reply memorandum was filed on May 28, 1976 (Rollo, p.
460).
On June 11, 1976, the Court resolved to admit petitioner's rejoinder to respondents' reply
memorandum and to declare this case submitted for decision (Rollo, p. 489).
The main issues raised by petitioner are:
1. Whether or not respondents have the legal capacity to bring the suit for specific
performance against petitioner based on the charter party, and
2. Whether or not the default of Charterer in the payment of the charter hire within
the time agreed upon gives petitioner a right to rescind the charter party extra
judicially.
I.
According to Article 1311 of the Civil Code, a contract takes effect between the parties who
made it, and also their assigns and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision of
law. Since a contract may be violated only by the parties, thereto as against each other, in an
action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be
parties to said contract. Therefore, a party who has not taken part in it cannot sue or be sued for
performance or for cancellation thereof, unless he shows that he has a real interest affected

thereby (Macias & Co. v. Warner Barners & Co., 43 Phil. 155 [1922] and Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125 [1951]; Coquia v. Fieldmen's Insurance Co., Inc., 26 SCRA 178
[1968]).
It is undisputed that the charter party, basis of the complaint, was entered into between
petitioner Marimperio Compaia Naviera, S.A., through its duly authorized agent in London, the
N & J Vlassopulos Ltd., and the Interocean Shipping Company of Manila through the latter's
duly authorized broker, the Overseas Steamship Co., Inc., represented by Matthews, Wrightson
Burbridge Ltd., for the Charter of the 'SS PAXOI' (Amended Complaint, Amended Record on
Appeal, p. 33; Complaint-in-Intervention, Amended Record on Appeal, p. 87). It is also alleged in
both the Complaint (Amended Record on Appeal 18) and the Amended Complaint (Amended
Record on Appeal, p. 39) that the Interocean Shipping Company sublet the said vessel to
respondent Union Import and Export Corporation which in turn sublet the same to respondent
Philippine Traders Corporation. It is admitted by respondents that the charterer is the Interocean
Shipping Company. Even paragraph 3 of the complaint-in-intervention alleges that respondents
were given the use of the vessel "pursuant to paragraph 20 of the Uniform Time Charter ..."
which precisely provides for the subletting of the vessel by the charterer (Rollo, p. 24).
Furthermore, Article 652 of the Code of Commerce provides that the charter party shall contain,
among others, the name, surname, and domicile of the charterer, and if he states that he is
acting by commission, that of the person for whose account he makes the contract. It is obvious
from the disclosure made in the charter party by the authorized broker, the Overseas Steamship
Co., Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to
Union Import and Export Corporation which in turn sublet it to Philippine Traders Corporation).
In a sub-lease, there are two leases and two distinct judicial relations although intimately
connected and related to each other, unlike in a case of assignment of lease, where the lessee
transmits absolutely his right, and his personality disappears; there only remains in the juridical
relation two persons, the lessor and the assignee who is converted into a lessee (Moreno,
Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-lease, the
personality of the lessee does not disappear; he does not transmit absolutely his rights and
obligations to the sub-lessee; and the sub-lessee generally does not have any direct action
against the owner of the premises as lessor, to require the compliance of the obligations
contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438).
However, there are at least two instances in the Civil Code which allow the lessor to bring an
action directly (accion directa) against the sub-lessee (use and preservation of the premises
under Art. 1651, and rentals under Article 1652).
Art. 1651 reads:
Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound
to the lessor for all acts which refer to the use and preservation of the thing leased
in the manner stipulated between the lessor and the lessee.
Article 1652 reads:
The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee.
However, the sub-lessee shall not be responsible beyond the amount of rent due

from him, in accordance with the terms of the sub-lease, at the time of the extrajudicial demand by the lessor.
Payments of rent in advance by the sub-lessee shall be deemed not to have been
made, so far as the lessor's claim is concerned, unless said payments were
effected in virtue of the custom of the place.
It will be noted however that in said two Articles it is not the sub-lessee, but the lessor, who can
bring the action. In the instant case, it is clear that the sub-lessee as such cannot maintain the
suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil. 916).
In the law of agency "with an undisclosed principal, the Civil Code in Article 1883 reads:
If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither have such persons against
the principal.
In such case the agent is the one directly bound in favor of the person with whom
he has contracted, as if the transaction were his own, except when the contract
involves things belonging to the principal.
The provisions of this article shag be understood to be without prejudice to the
actions between the principal and agent.
While in the instant case, the true charterers of the vessel were the private respondents herein
and they chartered the vessel through an intermediary which upon instructions from them did
not disclose their names. Article 1883 cannot help the private respondents, because although
they were the actual principals in the charter of the vessel, the law does not allow them to bring
any action against the adverse party and vice, versa.
II.
The answer to the question of whether or not the default of charterer in the payment of the
charter hire within the time agreed upon gives petitioner a right to rescind the charter party
extrajudicially, is undoubtedly in the affirmative.
Clause 6 of the Charter party specifically provides that the petitioner has the right to withdraw
the vessel fromthe service of the charterers, without noting any protest and without interference
of any court or any formality in the event that the charterer defaults in the payment of hire. The
payment of hire was to be made every fifteen (1 5) days in advance.
It is undisputed that the vessel "SS PAXOI" came on hire on March 27, 1965. On March 29,
Vlassopulos notified by letter the charterer through Matthews of that fact, enclosing therein
owner's debit note for a 15-day hire payable in advance. On March 30, 1965 the shipowner
again notified Matthews that the payment for the first 15-day hire was overdue. Again on April 2
the shipowner telexed Matthews insisting on the payment, but it was only on April 7 that the
amount of US $22,500.00 was remitted to Williams Deacons Bank, Ltd. through the Rizal
Commercial Banking Corporation for the account of Vlassopulos, agent of petitioner,
corresponding to the first 15-day hire from March 27 to April 11, 1965.

On April 8, 1965, Vlassopulos acknowledged receipt of the payment, again with a debit note for
the second 15-day hire and overtime which was due on April 11, 1965. On April 23, 1965,
Vlassopulos notified Matthews by telex that charterers were in default and in accordance with
Clause 6 of the charter party, the vessel was being withdrawn from charterer's service, holding
them responsible for unpaid hire and all other legal claims of the owner. Respondents remitted
the sum of US$6,000.00 and US$10,000.00 to the bank only on April 26, 1965 representing
payment for the second 15-day hire from April 12 to April 27, 1965, received and accepted by
the payee, Vlassopulos without any comment or protest.
Unquestionably, as of April 23, 1965, when Vlassopulos notified Matthews of the withdrawal of
the vessel from the Charterers' service, the latter was already in default. Accordingly, under
Clause 6 of the charter party the owners had the right to withdraw " SS PAXO I " from the
service of charterers, which withdrawal they did.
The question that now arises is whether or not petitioner can rescind the charter party extrajudicially. The answer is also in the affirmative. A contract is the law between the contracting
parties, and when there is nothing in it which is contrary to law, morals, good customs, public
policy or public order, the validity of the contract must be sustained (Consolidated Textile Mills,
Inc. v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. Republic Surety & Insurance
Co., Inc., 31 SCRA 329 [1970]; Castro v. Court of Appeals, 99 SCRA 722 [1980]; Escano v.
Court of Appeals, 100 SCRA 197 [1980]). A judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any
of its terms and conditions (Enrile v. Court of Appeals, 29 SCRA 504 [1969]; University of the
Philippines v. De los Angeles, 35 SCRA 102 [1970]; Palay, Inc. v. Clave, 124 SCRA 638 [1983]).
PREMISES CONSIDERED, (1) the decision of the Court of Appeals affirming the amended
decision of the Court of First Instance of Manila, Branch VIII, is hereby REVERSED and SET
ASIDE except for that portion of the decision dismissing the complaint-in-intervention; and (2)
the original decision of the trial court is hereby REINSTATED.
SO ORDERED.

G.R. No. 77638 July 12, 1990

MARITIME AGENCIES & SERVICES, INC., petitioner,
vs.
COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON, LTD., respondents.
G.R. No. 77674 July 12, 1990
UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner,
vs.

COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES & SERVICES, INC.,
and/or VIVA CUSTOMS BROKERAGE, respondents.

CRUZ, J.:
Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping
Company of Hongkong the motor vessel named "Hongkong Island" for the shipment of 8073.35
MT (gross) bagged urea from Novorossisk, Odessa, USSR to the Philippines, the parties
signing for this purpose a Uniform General Charter dated August 9, 1979. 1
Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as
consignee, 3,400.04 to be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The
goods
were
insured
by
the
consignee
3
with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks.
Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray
Company, Inc. as the owner's agent. 4
The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's goods,
then proceeded to Cebu on October 19, 1979, to discharge the rest of the cargo. On October
31, 1979, the consignee filed a formal claim against Maritime, copy furnished Macondray, for the
amount of P87,163.54, representing C & F value of the 1,383 shortlanded bags. 5 On January
12, 1980, the consignee filed another formal claim, this time against Viva Customs Brokerage,
for the amount of P36,030.23, representing the value of 574 bags of net unrecovered spillage. 6
These claims having been rejected, the consignee then went to Union, which on demand paid
the total indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of the
consignee, Union then filed on September 19, 1980, a complaint for reimbursement of this
amount, with legal interest and attorney's fees, against Hongkong Island Company, Ltd.,
Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. 7 On April 20, 1981, the
complaint was amended to drop Viva and implead Macondray Company, Inc. as a new
defendant. 8
On January 4, 1984, after trial, the trial court rendered judgment holding the defendants liable as
follows:
(a) defendants Hongkong Island Co., Ltd., and its local agent Macondray & Co.,
Inc. to pay the plaintiff the sum of P87,163.54 plus 12% interest from April 20,
1981 until the whole amount is fully paid, P1,000.00 as attorney's fees and to pay
one-half (1/2) of the costs; and
(b) defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum of
P36,030.23, plus 12% interest from April 20, 1981 until the whole amount is fully
paid, P600.00 as attorney's fees and to pay one-half (1/2) of the costs. 9
Petitioner appealed the decision to the Court of Appeals, which rendered a decision on
November 28, 1986, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is modified, finding the charterer
Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime Agencies &
Services, Inc. liable for the amount of P87,163.54 plus interest at 12% plus

attorney's fees of P1,000.00. Defendant Hongkong Island Co., Ltd. represented by

Macondray Co., Inc. are accordingly exempted from any liability. 10
Maritime and Union filed separate motions for reconsideration which were both denied. The
movants are now before us to question the decision of the respondent court.
In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the charterer's
agent and should not answer for whatever responsibility might have attached to the principal. It
also argues that the respondent court erred in applying Articles 1734 and 1735 of the Civil Code
in determining the charterer's liability.
In G.R. No. 77674, Union asks for the modification of the decision of the respondent court so as
to make Maritime solidarily and solely liable, its principal not having been impleaded and so not
subject to the jurisdiction of our courts.
These two cases were consolidated and given due course, the parties being required to submit
simultaneous memoranda. All complied, including Hongkong Island Company, Ltd., and
Macondray Company, Inc., although they pointed out that they were not involved in the petitions.
There are three general categories of charters, to wit, the demise or "bareboat charter," the time
charter and the voyage charter.
A demise involves the transfer of full possession and control of the vessel for the period covered
by the contract, the charterer obtaining the right to use the vessel and carry whatever cargo it
chooses, while manning and supplying the ship as well. 11
A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining
the right to direct the movements of the vessel during the chartering period, although the owner
retains possession and control. 12
A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for
the purpose of transporting goods for the charterer. The voyage charter is a contract of
affreightment and is considered a private carriage. 13
Tested by those definitions, the agreement entered into in the cases at bar should be
considered. This brings us to the basic question of who, in this kind of charter, shall be liable for
the cargo.
A voyage charter being a private carriage, the parties may freely contract respecting liability for
damage to the goods and other matters. The basic principle is that "the responsibility for cargo
loss falls on the one who agreed to perform the duty involved" in accordance with the terms of
most voyage charters. 14
This is true in the present cases where the charterer was responsible for loading, stowage and
discharging at the ports visited, while the owner was responsible for the care of the cargo during
the voyage. Thus, Par. 2 of the Uniform General Charter read:
2. Owners are to be responsible for loss of or damage to the goods or for delay in
delivery of the goods only in case the loss, damage or delay has been caused by

the improper or negligent stowage of the goods or by personal want of due

diligence on the part of the Owners or their Manager to make the vessel in all
respects seaworthy and to secure that she is properly manned, equipped and
supplied or by the personal act or default of the Owners or their Manager.
And the Owners are responsible for no loss or damage or delay arising from any
other cause whatsoever, even from the neglect or default of the Captain or crew or
some other person employed by the Owners onboard or ashore for whose acts
they would, but for this clause, be responsible, or from unseaworthiness of the
vessel on loading or commencement of the voyage or at any time whatsoever.
Damage caused by contact with or leakage, smell or evaporation from other goods
or by the inflammable or explosive nature or insufficient package of other goods
not to be considered as caused by improper or negligent stowage, even if in fact
so caused.

while Clause 17 of Additional Clauses to Charter party provided:

The cargo shall be loaded, stowed and discharged free of expense to the vessel
under the Master's supervision. However, if required at loading and discharging
ports the vessel is to give free use of winches and power to drive them gear,
runners and ropes. Also slings, as on board. Shore winchmen are to be employed
and they are to be for Charterers' or Shippers' or Receivers' account as the case
may be. Vessel is also to give free use of sufficient light, as on board, if required
for night work. Time lost through breakdown of winches or derricks is not to count
as laytime.
In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial court rejected similar
stipulations as contrary to public policy and, applying the provisions of the Civil Code on
common carriers and of the Code of Commerce on the duties of the ship captain, held the
vessel liable in damages for loss of part of the cargo it was carrying. This Court reversed,
declaring as follows:
The provisions of our Civil Code on common carriers were taken from AngloAmerican law. Under American jurisprudence, a common carrier undertaking to
carry a special cargo or chartered to a special person only, becomes a private
carrier. As a private carrier, a stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is deemed valid.
Such doctrine we find reasonable. The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner from liability for
loss due to the negligence of its agent would be void only if the strict public policy
governing common carriers is applied. Such policy has no force where the public
at large is not involved, as in the case of a ship totally chartered for the use of a
single party.

Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case
that the vessel was at fault. In the cases at bar, the trial court found that 1,383 bags were
shortlanded, which could only mean that they were damaged or lost on board the vessel before
unloading of the shipment. It is not denied that the entire cargo shipped by the charterer in
Odessa was covered by a clean bill of lading. 16 As the bags were in good order when received
in the vessel, the presumption is that they were damaged or lost during the voyage as a result of
their negligent improper stowage. For this the ship owner should be held liable.
But we do agree that the period for filing the claim is one year, in accordance with the Carriage
of Goods by Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65
which, as a special law, prevails over the general provisions of the Civil Code on prescription of
actions. Section 3(6) of that Act provides as follows:
In any event, the carrier and the ship shall be discharged from all liability in respect
of loss or damage unless suit is brought within one year after delivery of the goods
or the date when the goods should have been delivered; Provided, that if a notice
of loss for damage; either apparent or concealed, is not given as provided for in
this section, that fact shall not effect or prejudice the right of the shipper to bring
suit within one year after the delivery of the goods or the date when the goods
should have been delivered.
This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila
Railroad Co., 17where it was held:
Under the facts of this case, we held that the one-year period was correctly
reckoned by the trial court from December 19, 1961, when, as agreed upon by the
parties and as shown in the tally sheets, the cargo was discharged from the
carrying vessel and delivered to the Manila Port Service. That one-year period
expired on December 19, 1962. Inasmuch as the action was filed on December
21, 1962, it was barred by the statute of limitations.
The one-year period in the cases at bar should commence on October 20, 1979, when the last
item was delivered to the consignee. 18 Union's complaint was filed against Hongkong on
September 19, 1980, but tardily against Macondray on April 20, 1981. The consequence is that
the action is considered prescribed as far as Macondray is concerned but not against its
principal, which is what matters anyway.
As regards the goods damaged or lost during unloading, the charterer is liable therefor, having
assumed this activity under the charter party "free of expense to the vessel." The difficulty is that
Transcontinental has not been impleaded in these cases and so is beyond our jurisdiction. The
liability imposable upon it cannot be borne by Maritime which, as a mere agent, is not
answerable for injury caused by its principal. It is a well-settled principle that the agent shall be
liable for the act or omission of the principal only if the latter is undisclosed. 19
Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the
case of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that
case is applicable.

In that case, the charterer represented itself on the face of the bill of lading as the carrier. The
vessel owner and the charterer did not stipulate in the Charter party on their separate respective
liabilities for the cargo. The loss/damage to the cargo was sustained while it was still on board or
under the custody of the vessel. As the charterer was itself the carrier, it was made liable for the
acts of the ship captain who was responsible for the cargo while under the custody of the
vessel.
As for the charterer's agent, the evidence showed that it represented the vessel when it took
charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name.
Claims against the vessel for the losses/damages sustained by that cargo were also received
and processed by it. As a result, the charterer's agent was also considered a ship agent and so
was held to be solidarily liable with its principal.
The facts in the cases at bar are different. The charterer did not represent itself as a carrier and
indeed assumed responsibility ability only for the unloading of the cargo, i.e, after the goods
were already outside the custody of the vessel. In supervising the unloading of the cargo and
issuing Daily Operations Report and Statement of Facts indicating and describing the day-today discharge of the cargo, Maritime acted in representation of the charterer and not of the
vessel. It thus cannot be considered a ship agent. As a mere charterer's agent, it cannot be held
solidarily liable with Transcontinental for the losses/damages to the cargo outside the custody of
the vessel. Notably, Transcontinental was disclosed as the charterer's principal and there is no
question that Maritime acted within the scope of its authority.
Hongkong and Macondray point out in their memorandum that the appealed decision is not
assailed insofar as it favors them and so has become final as to them. We do not think so. First
of all, we note that they were formally impleaded as respondents in G.R No. 77674 and
submitted their comment and later their memorandum, where they discussed at length their
position vis-a-vis the claims of the other parties. Secondly, we reiterate the rule that even if
issues are not formally and specifically raised on appeal, they may nevertheless be considered
in the interest of justice for a proper decision of the case.itc-asl Thus, we have held that:
Besides, an unassigned error closely related to the error properly assigned, or
upon which the determination of the question raised by the error properly assigned
is dependent, will be considered by the appellate court notwithstanding the failure
to assign it as error.
At any rate, the Court is clothed with ample authority to review matters, even if
they are not assigned as errors in their appeal, if it finds that their consideration is
necessary in arriving at a just decision of the case. 21
xxx xxx xxx
Issues, though not specifically raised in the pleadings in the appellate court, may,
in the interest of justice, be properly considered by said court in deciding a case, if
they are questions raised in the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to raise or the lower court
ignore(d). 22
xxx xxx xxx

While an assignment of error which is required by law or rule of court has been
held essential to appellate review, and only those assigned will be considered,
there are a number of cases which appear to accord to the appellate court a broad
discretionary power to waive this lack of proper assignment of errors and consider
errors not assigned. 23
In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of
Manila held:
The Court, on the basis of the evidence, finds nothing to disprove the finding of the
marine and cargo surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags
were "discharged ex-vessel" and there were "shortlanded" "1,383 bags", valued at
P87,163.54. This sum should be the principal and primary liability and
responsibility of the carrying vessel. Under the contract for the transportation of
goods, the vessel's responsibility commence upon the actual delivery to, and
receipt by the carrier or its authorized agent, until its final discharge at the port of
Manila. Defendant Hongkong Island Co., Ltd., as "shipowner" and represented by
the defendant Macondray & Co., Inc., as its local agent in the Philippines, should
be responsible for the value of the bags of urea fertilizer which were shortlanded.
The remainder of the claim in the amount of P36,030.23, representing the value of
the 574 bags of unrecovered spillages having occurred after the shipment was
discharged from the vessel unto the ex-lighters as well as during the discharge
from the lighters to the truck which transported the shipment to the consignee's
warehouses should be for the account of the defendant Maritime Agencies &
Services, Inc.
We affirm the factual findings but must modify the legal conclusions. As previously discussed,
the liability of Macondray can no longer be enforced because the claim against it has
prescribed; and as for Maritime, it cannot be held liable for the acts of its known principal
resulting in injury to Union. The interest must also be reduced to the legal rate of 6%,
conformably to our ruling in Reformina v. Tomol 24 and Article 2209 of the Civil Code, and should
commence, not on April 20, 1981, but on September 19, 1980, date of the filing of the original
complaint.
WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is
REINSTATED as above modified. The parties shall bear their respective costs.
SO ORDERED.

[G.R. No. 131166. September 30, 1999]

CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE
S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO,
RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAEZAL
AND SOTERA E. CAEZAL, respondents.
DECISION
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered
vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products
of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV
Doa Paz, killing almost all the passengers and crew members of both ships, and thus resulting in one of
the countrys worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision [1]holding petitioner jointly liable
with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.s passenger
ship MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to
Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. [2]MT Vector is a
tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of
transporting fuel products such as gasoline, kerosene, diesel and crude oil.During that particular voyage,
the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter
contract between them.[3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of Tacloban
headed for Manila with a complement of 59 crew members including the master and his officers, and
passengers totaling 1,493 as indicated in the Coast Guard Clearance. [4] The MV Doa Paz is a passenger
and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/
Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the
vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doa
Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the
incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that
responded to distress calls.[5] Among those who perished were public school teacher Sebastian Caezal (47
years old) and his daughter Corazon Caezal (11 years old), both unmanifested passengers but proved to be
on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found
that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector
Shipping Corporation, were at fault and responsible for its collision with MV Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and mother
respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for Damages Arising from
Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a
third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines),
Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well
that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a
result, it rammed against MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party complaint against
petitioner. The dispositive portion reads:
WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd party
plaintiff Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal, including loss of
future earnings of said Sebastian, moral and exemplary damages, attorneys fees, in the total amount of P
1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against
the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of
Appeal modified the trial courts ruling and included petitioner Caltex as one of the those liable for
damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby
MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal and
Corazon Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the total amount of
ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the total amount
of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P
50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third
party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages,
attorneys fees and costs which the latter is adjudged to pay plaintiffs, the same to be shared half by Vector
Shipping Co. (being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being
the charterer that negligently caused the shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is
public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping
documents on the one hand, or a charter party or similar contract on the other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; a contract of affreightment is one by which the owner
of a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In
both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of

time or for a single or consecutive voyage, the ship owner to supply the ships store, pay for the wages of
the master of the crew, and defray the expenses for the maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for
damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer
is free from liability to third persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one? We need to answer
this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private carrier. The
parties entered into a voyage charter, which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in
the case of a time-charter or voyage charter. It is only when the charter includes both the vessel and its
crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or voyage charter
retains possession and control of the ship, although her holds may, for the moment, be the property of the
charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]
Although a charter party may transform a common carrier into a private one, the same however is not true
in a contract of affreightment xxx
A common carrier is a person or corporation whose regular business is to carry passengers or
property for all persons who may choose to employ and to remunerate him. [16] MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals,
[17]
we ruled:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers for passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as
a sideline). Article 1732 also carefully avoids making any distinction between a person or enterprise

offering transportation service on a regular or scheduled basis and one offering such services on a
an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.
It appears to the Court that private respondent is properly characterized as a common carrier even though
he merely back-hauled goods for other merchants from Manila to Pangasinan, although such backhauling
was done on a periodic, occasional rather than regular or scheduled manner, and even though
respondents principal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that the fee frequently fell below
commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence
to (a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code.[18]
The provisions owed their conception to the nature of the business of common carriers. This business
is impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous.[19] For these reasons, a passenger or a shipper of goods is under no obligation
to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license
renewed;

2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate
only in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil
Code, which provide:
Article 20. - Every person who contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 2176. - Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the time
and of the place. When negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2,
shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected
of a good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the
failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand,
or the omission to do something which ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for being

engaged in public service.[22] The Civil Code demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances of the persons, the time and the
place. Hence, considering the nature of the obligation between Caltex and MT Vector, the liability as
found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness,[23] shippers of goods, when transacting with common carriers, are not expected
to inquire into the vessels seaworthiness, genuineness of its licenses and compliance with all maritime
laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the
futility of our maritime laws insofar as the protection of the public in general is concerned. By the same
token, we cannot expect passengers to inquire every time they board a common carrier, whether the
carrier possesses the necessary papers or that all the carriers employees are qualified. Such a practice
would be an absurdity in a business where time is always of the essence. Considering the nature of
transportation business, passengers and shippers alike customarily presume that common carriers possess
all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in
shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector
could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here
under VESSELS DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7,
1987, Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT Vector?
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid
C.I. which will expire on December 7, 1987 but on the last week of November, I called the
attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they
will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were
going to send me a copy as soon as possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our
long business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates
that the documents are in order. xxx[25]
On cross examination -

Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection
has expired on December 7. Did it occur to you not to let the vessel sail on that day because of the
very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were able to
secure a renewal of the Certificate of Inspection and that they will in time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in
the coastwise license on December 7, 1987. What was your assurance for the record that this
document was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three
years, they were allowed to sail by the Coast Guard. That are some that make me believe that they
in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed, referring
to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast
Guard, it means that it has Certificate of Inspection extended as assured to this witness by
Restituto Abalos. That in no case MV Vector will be allowed to sail if the Certificate of Inspection
is, indeed, not to be extended. That was his repeated explanation to the cross-examination. So,
there is no need to clarify the same in the re-direct examination.[27]
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe
a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as
even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find
no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we limit our
ruling to the liability of Caltex alone. However, we maintain the Court of Appeals ruling insofar as Vector
is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court
of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the
latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court of Appeals
insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Caezal and Corazon Caezal

damages as set forth therein. Third-party defendant-appellee Vector Shipping Corporation and Francisco
Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages,
attorneys fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.
No costs in this instance.
SO ORDERED.

[G.R. No. 76113. November 16, 1990.]

D.P. LUB OIL MARKETING CENTER, INC., Petitioner, v. RAUL NICOLAS, SOCORRO
VALERIE GUTIERREZ, and THE HONORABLE PONCIANO C. INOPIQUEZ (In his official
capacity as the Presiding Judge of Regional Trial Court of Manila, Branch XIV), Respondents.
Simeon M. Magdamit for Petitioner.
Artemio IL. Vendivil for Respondents.
SYLLABUS
1. COMMERCIAL LAW; CODE OF COMMERCE; ARTICLES 580 AND 584 THEREOF, EXPRESSLY
REPEALED BY SECTION 2 OF PD NO. 214. In resolving the first issue, we affirm the conclusion of
the respondent judge that, indeed, Articles 580 and 584 of the Code of Commerce had been expressly
repealed by the provisions of Presidential Decree (PD) No. 214 thereby rendering the former abrogated
and of no more force and effect. Section 2 of PD No. 214, which is the repealing clause is crystal clear.
No interpretation is necessary. It is plain, as plain as ordinary and simple words can ever be, that Articles
580 and 584 of the Code of Commerce were expressly referred to and repealed by Section 2 of PD 214.
Ita
lex
scripta
est.

2. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; NATURE THEREOF; GRANTED

ONLY ON CONCRETE AND SPECIFIC GROUNDS. The issue as to whether or not the case of Salas
v. Adil is applicable is not important. The respondent judge acted in accordance with the existing laws and
prevailing jurisprudence. The rules on the issuance of a writ of attachment must be construed strictly
against the applicants. This stringency is required because the remedy of attachment is harsh,
extraordinary, and summary in nature. If all the requisites for the granting of the writ are not present, then
the court which issues it acts in excess of its jurisdiction. (Gruenberg v. Court of Appeals, No. L- 45948,
promulgated on September 10, 1985, 138 SCRA 471) The petitioners prayer for a preliminary attachment
hinges on the allegations in paragraph 16 of the complaint and paragraph 4 of the affidavit of Daniel Pe
which are couched in general terms devoid of particulars of time, persons, and places to support such a
serious assertion that "defendants are disposing of their properties in fraud of the creditors." There is thus
the necessity of giving to the private respondents an opportunity to ventilate their side in a hearing, in
accordance with due process, in order to determine the truthfulness of the allegations. But no hearing was
afforded to the private respondents the writ having been issued ex parte. A writ of attachment can only be
granted on concrete and specific grounds and not on general averments merely quoting the words of the
rules.
3. ID.; ID.; ID.; NO NEED TO POST A COUNTERBOND IF THE WRIT WAS IMPROPERLY
GRANTED. The respondent judge merely corrected himself by issuing the questioned orders, thereby
making his actions conform with the applicable laws and his findings of fact. Since the writ of attachment
was improperly granted, the respondent trial courts orders discharging it were compelling and justified to
rectify the initial error. Hence, there was no need at all inceptively for the private respondents to post a
counterbond. (Miranda v. Court of Appeals, Et Al., G.R. No. 80030, promulgated on October 26, 1989, 6)
DECISION
SARMIENTO, J.:
Assailed in this petition for certiorari under Rule 65 of the Revised Rules of Court In The Philippines are
the respondent trial courts orders, in Civil Case No. 86-35983, the first, dated August 28, 1986, and the
second, September 24, 1986, which denied the petitioner-plaintiffs motion for reconsideration. The
concluding portion of the August 28, 1986 order reads:chanrob1es virtual 1aw library
x

With the dissolution of the writ of attachment and the withdrawal of the counterbond, the Court deems it
no longer necessary to discuss the plaintiffs Motion to Revive the Writ of Attachment.
WHEREFORE, premised upon the findings and observations above, the first motion is GRANTED
dissolving the writ of attachment and the counterbond withdrawn. The second motion is denied.
SO ORDERED. 1
The questioned orders stemmed from a complaint lodged by the petitioner, D.P. Lub Oil Marketing
Center, Inc., against private respondents Raul Nicolas and Socorro Valerie Gutierrez for a sum of money

and damages, docketed as Civil Case No. 86-35983, on May 23, 1986. 2
The said complaint contained a prayer for the issuance of a writ of preliminary attachment upon the
ground that the claim resulted from the non-payment of the purchase price of fuel oil used for the ten
vessels of the private respondents-defendants 3 and that pursuant to the provisions of the Code of
Commerce, Article 584 in relation to Article 580 (subpar. 8), the said vessels may be attached. There was
the added averment that the private respondents were about to dispose of the said vessels in fraud of their
creditors including the petitioner herein.
A writ of preliminary attachment was issued ex parte by a court order, 4 dated May 28, 1986, upon the
posting of a bond by the petitioner in the amount of P220,000.00. Armed with the writ, the Sheriff of
Manila on June 18, 1986, boarded the private respondents fishing vessel, "Star Vangeline," and placed it
under custodia legis.chanrobles law library
The following day, on June 19, 1986, an order 5 was issued by the respondent judge lifting the attachment
upon the posting of a counterbond in the amount of P220,000.00, upon motion of the private respondents
without waiving or abandoning their objections to the alleged grounds for the issuance of the writ of
attachment.
Thereafter, the private respondents filed a "Motion to Withdraw Counter-bond and to Dissolve Writ of
Attachment," 6 dated July 3, 1986. Despite opposition from the petitioner, the respondent Judge issued the
first of the disputed orders dated August 28, 1986, 7 which dissolved the writ of attachment and allowed
the private respondents withdrawal of their counterbond. The petitioners subsequent motion for
reconsideration 8 was also denied in the second assailed order dated September 24, 1986. 9
The petitioner submits the following legal issues for resolution by the Court:chanrob1es virtual 1aw
library
a) Has (sic) the provisions of Articles 580 and 584 of the Code of Commerce being (sic) expressly
repealed by the provisions of Presidential Decree 214 so as to render the same abrogated and negated
already?
b) Is the case of Salas v. Adil (90 SCRA 121) applicable in the instant case so as to justify the Honorable
Respondent Judge in ordering the withdrawal of the bond?
c) Has the Honorable Respondent Judge committed grave abuse of discretion tantamount to lack of
jurisdiction in issuing the questioned order? 10
The answer to the first question is affirmative.
The second and third issues may be consolidated thus:chanrob1es virtual 1aw library
WAS THE PETITIONER ENTITLED TO A WRIT OF PRELIMINARY ATTACHMENT IN THE FIRST
PLACE?
The answer to this second question is negative.
In resolving the first issue, we affirm the conclusion of the respondent judge that, indeed, Articles 580 and
584 of the Code of Commerce had been expressly repealed by the provisions of Presidential Decree (PD)
No. 214 thereby rendering the former abrogated and of no more force and effect. The pertinent provisions

are quoted as follows:chanrobles law library

Articles 580(8) and 584 of the Code of Commerce:chanrob1es virtual 1aw library
ARTICLE 580. In all judicial sales of vessels for the payment of creditors, the said creditors shall have
preference in the order stated:chanrob1es virtual 1aw library
x

8. The part of the price which has not been paid the last vendor, the credits pending for the payment of
materials and work in the construction of the vessel, when it has not navigated, and those arising from the
repair and equipment of the vessel and from its provisioning with victuals and fuel during its last voyage.
In order that the credits provided for in this subdivision may enjoy the preference they must appear by
contracts recorded in the registry of vessels, or if they were contracted for the vessel while on a voyage
and said vessel has not returned to the port of her registry, they must be made under the authority required
for such cases and entered in the certificate of registry of the said vessel.
x

ARTICLE 584. The vessels subject to the liability for the credits mentioned in Article 580 may be
attached and judicially sold in the manner prescribed in Article 579, in the port in which they are at the
instance of any of the creditors; but if they should be loaded and ready to sail, the attachment cannot take
place except for debts contracted for the preparation and provisioning of the vessels for the same voyage,
and even then the attachment shall be dissolved if any person interested in her sailing should give bond
for the return of the vessel within the period fixed in the certificate of navigation, and binding himself to
pay the debt in so far as it may be legal, should the vessel be delayed in her return even if it were caused
by some fortuitous event. 11
x

Section

x
2

of

PD

No.

214,

which

is

the

repealing

clause

is

crystal

clear.

SEC. 2. The provisions of Commonwealth Act Numbered Six hundred and six, as amended by Republic
Act Numbered Nine hundred and thirteen; the Code of Commerce, particularly Articles 580 and 584
thereof; and all other Acts, executive orders and regulations inconsistent herewith are hereby repealed or
modified accordingly. 12 (Emphasis ours.)
x

The petitioner assails the conclusion of the trial court, averring in its petition:chanrobles virtual lawlibrary
x

A mere application on the basic rule of statutory construction would reveal to us that only those

inconsistent with the provisions of Presidential Decree 214 are repealed or modified accordingly. We
respectfully submit that the intention of Presidential Decree 214 is not to abrogate or negate Articles 580
and 584 of the Code of Commerce. Otherwise it could have clearly and categorically stated so. 13
x

The petitioner submits that the conflicting provisions can co-exist together and that it was not the
intention of PD 214 to render nugatory Articles 580 and 584 of the Code of Commerce since they are not
inconsistent with the former. It concludes that the respondent judge had committed grave abuse of
discretion tantamount to lack of jurisdiction in issuing the questioned orders. 14
The submission is not meritorious. No interpretation is necessary. It is plain, as plain as ordinary and
simple words can ever be, that Articles 580 and 584 of the Code of Commerce were expressly referred to
and
repealed
by
Section
2
of
PD
214.
Ita
lex
scripta
est.
On the second issue, the petitioner advances the argument that the case of Salas v. Adil is not applicable to
the
case
at
bar.
15
The issue as to whether or not Salas is applicable is not important. The respondent judge acted in
accordance with the existing laws and prevailing jurisprudence. The rules on the issuance of a writ of
attachment must be construed strictly against the applicants. This stringency is required because the
remedy of attachment is harsh, extraordinary, and summary in nature. If all the requisites for the granting
of the writ are not present, then the court which issues it acts in excess of its jurisdiction. 16
The petitioners prayer for a preliminary attachment hinges on the allegations in paragraph 16 of the
complaint 17 and paragraph 4 of the affidavit 18 of Daniel Pe which are couched in general terms devoid
of particulars of time, persons, and places to support such a serious assertion that "defendants are
disposing of their properties in fraud of the creditors." There is thus the necessity of giving to the private
respondents an opportunity to ventilate their side in a hearing, in accordance with due process, in order to
determine the truthfulness of the allegations. But no hearing was afforded to the private respondents the
writ having been issued ex parte. A writ of attachment can only be granted on concrete and specific
grounds and not on general averments merely quoting the words of the rules. 19
The respondent judge merely corrected himself by issuing the questioned orders, thereby making his
actions conform with the applicable laws and his findings of fact. Since the writ of attachment was
improperly granted, the respondent trial courts orders discharging it were compelling and justified to
rectify the initial error. Hence, there was no need at all inceptively for the private respondents to post a
counterbond.
20
WHEREFORE, the petition is DISMISSED with costs against the petitioner.chanrobles.com:cralaw:red
SO ORDERED.