1. G.R. No.

121833 October 17, 2008

ABOITIZ SHIPPING CORPORATION, petitioners,

vs.
COURT OF APPEALS, MALAYAN INSURANCE COMPANY, INC., COMPAGNIE MARITIME DES
CHARGEURS REUNIS, and F.E. ZUELLIG (M), INC.,respondents.

x-----------------------------------------x

G.R. No. 130752 October 17, 2008

ABOITIZ SHIPPING CORPORATION, petitioners,

vs.
COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in his capacity as Presiding Judge of the
RTC, Branch 20; ASIA TRADERS INSURANCE CORPORATION, and ALLIED GUARANTEE INSURANCE
CORPORATION,respondents.

x-----------------------------------------x

G.R. No. 137801 October 17, 2008

ABOITIZ SHIPPING CORPORATION, petitioners,

vs.
EQUITABLE INSURANCE CORPORATION, respondents.

DECISION

TINGA, J.:

Before this Court are three consolidated Rule 45 petitions all involving the issue of whether the real and
hypothecary doctrine may be invoked by the shipowner in relation to the loss of cargoes occasioned by the
sinking of M/V P. Aboitiz on 31 October 1980. The petitions filed by Aboitiz Shipping Corporation (Aboitiz)
commonly seek the computation of its liability in accordance with the Court’s pronouncement in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. 1 (hereafter referred to as "the
1993 GAFLAC case").

The three petitions stemmed from some of the several suits filed against Aboitiz before different regional trial
courts by shippers or their successors-in-interest for the recovery of the monetary value of the cargoes lost, or by
the insurers for the reimbursement of whatever they paid. The trial courts awarded to various claimants the
amounts of ₱639,862.02, ₱646,926.30, and ₱87,633.81 in G.R. Nos. 121833, 130752 and 137801, respectively.

ANTECEDENTS

G.R. No. 121833

Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions against several defendants
for the collection of the amounts of the cargoes allegedly paid by Malayan under various marine cargo
policies2 issued to the insurance claimants. The five civil cases, namely, Civil Cases No. 138761, No. 139083, No.
138762, No. R-81-526 and No. 138879, were consolidated and heard before the Regional Trial Court (RTC) of
Manila, Branch 54.

The defendants in Civil Case No. 138761 and in Civil Case No. 139083 were Malayan International Shipping
Corporation, a foreign corporation based in Malaysia, its local ship agent, Litonjua Merchant Shipping Agency
(Litonjua), and Aboitiz. The defendants in Civil Case No. 138762 were Compagnie Maritime des Chargeurs
Reunis (CMCR), its local ship agent, F.E. Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filed Civil Case No.
R-81-526 only against CMCR and Zuellig. Thus, defendants CMCR and Zuellig filed a third-party complaint
against Aboitiz. In the fifth complaint docketed as Civil Case No. 138879, only Aboitiz was impleaded as
defendant.

The shipments were supported by their respective bills of lading and insured separately by Malayan against the
risk of loss or damage. In the five consolidated cases, Malayan sought the recovery of amounts totaling
₱639,862.02.

Aboitiz raised the defenses of lack of jurisdiction, lack of cause of action and prescription. It also claimed that M/V
P. Aboitiz was seaworthy, that it exercised extraordinary diligence and that the loss was caused by a fortuitous
event.

After trial on the merits, the RTC of Manila rendered a Decision dated 27 November 1989, adjudging Aboitiz liable
on the money claims. The decretal portion reads:

WHEREFORE, judgment is hereby rendered as follows:

1
 1. In Civil Case No. 138072 (R-81-526-CV), the defendants are adjudged liable and ordered to
pay to the plaintiffs jointly and severally the amount of ₱128,896.79; the third-party defendant
Aboitiz is adjudged liable to reimburse and ordered to pay the defendants or whosoever of them
paid the plaintiff up to the said amount;

2. In Civil Case No. 138761, Aboitiz is adjudged liable and ordered to pay plaintiff the amount of
One Hundred Sixty Three-Thousand Seven Hundred Thirteen Pesos and Thirty-Eight Centavos
(₱163,713.38).

3. In Civil Case No. 138762, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the
sum of Seventy Three Thousand Five Hundred Sixty-Nine Pesos and Ninety-Four Centavos
(₱73,569.94); and Sixty-Four Thousand Seven Hundred Four Pesos and Seventy-Seven
Centavos (₱64,704.77);

4. In Civil Case No. 139083, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the
amount of One Hundred Fifty-Six Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four
Centavos (₱156,287.64);

In Civil Case No. 138879, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the
amount of Fifty-Two Thousand Six Hundred Eighty-Nine Pesos and Fifty Centavos (₱52,689.50).

All the aforesaid award shall bear interest at the legal rate from the filing of the respective
complaints. Considering that there is no clear showing that the cases fall under Article 2208, Nos.
4 and 5, of the Civil Code, and in consonance with the basic rule that there be no penalty (in
terms of attorney’s fees) imposed on the right to litigate, no damages by way of attorney’s fees
are awarded; however, costs of the party/parties to whom judgment awards are made shall be
made by the party ordered to pay the said judgment awards.

SO ORDERED.3

Aboitiz, CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The appeal was docketed as CA-
G.R. SP No. 35975-CV. During the pendency of the appeal, the Court promulgated the decision in the
1993 GAFLAC case.

On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It disregarded Aboitiz’s
argument that the sinking of the vessel was caused by a force majeure, in view of this Court’s finding in a related
case, Aboitiz Shipping Corporation v. Court of Appeals, et al. (the 1990 GAFLAC case).4In said case, this Court
affirmed the Court of Appeals’ finding that the sinking of M/V P. Aboitiz was caused by the negligence of its
officers and crew. It is one of the numerous collection suits against Aboitiz, which eventually reached this Court in
connection with the sinking of M/V P. Aboitiz.

As to the computation of Aboitiz’s liability, the Court of Appeals again based its ruling on the 1990 GAFLAC case
that Aboitiz’s liability should be based on the declared value of the shipment in consonance with the exceptional
rule under Section 4(5)5 of the Carriage of Goods by Sea Act.

Aboitiz moved for reconsideration6 to no avail. Hence, it filed this petition for review on certiorari docketed as G.R.
No. 121833.7 The instant petition is based on the following grounds:

THE COURT OF APPEALS SHOULD HAVE LIMITED THE RECOVERABLE AMOUNT FROM
ASC TO THAT AMOUNT STIPULATED IN THE BILL OF LADING.

IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD HAVE FOUND THAT THE
TOTAL LIABILITY OF ASC IS LIMITED TO THE VALUE OF THE VESSEL OR THE
INSURANCE PROCEEDS THEREOF.8

On 4 December 1995, the Court issued a Resolution9 denying the petition. Aboitiz moved for reconsideration,
arguing that the limited liability doctrine enunciated in the 1993 GAFLAC case should be applied in the
computation of its liability. In the Resolution10 dated 6 March 1996, the Court granted the motion and ordered the
reinstatement of the petition and the filing of a comment.

G.R. No. 130752

Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied Guarantee Insurance Corporation
(Allied) filed separate actions for damages against Aboitiz to recover by way of subrogation the value of the
cargoes insured by them and lost in the sinking of the vessel M/V P. Aboitiz. The two actions were consolidated
and heard before the RTC of Manila, Branch 20.

Aboitiz reiterated the defense of force majeure. The trial court rendered a decision11 on 25 April 1990 ordering
Aboitiz to pay damages in the amount of ₱646,926.30. Aboitiz sought reconsideration, arguing that the trial court
should have considered the findings of the Board of Marine Inquiry that the sinking of the M/V P. Aboitiz was

2
caused by a typhoon and should have applied the real and hypothecary doctrine in limiting the monetary award in
favor of the claimants. The trial court denied Aboitiz’s motion for reconsideration.

Aboitiz elevated the case to the Court of Appeals. While the appeal was pending, this Court promulgated the
decision in the 1993 GAFLAC case. The Court of Appeals subsequently rendered a decision on 30 May 1994,
affirming the RTC decision. 12

Aboitiz appealed the Court of Appeals decision to this Court.13 In a Resolution dated 20 September 1995, 14 the
Court denied the petition for raising factual issues and for failure to show that the Court of Appeals committed any
reversible error. Aboitiz’s motion for reconsideration was also denied in a Resolution dated 22 November 1995. 15

The 22 November 1995 Resolution became final and executory. On 26 February 1996, Asia Traders and Allied
filed a motion for execution before the RTC of Manila, Branch 20. Aboitiz opposed the motion. On 16 August
1996, the trial court granted the motion and issued a writ of execution.

Alleging that it had no other speedy, just or adequate remedy to prevent the execution of the judgment, Aboitiz
filed with the Court of Appeals a petition for certiorari and prohibition with an urgent prayer for preliminary
injunction and/or temporary restraining order docketed as CA-G.R. SP No. 41696.16 The petition was mainly
anchored on this Court’s ruling in the 1993 GAFLAC case.

On 8 August 1997, the Court of Appeals (Special Seventeenth Division) rendered the assailed decision
dismissing the petition.17 Based on the trial court’s finding that Aboitiz was actually negligent in ensuring the
seaworthiness of M/V P. Aboitiz, the appellate court held that the real and hypothecary doctrine enunciated in the
1993 GAFLAC case may not be applied in the case.

In view of the denial of its motion for reconsideration,18 Aboitiz filed before this Court the instant petition for review
on certiorari docketed as G.R. No. 130752. 19 The petition attributes the following errors to the Court of Appeals:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE LOWER COURT
HAD MADE AN EXPRESS FINDING OF THE ACTUALNEGLIGENCE OF ABOITIZ IN THE
SINKING OF THE M/V P. ABOITIZTHEREBY DEPRIVING ABOITIZ OF THE BENEFIT OF THE
DOCTRINE OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW. 20

THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT TO THE GAFLAC CASE
DECIDED BY THE HONORABLE COURT WHICH SUPPORTS THE APPLICABILITY OF THE
REAL AND HYPOTHECARY NATURE OF MARITIME LAW IN THE PRESENT CASE. 21

G.R. No. 137801

On 27 February 1981, Equitable Insurance Corporation (Equitable) filed an action for damages against Aboitiz to
recover by way of subrogation the value of the cargoes insured by Equitable that were lost in the sinking of M/V P.
Aboitiz.22 The complaint, which was docketed as Civil Case No. 138395, was later amended to implead Seatrain
Pacific Services S.A. and Citadel Lines, Inc. as party defendants. 23 The complaint against the latter defendants
was subsequently dismissed upon motion in view of the amicable settlement reached by the parties.

On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment24ordering Aboitiz to pay Equitable the
amount of ₱87,633.81, plus legal interest and attorney’s fees.25 It found that Aboitiz was guilty of contributory
negligence and, therefore, liable for the loss.

In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invoked the doctrine of limited liability and claimed that
the typhoon was the proximate cause of the loss. On 27 November 1998, the Court of Appeals rendered a
decision, affirming the RTC decision. 26

The Court of Appeals (Fifteenth Division) ruled that the loss of the cargoes and the sinking of the vessel were due
to its unseaworthiness and the failure of the crew to exercise extraordinary diligence. Said findings were anchored
on the 1990 GAFLAC case and on this Court’s resolution dated November 13, 1989 in G.R. No. 88159,
dismissing Aboitiz’s petition and affirming the findings of the appellate court on the vessel’s unseaworthiness and
the crew’s negligence.

Its motion for reconsideration27 having been denied, 28 Aboitiz filed before this Court a petition for review on
certiorari, docketed as G.R. No. 137801,29 raising this sole issue, to wit:

WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF MARITIME

LAW (ALSO KNOWN AS THE "LIMITED LIABILITY RULE") APPLIES.30

ISSUES

The principal issue common to all three petitions is whether Aboitiz can avail limited liability on the basis of the
real and hypothecary doctrine of maritime law. Corollary to this issue is the determination of actual negligence on
the part of Aboitiz.

3
These consolidated petitions similarly posit that Aboitiz’s liability to respondents should be limited to the value of
the insurance proceeds of the lost vessel plus pending freightage and not correspond to the full insurable value of
the cargoes paid by respondents, based on the Court’s ruling in the 1993 GAFLAC case.

Respondents in G.R. No. 121833 counter that the limited liability rule should not be applied because there was a
finding of negligence in the care of the goods on the part of Aboitiz based on this Court’s Resolution dated 4
December 1995 in G.R. No. 121833, which affirmed the trial court’s finding of negligence on the part of the
vessel’s captain. Likewise, respondent in G.R. No. 137801 relies on the finding of the trial court, as affirmed by
the appellate court, that Aboitiz was guilty of negligence.

Respondents in G.R No. 130752 argue that this Court had already affirmed in toto the appellate court’s finding
that the vessel was not seaworthy and that Aboitiz failed to exercise extraordinary diligence in the handling of the
cargoes. This being the law of the case, Aboitiz should not be entitled to the limited liability rule as far as this
petition is concerned, respondents contend.

RULING of the COURT

These consolidated petitions are just among the many others elevated to this Court involving Aboitiz’s liability to
shippers and insurers as a result of the sinking of its vessel, M/V P. Aboitiz, on 31 October 1980 in the South
China Sea. One of those petitions is the 1993 GAFLAC case, docketed as G.R. No. 100446. 31

The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in the 1990 GAFLAC case,
where the General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment obligee therein,
sought the execution of the monetary award against Aboitiz. The trial court granted GAFLAC’s prayer for
execution of the full judgment award. The appellate court dismissed Aboitiz’s petition to nullify the order of
execution, prompting Aboitiz to file a petition with this Court.

In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted the immediate stay of
execution of judgment to prevent the impairment of the other creditors’ shares. Invoking the rule on the law of the
case, private respondent therein countered that the 1990 GAFLAC case had already settled the extent of Aboitiz’s
liability.

Following the doctrine of limited liability, however, the Court declared in the 1993 GAFLAC case that claims
against Aboitiz arising from the sinking of M/V P. Aboitiz should be limited only to the extent of the value of the
vessel. Thus, the Court held that the execution of judgments in cases already resolved with finality must be
stayed pending the resolution of all the other similar claims arising from the sinking of M/V P. Aboitiz. Considering
that the claims against Aboitiz had reached more than 100, the Court found it necessary to collate all these claims
before their payment from the insurance proceeds of the vessel and its pending freightage. As a result, the Court
exhorted the trial courts before whom similar cases remained pending to proceed with trial and adjudicate these
claims so that the pro-rated share of each claim could be determined after all the cases shall have been
decided.32

In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz based on the trial court’s
finding therein that Aboitiz was not negligent. The Court explained, thus:

x x x In the few instances when the matter was considered by this Court, we have been
consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not
apply is when there is an actual finding of negligence on the part of the vessel owner or agent x x
x. The pivotal question, thus, is whether there is finding of such negligence on the part of the
owner in the instant case.

A careful reading of the decision rendered by the trial court in Civil Case No. 144425 as well as
the entirety of the records in the instant case will show that there has been no actual finding of
negligence on the part of petitioner. x x x

The same is true of the decision of this Court in G.R. No. 89757 affirming the decision of the
Court of Appeals in CA-G.R. CV No. 10609 since both decisions did not make any new and
additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that
the cause of the sinking of the vessel was because of unseaworthiness due to the failure of the
crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no
evidence presented sufficient to form a conclusion that petitioner shipowner itself was negligent,
and no tribunal, including this Court, will add or subtract to such evidence to justify a conclusion
to the contrary.33 (Citations entitled) (Emphasis supplied)

The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in maritime law that the shipowner
or agent’s liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. 34

In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code of
Commerce, thus:

4
 Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons
which may arise from the conduct of the captain in the care of the goods which he loaded on the
vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment
and the freight it may have earned during the voyage.

Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the
part of the vessel belonging to him.

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

These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its
appurtenances and freightage earned in the voyage, provided that the owner or agent abandons the
vessel.35 When the vessel is totally lost in which case there is no vessel to abandon, abandonment is not
required. Because of such total loss the liability of the shipowner or agent for damages is
extinguished.36 However, despite the total loss of the vessel, its insurance answers for the damages for which a
shipowner or agent may be held liable.37

Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite
the abandonment of the vessel, as where the loss or injury was due to the fault of the shipowner and the captain.
The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner’s liability, does not apply to cases where the injury or average was occasioned by the shipowner’s own
fault.38 Likewise, the shipowner may be held liable for injuries to passengers notwithstanding the exclusively real
and hypothecary nature of maritime law if fault can be attributed to the shipowner. 39

As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the Court applied the doctrine of
limited liability in view of the absence of an express finding that Aboitiz’s negligence was the direct cause of the
sinking of the vessel. The circumstances in the 1993 GAFLAC case, however, are not obtaining in the instant
petitions.

A perusal of the decisions of the courts below in all three petitions reveals that there is a categorical finding of
negligence on the part of Aboitiz. For instance, in G.R. No. 121833, the RTC therein expressly stated that the
captain of M/V P. Aboitiz was negligent in failing to take a course of action that would prevent the vessel from
sailing into the typhoon. In G.R. No. 130752, the RTC concluded that Aboitiz failed to show that it had exercised
the required extraordinary diligence in steering the vessel before, during and after the storm. In G.R. No. 137801,
the RTC categorically stated that the sinking of M/V P. Aboitiz was attributable to the negligence or fault of
Aboitiz. In all instances, the Court of Appeals affirmed the factual findings of the trial courts.

The finding of actual fault on the part of Aboitiz is central to the issue of its liability to the respondents. Aboitiz’s
contention, that with the sinking of M/V P. Aboitiz, its liability to the cargo shippers and shippers should be limited
only to the insurance proceeds of the vessel absent any finding of fault on the part of Aboitiz, is not supported by
the record. Thus, Aboitiz is not entitled to the limited liability rule and is, therefore, liable for the value of the lost
cargoes as so duly alleged and proven during trial.

Events have supervened during the pendency of the instant petitions. On two other occasions, the Court ruled on
separate petitions involving monetary claims against Aboitiz as a result of the 1980 sinking

of the vessel M/V P. Aboitiz. One of them is the consolidated petitions of Monarch Ins. Co., Inc v. Court of
Appeals,40 Allied Guarantee Insurance Company v. Court of Appeals 41 and Equitable Insurance Corporation v.
Court of Appeals42(hereafter collectively referred to as Monarch Insurance) promulgated on 08 June 2000. This
time, the petitioners consisted of claimants against Aboitiz because either the execution of the judgment awarding
full indemnification of their claims was stayed or set aside or the lower courts awarded damages only to the extent
of the claimants’ proportionate share in the insurance proceeds of the vessel.

In Monarch Insurance, the Court deemed it fit to settle once and for all this factual issue by declaring that the
sinking of M/V P. Aboitiz was caused by the concurrence of the unseaworthiness of the vessel and the negligence
of both Aboitiz and the vessel’s crew and master and not because of force majeure. Notwithstanding this finding,
the Court did not reverse but reiterated instead the pronouncement in GAFLAC to the effect that the claimants be
treated as "creditors in an insolvent corporation whose assets are not enough to satisfy the totality of claims
against it."43 The Court explained that the peculiar circumstances warranted that procedural rules of evidence be
set aside to prevent frustrating the just claims of shippers/insurers. Thus, the Court in Monarch Insurance ordered
Aboitiz to institute the necessary limitation and distribution action before the proper RTC and to deposit with the
said court the insurance proceeds of and the freightage earned by the ill-fated ship.

However, on 02 May 2006, the Court rendered a decision in Aboitiz Shipping Corporation v. New India Assurance
Company, Ltd.44 (New India), reiterating the well-settled principle that the exception to the limited liability doctrine
applies when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner
and the captain. Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited

5
liability cannot be applied. 45 In New India, the Court clarified that the earlier pronouncement in Monarch
Insurance was not an abandonment of the doctrine of limited liability and that the circumstances therein still made
the doctrine applicable. 46

In New India, the Court declared that Aboitiz failed to discharge its burden of showing that it exercised
extraordinary diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine.
Thus, the Court rejected Aboitiz’s argument that the award of damages to respondent therein should be limited to
its pro rata share in the insurance proceeds from the sinking of M/V P. Aboitiz.

The instant petitions provide another occasion for the Court to reiterate the well-settled doctrine of the real and
hypothecary nature of maritime law. As a general rule, a ship owner’s liability is merely co-extensive with his
interest in the vessel, except where actual fault is attributable to the shipowner. Thus, as an exception to the
limited

liability doctrine, a shipowner or ship agent may be held liable for damages when the sinking of the vessel is
attributable to the actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of the
vessel. The instant petitions cannot be spared from the application of the exception to the doctrine of limited
liability in view of the unanimous findings of the courts below that both Aboitiz and the crew failed to ensure the
seaworthiness of the M/V P. Aboitiz.

WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and 137801 are DENIED. The decisions of the Court of
Appeals in CA-G.R. SP No. 35975-CV, CA-G.R. SP No. 41696 and CA-G.R. CV No. 43458 are
hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

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

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD., respondent.

Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.

Napoleon Rama collaborating counsel for petitioner.

Dollete, Blanco, Ejercito & Associates for private respondent.

MELO, J.:

This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated
June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein
petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial
Court of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private
respondent's prayer for execution for the full amount of the judgment award. The trial court in so doing swept
aside petitioner's opposition which was grounded on the real and hypothecary nature of petitioner's liability as
ship owner. The application of this established principle of maritime law would necessarily result in a probable
reduction of the amount to be recovered by private respondent, since it would have to share with a number of
other parties similarly situated in the insurance proceeds on the vessel that sank.

The basic facts are not disputed.

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

6
pursuing its remedies as a subrogee of several cargo consignees whose respective cargo sank with the said
vessel and for which it has priorly paid.

The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers,
their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated
by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due
to force majeure and that subject vessel, at the time of the sinking was seaworthy. This administrative finding
notwithstanding, the trial court in said Civil Case No. 144425 found against the carrier on the basis that the loss
subject matter therein did not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed
to prove, and. was later awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this
Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel,
encountering rough sailing. The attempted execution of the judgment award in said case in the amount of
P1,072,611.20 plus legal interest has given rise to the instant petition.

On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was
seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was
likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals,
et al., August 28, 1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the
resulting apparent contrary findings in cases originating out of a single set of facts.

It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine of
limited liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel M/V P.
ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an issue which begs to be
resolved considering that a number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to
183, Rollo) still pend and whose resolution shall well-nigh result in more confusion than presently attends the
instant case.

In support of the instant petition, the following arguments are submitted by the petitioner:

1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent
impairment of other creditors' shares;

2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and

3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)

On the other hand, private respondent opposes the foregoing contentions, arguing that:

1. There is no limited liability to speak of or applicable real and hypothecary rule under Article
587, 590, and 837 of the Code of Commerce in the face of the facts found by the lower court
(Civil Case No. 144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in
toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the
Case; and

2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly
situated and the same issues litigated should be decided in conformity therewith following the
maxim stare decisis et non quieta movere. (pp. 225 to 279, Rollo.)

Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution
of this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied
Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant petition
as argued by respondent GAFLAC.

An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the
same settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not
applicable therein; and second is that a limitation of liability in said case would render inefficacious the
extraordinary diligence required by law of common carriers.

It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue
at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to
cargo by virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that
case was contained in Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the
cargo whose value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited
Liability Rule arising out of the real and hypothecary nature of maritime law, which was not raised therein, and
which is the principal bone of contention in this case. While the matters threshed out in G.R. No. 88159,
particularly those dealing with the issues on primary administrative jurisdiction and the package liability limitation
provided in the Bill of Lading are now settled and should no longer be touched, the instant case raises a
completely different issue. It appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing
other than factual to the instant case.

This brings us to the primary question herein which is whether or not respondent court erred in granting execution
of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of

7
the limited liability enunciated under the appropriate articles of the Code of Commerce. The articles may be
ancient, but they are timeless and have remained to be good law. Collaterally, determination of the question of
whether execution of judgments which have become final and executory may be stayed is also an issue.

We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for
its existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of
decisions have originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such
shall result in the subverting of substantial justice. The right to an execution after finality of a decision is certainly
no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that:

. . . It is a truism that every court has the power "to control, in the furtherance of justice, the
conduct of its ministerial officers, and of all other persons in any manner connected with a case
before it, in every manner appertaining thereto. It has also been said that:

. . . every court having jurisdiction to render a particular judgment has inherent

power to enforce it, and to exercise equitable control over such enforcement. The
court has authority to inquire whether its judgment has been executed, and will
remove obstructions to the enforcement thereof. Such authority extends not only
to such orders and such writs as may be necessary to carry out the judgment into
effect and render it binding and operative, but also to such orders and such writs
as may be necessary to prevent an improper enforcement of the judgment. If a
judgment is sought to be perverted and made a medium of consummating a
wrong the court on proper application can prevent it. (at p. 359)

and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that:

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to
order its execution, admits of certain exceptions as in cases of special and exceptional nature
where it becomes the imperative in the higher interest of justice to direct the suspension of its
execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of
justice (Pascual v Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the
judgment became final which would render the execution of the judgment unjust (Cabrias v. Adil,
135 SCRA 354). (at p. 201)

We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the
real and hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative.

In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757
upholding private respondent's claims in that particular case, which the Court of Appeals took to mean that this
Court has "considered, passed upon and resolved Aboitiz's contention that all claims for the losses should first be
determined before GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily negated the
application of the limited liability principle" (p. 175, Rollo). Such conclusion is not accurate. The decision in G.R.
No. 89757 considered only the circumstances peculiar to that particular case, and was not meant to traverse the
larger picture herein brought to fore, the circumstances of which heretofore were not relevant. We must stress
that the matter of the Limited Liability Rule as discussed was never in issue in all prior cases, including those
before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue before the trial
courts referred to the package limitation clauses in the bills of lading and not the limited liability doctrine arising
from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defense in any
of the cases a quo, as properly it could not have been made so since it was not relevant in said cases. The only
time it could come into play is when any of the cases involving the mishap were to be executed, as in this case.
Then, and only then, could the matter have been raised, as it has now been brought before the Court.

The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with
losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which
stands as the guaranty for their settlement. It has its origin by reason of the conditions and risks attending
maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since
vessels had to go through largely uncharted waters to ply their trade. It was designed to offset such adverse
conditions and to encourage people and entities to venture into maritime commerce despite the risks and the
prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the operation of such
vessel were confined to the vessel itself, its equipment, freight, and insurance, if any, which limitation served to
induce capitalists into effectively wagering their resources against the consideration of the large profits attainable
in the trade.

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

8
 Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any
embezzlement, loss, or destruction by any person of any person or any property, goods, or
merchandise shipped or put on board such vessel, or for any loss, damage, or forfeiture, done,
occasioned, or incurred, without the privity or knowledge of such owner or owners shall not
exceed the amount or value of the interest of such owner in such vessel, and her freight then
pending. (Section 183 of the US Federal Limitation of Liability Act).

—and—

1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this
Convention in respect of claims arising, from any of the following occurrences, unless the
occurrence giving rise to the claim resulted from the actual fault or privity of the owner;

(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or
damage to, any property on board the ship.

(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or
damage to any other property or infringement of any rights caused by the act, neglect or default
the owner is responsible for, or any person not on board the ship for whose act, neglect or default
the owner is responsible: Provided, however, that in regard to the act, neglect or default of this
last class of person, the owner shall only be entitled to limit his liability when the act, neglect or
default is one which occurs in the navigation or the management of the ship or in the loading,
carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its
passengers.

(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from
or in connection with the raising, removal or destruction of any ship which is sunk, stranded or
abandoned (including anything which may be on board such ship) and any obligation or liability
arising out of damage caused to harbor works, basins and navigable waterways. (Section 1,
Article I of the Brussels International Convention of 1957)

In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which
it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce,
particularly in Articles 587, 590, and 837, hereunder quoted in toto:

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

Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the
part of the vessel belonging to him.

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

Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of
the captain (Art. 590) and collisions (Art. 837).

In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of
near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could
be seen, the reasons for its being are still apparently much in existence and highly regarded.

We now come to its applicability in the instant case. In the few instances when the matter was considered by this
Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not
apply is when there is an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna,
73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos
v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus, is whether there is a finding of such
negligence on the part of the owner in the instant case.

A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well as
the entirety of the records in the instant case will show that there has been no actual finding of negligence on the
part of petitioner. In its Decision, the trial court merely held that:

. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo
were not lost due to fortuitous event or force majeure." (p. 32, Rollo)

9
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the
Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and
additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the
sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to exercise
extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion
that petitioner shipowner itself was negligent, and no tribunal, including this Court will add or subtract to such
evidence to justify a conclusion to the contrary.

The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is
underscored by the fact that in the Country Banker's case, supra, arising from the same sinking, the Court
sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.

On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap,
absent a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has
been ruled to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter since
Article 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a vessel
before sailing and to comply with the laws of navigation. Such a construction would also put matters to rest
relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the captain and
crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect that the vessel
was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the findings of the trial
court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural
condition of the vessel which is the basis of the BMI's findings, but to the condition it was in at the time of the
sinking, which condition was a result of the acts of the captain and the crew.

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

More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those
of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as
against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their
respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those who filed
and proved their claims sooner to the prejudice of those who come later. In such an instance, such creditors too
would not also be able to gain access to the assets of the individual shareholders, but must limit their recovery to
what is left in the name of the corporation. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited,
We held that:

In the instant case, the stay of execution of judgment is warranted by the fact that the respondent
bank was placed under receivership. To execute the judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated
in Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is
insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for
the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or
preference over another by an attachment, execution or otherwise. (at p. 261).

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

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

Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to
183, Rollo), together with the corresponding claims and the pro-rated share of each. We likewise note that some
of these cases are still with the Court of Appeals, and some still with the trial courts and which probably are still
undergoing trial. It would not, therefore, be entirely correct to preclude the trial courts from making their own
findings of fact in those cases and deciding the same by allotting shares for these claims, some of which, after all,
might not prevail, depending on the evidence presented in each. We, therefore, rule that the pro-rated share of
each claim can only be found after all the cases shall have been decided.

In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage
should now be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution
action before the proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with

10
it the proceeds from the insurance company and pending freightage in order to safeguard the same pending final
resolution of all incidents, for final pro-rating and settlement thereof.

ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch
IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is
hereby directed to desist from proceeding with the execution of the judgment rendered in Civil Case No. 144425
pending determination of the totality of claims recoverable from the petitioner as the owner of the M/V P. Aboitiz.
Petitioner is directed to institute the necessary action and to deposit the proceeds of the insurance of subject
vessel as above-described within fifteen (15) days from finality of this decision. The temporary restraining order
issued in this case dated August 7, 1991 is hereby made permanent.

SO ORDERED.

3. G.R. No. 160088 July 13, 2011

AGUSTIN P. DELA TORRE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION, RAMON "BOY" LARRAZABAL,
PHILIPPINE TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA TORRE, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 160565

PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA TORRE,Petitioners,

vs.
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON "BOY"
LARRAZABAL, Respondents.

DECISION

MENDOZA, J.:

These consolidated petitions1 for review on certiorari seek to reverse and set aside the September 30, 2002
Decision2 and September 18, 2003 Resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 36035, affirming
in toto the July 10, 1991 Decision4 of the Regional Trial Court, Branch 60, Angeles City (RTC). The RTC Decision
in Civil Case No. 4609, an action for Sum of Money and Damages, ordered the defendants, jointly and severally,
to pay various damages to the plaintiff.

The Facts:

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

1. The CHARTERER will be the one to pay the insurance premium of the vessel

2. The vessel will be used once every three (3) months for a maximum period of two (2) weeks

3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by the
FIRST PARTY (referring to Roland) for the maximum period of two (2) years

4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel. [Underscoring
Supplied]

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

a. Chartered amount of the vessel – ₱ 20,000.00 per month effective May 1, 1984;

11
 j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the vessel and
the balance shall be paid every month in the amount of ₱ 10,000.00, to be deducted from the rental
amount of the vessel;

k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY
(PTSC/ Roland) has the option for first priority to purchase the vessel. If the SECOND PARTY
(PTSC/Roland) refuses the offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY
(PTSC/Roland) enough time to turn over the vessel so as not to disrupt previous commitments;

l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of the
SECOND PARTY (PTSC/Roland) decide to stop operating;

m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such termination of contract;

n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY
(PTSC/Roland); (Underscoring Supplied]

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single
proprietorship owned by Roland’s father, Agustin de la Torre (Agustin). 9 The following are the terms and
conditions of that "Contract of Agreement:" 10

a. Chartered amount of the vessel ₱ 30,000.00 per month effective August, 1984;

b. Downpayment of the 50% upon signing of the contract and the balance every end of the month;

c. Any cost for the additional equipment to be installed on the vessel will be borne by the FIRST PARTY
(PTSC/ Roland) and the cost of the equipment will be deductible from the monthly rental of the vessel;

d. In the event the vessel is grounded or other [force majeure] that will make the vessel non-opera[xx]ble,
the rental of the vessel shall be suspended from the start until the vessel will be considered operational;

e. The cost for the dry-docking and/or repair of vessel shall not exceed ₱ 200,000.00, any excess shall be
borne by the SECOND PARTY (TSL/Agustin);

f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the duration of
the usage;

g. All cost for the necessary repair of the vessel shall be on the account of the SECOND PARTY
(TSL/Agustin);

h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the event the
SECOND PARTY (TSL/Agustin) decides to stop operating;

j. The FIRST PARTY (PTSC/Roland) will terminate the services of all vessel’s crew and the SECOND
PARTY (TSL/Agustin) shall have the right to replace and rehire the crew of the vessel.

k. Insurance premium of the vessel will be divided equally between the FIRST PARTY (PTSC/Rolando)
and the SECOND PARTY (TSL/ Agustin).[Underscoring supplied]

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

1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the SECOND
PARTY (Larrazabal) for and in consideration on the sum of FIVE THOUSAND FIVE HUNDRED (₱
5,500.00) PESOS, Philippine currency per day charter with the following terms and conditions.

2. That the CHARTERER should pay ₱ 2,000.00 as standby pay even that will made (sic) the vessel non-
opera[xx]ble cause[d] by natur[al] circumstances.

3. That the CHARTERER will supply the consumed crude oil and lube oil per charter day.

4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and unloading of
cargo load on the vessel.

5. That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of contract.

6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in advance and
the balance should be paid weekly. [Underscoring Supplied]

12
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte.
The vessel was beached near the NDC Wharf. With the vessel’s ramp already lowered, the unloading of the
vessel’s cargo began with the use of Larrazabal’s payloader. While the payloader was on the deck of the LCT-
Josephine scooping a load of the cargo, the vessel’s ramp started to move downward, the vessel tilted and sea
water rushed in. Shortly thereafter, LCT-Josephine sank.13

Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that
negotiations were underway for the refloating of his vessel.14 Unfortunately, this did not materialize.

For this reason, Concepcion was constrained to institute a complaint for "Sum of Money and Damages" against
PTSC and Roland before the RTC. PTSC and Roland filed their answer together with a third-party complaint
against Agustin. Agustin, in turn, filed his answer plus a fourth-party complaint against Larrazabal. The latter filed
his answer and counterclaim but was subsequently declared in default by the RTC. 15 Eventually, the fourth-party
complaint against Larrazabal was dismissed when the RTC rendered its decision in favor of Concepcion on July
10, 1991.16 In said RTC decision, the following observations were written:

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

Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin, also admitted
at the trial that it was TSL/Agustin, through its crew, who was in-charge of LCT-Josephine’s operations although
the responsibility of loading and unloading the cargo was under Larrazabal. Thus, the RTC declared that the
"efficient cause of the sinking of the LCT-JOSEPHINE was the improper lowering or positioning of the ramp,"
which was well within the charge or responsibility of the captain and crew of the vessel. 18 The fallo of the RTC
Decision reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

1. The defendants, Philippine Trigon Shipping Corporation and Roland de la Torre, and the third-party
defendant, Agustin de la Torre, shall pay the plaintiff, jointly and severally, the sum of EIGHT HUNDRED
FORTY-ONE THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND EIGHTY SIX CENTAVOS (₱
841,386.86) as the value of the LCT JOSEPHINE with interest thereon at the legal rate of 6% per annum
from the date of demand, that is from March 14, 1985, the date when counsel for the defendant Philippine
Trigon Shipyard Corporation answered the demand of the plaintiff, until fully paid;

2. The defendants, Philippine Trigon Shipyard Corporation and Roland de la Torre, shall pay to the
plaintiff the sum of NINETY THOUSAND PESOS (₱ 90,000.00) as unpaid rentals for the period from May
1, 1984, to November, 1984, and the sum of ONE HUNDRED SEVENTY THOUSAND PESOS (₱
170,000.00) as lost rentals from December, 1984, to April 30, 1986, with interest on both amounts at the
rate of 6% per annum also from demand on March 14, 1985, until fully paid;

3. The defendants and the third-party defendant shall likewise pay to the plaintiff jointly and severally the
sum of TWENTY-FIVE THOUSAND PESOS (₱ 25,000.00) as professional fee of plaintiff’s counsel plus
FIVE HUNDRED PESOS (₱ 500.00) per appearance of said counsel in connection with actual trial of this
case, the number of such appearances to be determined from the records of this case;

4. The defendants’ counterclaim for the unpaid balance of plaintiff’s obligation for the dry-docking and
repair of the vessel LCT JOSEPHINE in the amount of TWENTY-FOUR THOUSAND THREE HUNDRED
FOUR PESOS AND THIRTY-FIVE CENTAVOS (₱ 24,304.35), being valid, shall be deducted from the
unpaid rentals, with interest on the said unpaid balance at the rate of 6% per annum from the date of the
filing of the counter-claim on March 31, 1986;

5. The counter-claim of the defendants in all other respects, for lack of merit, is hereby DISMISSED;

6. The fourth-party complaint against the fourth-party defendant, Ramon Larrazabal, being without basis,
is likewise DISMISSED; and

7. The defendants and third-party defendant shall pay the costs.

SO ORDERED.19

Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in agreement with the findings of the
RTC, affirmed its decision in toto.

13
Still not in conformity with the CA findings against them, Agustin, PTSC and Roland came to this Court through
these petitions for review. In G.R. No. 160088, petitioner Agustin raises the following issues:

AGUSTIN’S STATEMENT OF THE ISSUES

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF THE SINKING
OF LCT JOSEPHINE IS THE NEGLIGENCE OF THE PETITIONER (Agustin) AND THE
RESPONDENTS TRIGON (PTSC) AND DE LA TORRE (Roland).

II

THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON LARRAZABAL AS

SOLELY LIABLE FOR THE LOSS AND SINKING OF LCT JOSEPHINE.

III

THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN TAKING JUDICIAL NOTICE
OF THE CHARACTERISTICS OF THE LCT JOSEPHINE AND PAYLOADER WITHOUT INFORMING
THE PARTIES OF THEIR INTENTION.

IV

THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND SOLIDARILY LIABLE
WITH THE RESPONDENTS TRIGON AND DE LA TORRE DESPITE THE FACT THAT SUCH KIND OF
LIABILITY IS NOT DULY ALLEGED IN THE COMPLAINT OF RESPONDENT CONCEPCION AND NOT
ONE OF THE ISSUES TRIED BY THE PARTIES.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED ON CULPA
CONTRACTUAL.

VI

THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER FROM LIABILITY BASED
ON THE LIMITED LIABILITY RULE.

VII

THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE CODE OF
COMMERCE ON THE LIABILITY OF THE SHIP CAPTAIN. 20

On the other hand, in G.R. No. 160565, PTSC and Roland submit the following issues:

PTSC and ROLAND’S STATEMENT OF THE ISSUES

I.

DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE PROVISIONS OF THE CIVIL
CODE OF THE PHILIPPINES PARTICULARLY ON CONTRACTS, LEASE, QUASI-DELICT AND
DAMAGES INSTEAD OF THE PROVISIONS OF THE CODE OF COMMERCE ON MARITIME
COMMERCE IN ADJUDGING PETITIONERS LIABLE TO PRIVATE RESPONDENT CONCEPCION.

II.

DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE FINDINGS OF FACT OF
THE TRIAL COURT.

III.

DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR IN EXCESS OF ITS JURISDICTION IN APPRECIATING THE FACTS OF
THE CASE.

IV.

14
 DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS JOINTLY AND
SEVERALLY LIABLE WITH RESPONDENT AGUSTIN DE LA TORRE, ERRxx WHEN IT MADE
FINDINGS OF FACT AND CONCLUSIONS OF LAW WHICH ARE BEYOND THE ISSUES SET FORTH
AND CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE PARTIES. 21

From the foregoing, the issues raised in the two petitions can be categorized as: (1) those referring to the factual
milieu of the case; (2) those concerning the applicability of the Code of Commerce, more specifically, the Limited
Liability Rule; and (3) the question on the solidary liability of the petitioners.

As regards the issues requiring a review of the factual findings of the trial court, the Court finds no compelling
reason to deviate from the rule that findings of fact of a trial judge, especially when affirmed by the appellate
court, are binding before this Court.22 The CA, in reviewing the findings of the RTC, made these observations:

We are not persuaded that the trial Court finding should be set aside. The Court a quo sifted through the records
and arrived at the fact that clearly, there was improper lowering or positioning of the ramp, which was not at
"peak," according to de la Torre and "moving down" according to Sungayan when the payloader entered and
scooped up a load of sand and gravel. Because of this, the payloader was in danger of being lost (‘submerged’)
and caused Larrazabal to order the operator to go back into the vessel, according to de la Torre’s version, or back
off to the shore, per Sungayan. Whichever it was, the fact remains that the ramp was unsteady (moving) and
compelled action to save the payloader from submerging, especially because of the conformation of the sea and
the shore. x x x.

xxx

The contract executed on June 20, 1984, between plaintiff-appellee and defendants-appellants showed that the
services of the crew of the owner of the vessel were terminated. This allowed the charterer, defendants-
appellants, to employ their own. The sub-charter contract between defendants-appellants Philippine Trigon
Shipyard Corp. and third-party defendant-appellant Trigon Shipping Lines showed similar provision where the
crew of Philippine Trigon had to be terminated or rehired by Trigon Shipping Lines. As to the agreement with
fourth-party Larrazabal, it is silent on who would hire the crew of the vessel. Clearly, the crew manning the vessel
when it sunk belonged to third-party defendant-appellant. Hubart Sungayan, the acting Chief Mate, testified that
he was hired by Agustin de la Torre, who in turn admitted to hiring the crew. The actions of fourth-party
defendant, Larrazabal and his payloader operator did not include the operation of docking where the problem
arose.23[Underscoring supplied]

Similarly, the Court has examined the records at hand and completely agree with the CA that the factual findings
of the RTC are in order.

With respect to petitioners’ position that the Limited Liability Rule under the Code of Commerce should be applied
to them, the argument is misplaced. The said rule has been explained to be that of the real and hypothecary
doctrine in maritime law where the shipowner or ship agent’s liability is held as merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction. 24 In this jurisdiction, this rule is provided
in three articles of the Code of Commerce. These are:

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

---

Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund
for the results of the acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the
vessel belonging to him.

---

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

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

15
The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited
Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense. In Yangco v.
Laserna,26 this Court, through Justice Moran, wrote:

The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in maritime
commerce.

x x x.

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

Later, in the case of Monarch Insurance Co., Inc. v. CA,28 this Court, this time through Justice Sabino R. De Leon,
Jr., again explained:

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

In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be supported and
encouraged to pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability Rule against
him who, in the first place, should be the one benefitting from the said rule. In distinguishing the rights between
the charterer and the shipowner, the case of Yueng Sheng Exchange and Trading Co. v. Urrutia & Co.30 is most
enlightening. In that case, no less than Chief Justice Arellano wrote:

The whole ground of this assignment of errors rests on the proposition advanced by the appellant company that
‘the charterer of a vessel, under the conditions stipulated in the charter party in question, is the owner pro hac
vice of the ship and takes upon himself the responsibilities of the owner.’

xxx

If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of the Cebu, then they must
respond for the damages claimed, because the owner and the agent are civilly responsible for the acts of the
captain.

But G. Urrutia & Co. could not in any way exercise the powers or rights of an agent. They could not represent the
ownership of the vessel, nor could they, in their own name and in such capacity, take judicial or extrajudicial steps
in all that relates to commerce; thus if the Cebu were attached, they would have no legal capacity to proceed to
secure its release; speaking generally, not even the fines could or ought to be paid by them, unless such fines
were occasioned by their orders. x x x.

The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia & Co., as charterers of the
vessel, did not put the latter in the place of the former, nor make them agents of the owner or owners of the
vessel. With relation to those agents, they retained opposing rights derived from the charter party of the vessel,
and at no time could they be regarded by the third parties, or by the authorities, or by the courts, as being in the
place of the owners or the agents in matters relating to the responsibilities pertaining to the ownership and
possession of the vessel. x x x. 31

In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step into the shoes
of the shipowner or even the ship agent because there remains conflicting rights between the former and the real
shipowner as derived from their charter agreement. The Court again quotes Chief Justice Arellano:

Their (the charterer’s) possession was, therefore, the uncertain title of lease, not a possession of the owner, such
as is that of the agent, who is fully subrogated to the place of the owner in regard to the dominion, possession,
free administration, and navigation of the vessel. 32

Therefore, even if the contract is for a bareboat or demise charter where possession, free administration and even
navigation are temporarily surrendered to the charterer, dominion over the vessel remains with the shipowner.
Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the former, can never set up the
Limited Liability Rule against the very owner of the vessel. Borrowing the words of Chief Justice Artemio V.
Panganiban, "Indeed, where the reason for the rule ceases, the rule itself does not apply."33

The Court now comes to the issue of the liability of the charterer and the sub-charterer.

In the present case, the charterer and the sub-charterer through their respective contracts of agreement/charter
parties, obtained the use and service of the entire LCT-Josephine. The vessel was likewise manned by the

16
charterer and later by the sub-charterer’s people. With the complete and exclusive relinquishment of possession,
command and navigation of the vessel, the charterer and later the sub-charterer became the vessel’s owner pro
hac vice. Now, and in the absence of any showing that the vessel or any part thereof was commercially offered for
use to the public, the above agreements/charter parties are that of a private carriage where the rights of the
contracting parties are primarily defined and governed by the stipulations in their contract. 34

Although certain statutory rights and obligations of charter parties are found in the Code of Commerce, these
provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none of the
provisions found in the Code of Commerce deals with the specific rights and obligations between the real
shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil Code to supply
the deficiency.35 Thus, the RTC and the CA were both correct in applying the statutory provisions of the New Civil
Code in order to define the respective rights and obligations of the opposing parties.

Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion for the dry-
docking and repair of LCT-Josephine, is liable under Article 1189 36 of the New Civil Code. There is no denying
that the vessel was not returned to Concepcion after the repairs because of the provision in the Preliminary
Agreement that the same "should" be used by Roland for the first two years. Before the vessel could be returned,
it was lost due to the negligence of Agustin to whom Roland chose to sub-charter or sublet the vessel.

PTSC is liable to Concepcion under Articles 166537 and 166738 of the New Civil Code. As the charterer or lessee
under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return the thing leased and it
was liable for the deterioration or loss of the same.

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under Article
1651 of the New Civil Code.39 Although he was never privy to the contract between PTSC and Concepcion, he
remained bound to preserve the chartered vessel for the latter. Despite his non-inclusion in the complaint of
Concepcion, it was deemed amended so as to include him because, despite or in the absence of that formality of
amending the complaint to include him, he still had his day in court 40 as he was in fact impleaded as a third-party
defendant by his own son, Roland – the very same person who represented him in the Contract of Agreement
with Larrazabal.1avvphi1

(S)ince the purpose of formally impleading a party is to assure him a day in court, once the protective mantle of
due process of law has in fact been accorded a litigant, whatever the imperfection in form, the real litigant may be
held liable as a party.41

In any case, all three petitioners are liable under Article 1170 of the New Civil Code. 42 The necessity of insuring
the LCT-Josephine, regardless of who will share in the payment of the premium, is very clear under the
Preliminary Agreement and the subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984,
respectively. The August 17, 1984 letter of Concepcion’s representative, Rogelio L. Martinez, addressed to
Roland in his capacity as the president of PTSC inquiring about the insurance of the LCT-Josephine as well as
reiterating the importance of insuring the said vessel is quite telling.

August 17, 1984

Mr. Roland de la Torre

President
Phil. Trigon Shipyard Corp.
Cebu City

Dear Sir:

In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I wish to inquire
regarding the insurance of said vessel to wit:

1. Name of Insurance Company

2. Policy No.

3. Amount of Premiums

4. Duration of coverage already paid

Please send a Xerox copy of policy to the undersigned as soon as possible.

In no case shall LCT JOSEPHINE sail without any insurance coverage.

Hoping for your (prompt) action on this regard.

Truly yours,

17
 (sgd)ROGELIO L. MARTINEZ
Owner’s representative 43

Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the time when
it was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in clear
contravention of their respective agreements. Certainly, they should now all answer for the loss of the vessel.

WHEREFORE, the petitions are DENIED.

SO ORDERED.

4. G.R. No. L-773 December 17, 1946

DIONISIA ABUEG, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.

----------------------------

CA-No. L-774 December 17, 1946

MARCIANA DE SALVACION, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.

----------------------------

CA-No. L-775 December 17, 1946

ROSARIO OCHING, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.

Lichauco, Picazo and Mejia for appellant.

Cecilio I. Lim and Roberto P. Ancog for appellees.

PADILLA, J.:

This is appeal from a judgment rendered by the Court of First Instance of Manila in the above-entitled cases
awarding plaintiffs the compensation provided for in the Workmen's Compensation Act.

The record of the cases was forwarded to the Court of Appeals for review, but as there was no question of fact
involved in the appeal, said court forwarded the record to this Court. The appeal was pending when the Pacific
War broke up, and continued pending until after liberation, because the record of the cases was destroyed as a
result of the battle waged by the forces of liberation against the enemy. As provided by law, the record was
reconstituted and we now proceed to dispose of the appeal.

Appellant, who was the owner of the motor ships San Diego II and Bartolome S, states in his brief the following:

There is no dispute as to the facts involved in these cases and they may be gathered from the pleadings
and the decision of the trial Court. In case CA-G.R. No. 773, Dionisia Abueg is the widow of the
deceased, Amado Nuñez, who was a machinist on board the M/S San Diego II belonging to the
defendant-appellant. In case CA-G.R. No. 774, plaintiff-appellee, Marciana S. de Salvacion, is the widow
of the deceased, Victoriano Salvacion, who was a machinist on board the M/S Bartolome S also
belonging to the defendant-appellant. In case CA-G.R. No. 775, the plaintiff-appellee, Rosario R. Oching
is the widow of Francisco Oching who was a captain or patron of the defendant-appellant's
M/S Bartolome S.

The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro Island
on Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and totally lost.

18
 Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities perished in the
shipwreck (Appendix A, p. IV).

It is also undisputed that the above-named vessels were not covered by any insurance. (Appendix A, p.
IV.).

Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel together with
all her tackle and freight money earned during the voyage are abandoned, the agent's liability to third persons for
tortious acts of the captain in the care of the goods which the ship carried is extinguished (Yangco vs. Laserna, 73
Phil., 330); article 837 of the same code which provides that in cases of collision, the ship owners' 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 continues of the maritime trade and
sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these
adverse conditions and 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 result of
collision; nor the responsibility for wages of the crew, but a liability created by a statute to compensate employees
and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work
or employment, or the heirs and dependents and laborers and employees in the event of death caused by their
employment. Such compensation has nothing to do with the provisions of the Code of Commerce regarding
maritime commerce. It is an item in the cost of production which must be included in the budget of any well-
managed industry.lawphil.net

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. Laserma, 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-Liacco, supra, the application of the Workmen's Compensation Act to a master
or patron who perished as a result of the sinking of the motorboat of which he was the master, was the
controversy submitted to the court for decision. This Court held in that case that "It has been repeatedly stated
that the Workmen's Compensation Act was enacted to abrogate the common law and our Civil Code upon
culpable acts and omissions, and that the employer need not be guilty of neglect or fault, in order that
responsibility may attach to him" (pp. 449-450); and that 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 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 the Code of Commerce. The reason
behind this principle is that the Workmen's Compensation Act was enacted by the Legislature in abrogation of the
other existing laws." This quoted part of the decision is in answer to the contention that it was not the intention of
the Legislature to repeal articles 643 and 837 of the Code of Commerce with the enactment of the Workmen's
Compensation Act.

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

This new point raised by counsel for the appellant is inconsistent with the first, for, if the motor ships in question,
while engaged in fishing, were to be considered as not engaged in interisland and coastwise trade, the provisions
of the Code of Commerce invoked by them regarding limitation of the shipowner's liability or extinction thereof
when the shipowner abandons the ship, cannot be applied (Lopez vs. Duruelo, 52 Phil., 229). Granting however,
that the motor ships run and operated by the appellant were not engaged in the coastwise and interisland trade,
as contemplated in section 38 of the Workmen's Compensation Act, as amended, still the deceased officers of the
motor ships in question were industrial employees within the purview of section 39, paragraph (d), as amended,
for industrial employment "includes all employment or work at a trade, occupation or profession exercised by an
employer for the purpose of gain." The only exceptions recognized by the Act are agriculture, charitable
institutions and domestic service. Even employees engaged in agriculture for the operation of mechanical
implements, are entitled to the benefits of the Workmen's Compensation Act (Francisco vs. Consing, 63 Phil.,
354). In Murillo vs. Mendoza, supra, this Court held that "our Legislature has deemed it admissible to include in

19
the Workmen's Compensation Act all incidents that may occur to workmen or employees in factories, shops and
other industrial and agricultural workplaces as well as in the interisland seas of the Archipelago." But we do not
believe that the term "coastwise and interisland trade" has such a narrow meaning as to confine it to the carriage
for hire of passengers and/or merchandise on vessels between ports and places in the Philippines, because while
fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.

Finding no merit in the appeal filed in these cases, we affirm the judgment of the lower court, with costs against
the appellant.

5. GR No. 24658, Mar 31, 1926

OHTA DEVELOPMENT COMPANY v. STEAMSHIP 'POMPEY' +

DECISION
49 Phil. 117

AVANCEÃ'A, C.J.:
The judgment appealed from sentences the defendants to pay the plaintiff the sum of P8,557,06, as damages
suffered by the latter by reason of the destruction of its pier and the loss of its merchandise then stored on said
pier.

From the year 1913, plaintiff was the owner of a pier situated in Talomo Bay, Davao. On the western side of
this pier were two groups of posts, three to a group, about 20 feet apart and about 2 feet from the pier itself,
which served as a protection to the pier against the impact of vessels. Between 1921 and 1922, this pier was
repaired, replacing such material as was not in good condition, and driving about 150 piles of pagatpat and 60
of molave. According to the witness Sixto Babao, the officer in charge of the forest station of that province,
pagatpat, when placed in salt water, lasts from five to six years.

At about 7 o'clock in the morning of July 23, 1923, the steamship Pompey, in command of Captain Alfredo
Galvez and' possessing a certificate of public convenience issued by the Commissioner of Public Utility in the
name of "The National Coal Company/' carrying cargo consisting principally of flour and rice-for the
plaintiff, docked alongside the said pier. The ship docked with her bow facing towards the land and fastened her
ropes to the posts on the pier. The evidence shows that, previously, other ships docking alongside the said pier
had the bow facing towards the land and fastened a rope to a tree situated farther west on the beach,
a precaution taken to avoid the ship from getting too close to the pier. When the Pompey docked, at the time
in question, she did not stretch a rope to the tree on the shore, neither did she drop her bow
anchors. After being thus docked they proceeded to unload the flour and rice which was first deposited on the
pier and later transported to the plaintiff's warehouse on land, where it was officially receipted for. The work of
discharging and the hauling of the cargo to the warehouse of the plaintiff was done without any interference on
the part of the plaintiff and exclusively by laborers and the crew of the ship. The unloading of the cargo on to
the pier was done in a hurry and their being but fifteen or twenty laborers engaged in the hauling of the same to
the plaintiff's warehouse, a large amount of cargo accumulated on the dock, with the result that at ten minutes
past eleven on the same morning the pier sank with all the merchandise.

It appears that at the time the pier sank there was a current from west to east. As to this point the evidence in
the record is conflicting but, after studying it, we believe there actually was a current at that time. According to
Captain Calvo, and judging by the condition of the sea as appears from one of the photographs presented in
evidence, there was a strong undercurrent. The flour which floated after the sinking of the dock drifted from
west to east. The pier, when it sank, leaned towards the east, as well as the posts, which did not collapse
completely.
After the sinking of the pier the two groups of piles that served as a defense also leaned towards the east, going
beyond the western line formerly occupied by the pier; and the hull of the ship came to a stop at a point beyond
where the piles of defense formerly stood, as will be noticed from the photograph, Exhibit B, taken after the
accident, and in which a man may be seen standing on the edge of the sunken pier supporting himself on the
hull of the ship. In view of all of these circumstances it is evident that the current forced the ship towards the
pier, the impact of which caused it to sink.

The sinking could not have been caused, as the defense contends, by the weight of the cargo and by
the poor condition of the dock, because according to the evidence it had been recently repaired and, further,
that the dock did not fall from its base but leaned towards the east, as did also the posts and defense piles which

20
facts indicate that the dock received the impact of the ship from west to east. In support of its contention of
the defense presented, as its principal evidence, the testimony of Captain Razon, who served as first mate of
the Pompey on that trip, but we cannot give much weight to the testimony of this witness. He affirmed that the
defense piles fell without coming in contact with the ship, which is inconceivable since the piles were not attached
to the pier but were 2 feet away from it, so that it cannot be understood how the sinking of the dock could have
affected the defense piles. The subsequent contact of the ship with the pier, as shown in the photographs
presented as evidence, was explained by this witness who states that, the vessel being tied to the posts of the
pier when the latter sank, the ship was carried along on account of the ropes; but neither can this explanation
be accepted because the posts to which the ropes were tied, except one, did not sink
but only inclined. Furthermore, the inclination of these posts, which did not fall, does not explain the shifting of
the ship to the space formerly occupied by the dock, taking into account that, according to his testimony, the
ship docked about 8 feet away from the pier and the inclination of the posts barely represents a distance of 1 foot
from the base. Finally, this witness testified that after the ship had docked he noticed that the pier was in a rotten
condition notwithstanding which, and realizing the danger of unloading, he did not take any precaution and
proceeded to discharge the cargo, for the reason that he considered it a matter for the owners of the pier and not
for him to take the necessary precautions.

Our conclusion is that the dock sank on account of the impact of the ship as a result of the strong current at the
time; that the ship was not fastened with a rope to a tree on shore and that the bow anchors had not been
dropped.

Appellants challenged the personality of the plaintiff as a duly organized corporation. But besides the fact that
there is evidence of this personality, appellants cannot challenge it after having acknowledged same when
entering into the contract with the plaintiff as such corporation for the transportation of its merchandise.

Appellants urge that, according to the bills of lading of the lost merchandise, the defendant National Coal
Company's liability ceased when the said merchandise was unloaded and placed on the dock. This contention
is without merit. There is. nothing in the bills of lading to uphold it. Article 619 of the Code of Commerce
provides that the captain shall be answerable for the cargo from the moment that it is delivered to him at the
wharf or alongside the ship in the harbor of embarkation until delivered on the shore or wharf of the port of
discharge. Under this provision of the law it is the delivery of the cargo at the port of discharge that terminates
the captain's responsibility as to the cargo. In the instant case, when the merchandise was lost on account of the
sinking of the dock it had not yet been delivered and consequently it was under the responsibility of
the captain. The defendant National Coal Company, as the operator, is responsible for the indemnities arising
from the lack of skill or negligence of the captain. (Articles 587 and 618 of the Code of Commerce.)

Appellants also contend that, at any rate, the liability of the other defendants is subsidiary and limited to what the
steamship Pompey may answer for. This argument seems to be based upon article 587 of the Code of
Commerce which authorizes the shipowner to abandon the ship with all its tackle and freight earned during the
voyage in order to answer for his liability to third persons. But this is inapplicable, for the reason that in this case
there was no abandonment of the ship. We do not believe that appellants based their contention upon article
837 which refers to collisions, because that is not the case here.

There may be other phases of the case which we have not decided because they have not been raised in the
briefs. What we have said decides all the errors assigned by the appellants.

The judgment appealed from is affirmed with costs against the appellants. So ordered.

6. G.R. No. 155014 November 11, 2005

CRESCENT PETROLEUM, LTD., Petitioner,

vs.
M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and PORTSERV LIMITED and/or
TRANSMAR SHIPPING, INC., Respondents.

DECISION

PUNO, J.:

This petition for review on certiorari under Rule 45 seeks the (a) reversal of the November 28, 2001 Decision of
the Court of Appeals in CA-G.R. No. CV-54920,1which dismissed for "want of jurisdiction" the instant case, and
the September 3, 2002 Resolution of the same appellate court,2 which denied petitioner’s motion for
reconsideration, and (b) reinstatement of the July 25, 1996 Decision3 of the Regional Trial Court (RTC) in Civil

21
Case No. CEB-18679, which held that respondents were solidarily liable to pay petitioner the sum prayed for in
the complaint.

The facts are as follows: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of Indian registry
that is owned by respondent Shipping Corporation of India (SCI), a corporation organized and existing under the
laws of India and principally owned by the Government of India. It was time-chartered by respondent SCI to Halla
Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel through a
time charter to Transmar Shipping, Inc. (Transmar). Transmar further sub-chartered the Vessel to Portserv
Limited (Portserv). Both Transmar and Portserv are corporations organized and existing under the laws of
Canada.

On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a corporation
organized and existing under the laws of Canada that is engaged in the business of selling petroleum and oil
products for the use and operation of oceangoing vessels, to deliver marine fuel oils (bunker fuels) to the Vessel.
Petitioner Crescent granted and confirmed the request through an advice via facsimile dated November 2, 1995.
As security for the payment of the bunker fuels and related services, petitioner Crescent received two (2) checks
in the amounts of US$100,000.00 and US$200,000.00. Thus, petitioner Crescent contracted with its supplier,
Marine Petrobulk Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of the
bunker fuels to the Vessel.

On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to US$103,544 inclusive
of barging and demurrage charges to the Vessel at the port of Pioneer Grain, Vancouver, Canada. The Chief
Engineer Officer of the Vessel duly acknowledged and received the delivery receipt.Marine Petrobulk issued an
invoice to petitioner Crescent for the US$101,400.00 worth of the bunker fuels. Petitioner Crescent issued a
check for the same amount in favor of Marine Petrobulk, which check was duly encashed.

Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21, 1995 to "Portserv
Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V ‘Lok Maheshwari’" in the
amount of US$103,544.00 with instruction to remit the amount on or before December 1, 1995. The period lapsed
and several demands were made but no payment was received. Also, the checks issued to petitioner Crescent as
security for the payment of the bunker fuels were dishonored for insufficiency of funds. As a consequence,
petitioner Crescent incurred additional expenses of US$8,572.61 for interest, tracking fees, and legal fees.

On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent instituted before the
RTC of Cebu City an action "for a sum of money with prayer for temporary restraining order and writ of preliminary
attachment" against respondents Vessel and SCI, Portserv and/or Transmar. The case was raffled to Branch 10
and docketed as Civil Case No. CEB-18679.

On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond at ₱2,710,000.00.
Petitioner Crescent withdrew its prayer for a temporary restraining order and posted the required bond.

On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/or Transmar
through the Master of the Vessel. On May 28, 1996, respondents Vessel and SCI, through Pioneer Insurance and
Surety Corporation (Pioneer), filed an urgent ex-parte motion to approve Pioneer’s letter of undertaking, to
consider it as counter-bond and to discharge the attachment.On May 29, 1996, the trial court granted the motion;
thus, the letter of undertaking was approved as counter-bond to discharge the attachment.

For failing to file their respective answers and upon motion of petitioner Crescent, the trial court declared
respondents Vessel and SCI, Portserv and/or Transmar in default. Petitioner Crescent was allowed to present its
evidence ex-parte.

On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff [Crescent] and against the
defendants [Vessel, SCI, Portserv and/or Transmar].

Consequently, the latter are hereby ordered to pay plaintiff jointly and solidarily, the following:

(a) the sum of US$103,544.00, representing the outstanding obligation;

(b) interest of US$10,978.50 as of July 3, 1996, plus additional interest at 18% per annum for the period
thereafter, until the principal account is fully paid;

(c) attorney’s fees of ₱300,000.00; and

(d) ₱200,000.00 as litigation expenses.

SO ORDERED.

On August 19, 1996, respondents Vessel and SCI appealed to the Court of Appeals. They attached copies of the
charter parties between respondent SCI and Halla, between Halla and Transmar, and between Transmar and

22
Portserv. They pointed out that Portserv was a time charterer and that there is a clause in the time charters
between respondent SCI and Halla, and between Halla and Transmar, which states that "the Charterers shall
provide and pay for all the fuel except as otherwise agreed." They submitted a copy of Part II of the Bunker Fuel
Agreement between petitioner Crescent and Portserv containing a stipulation that New York law governs the
"construction, validity and performance" of the contract. They likewise submitted certified copies of the
Commercial Instruments and Maritime Lien Act of the United States (U.S.), some U.S. cases, and some Canadian
cases to support their defense.

On November 28, 2001, the Court of Appeals issued its assailed Decision, which reversed that of the trial
court, viz:

WHEREFORE, premises considered, the Decision dated July 25, 1996, issued by the Regional Trial Court of
Cebu City, Branch 10, is hereby REVERSED and SET ASIDE, and a new one is entered DISMISSING the instant
case for want of jurisdiction.

The appellate court denied petitioner Crescent’s motion for reconsideration explaining that it "dismissed the
instant action primarily on the ground of forum non conveniens considering that the parties are foreign
corporations which are not doing business in the Philippines."

Hence, this petition submitting the following issues for resolution, viz:

1. Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for the enforcement of a
maritime lien against said vessel and/or its owners and operators;

2. The principle of forum non conveniens is inapplicable to the instant case;

3. The trial court acquired jurisdiction over the subject matter of the instant case, as well as over the res and over
the persons of the parties;

4. The enforcement of a maritime lien on the subject vessel is expressly granted by law. The Ship Mortgage Acts
as well as the Code of Commerce provides for relief to petitioner for its unpaid claim;

5. The arbitration clause in the contract was not rigid or inflexible but expressly allowed petitioner to enforce its
maritime lien in Philippine courts provided the vessel was in the Philippines;

6. The law of the state of New York is inapplicable to the present controversy as the same has not been properly
pleaded and proved;

7. Petitioner has legal capacity to sue before Philippine courts as it is suing upon an isolated business transaction;

8. Respondents were duly served summons although service of summons upon respondents is not a jurisdictional
requirement, the action being a suit quasi in rem;

9. The trial court’s decision has factual and legal bases; and,

10. The respondents should be held jointly and solidarily liable.

In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a foreign port to
a vessel of foreign registry that is owned, chartered and sub-chartered by foreign entities.

Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise exclusive original
jurisdiction "(i)n all actions in admiralty and maritime where the demand or claim exceeds two hundred thousand
pesos (₱200,000) or in Metro Manila, where such demand or claim exceeds four hundred thousand pesos
(₱400,000)." Two (2) tests have been used to determine whether a case involving a contract comes within the
admiralty and maritime jurisdiction of a court - the locational test and the subject matter test. The English rule
follows the locational test wherein maritime and admiralty jurisdiction, with a few exceptions, is exercised only on
contracts made upon the sea and to be executed thereon. This is totally rejected under the American rule where
the criterion in determining whether a contract is maritime depends on the nature and subject matter of the
contract, having reference to maritime service and transactions.4 In International Harvester Company of the
Philippines v. Aragon,5 we adopted the American rule and held that "(w)hether or not a contract is maritime
depends not on the place where the contract is made and is to be executed, making the locality the test, but on
the subject matter of the contract, making the true criterion a maritime service or a maritime transaction."

A contract for furnishing supplies like the one involved in this case is maritime and within the jurisdiction of
admiralty.6 It may be invoked before our courts through an action in rem or quasi in rem or an action in personam.
Thus: 7

xxx

"Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcing not only the liens
created under Section 580 but also for the collection of any kind of lien whatsoever."8 In the Philippines, we have

23
a complete legislation, both substantive and adjective, under which to bring an action in rem against a vessel for
the purpose of enforcing liens. The substantive law is found in Article 580 of the Code of Commerce. The
procedural law is to be found in Article 584 of the same Code. The result is, therefore, that in the Philippines any
vessel – even though it be a foreign vessel – found in any port of this Archipelago may be attached and sold
under the substantive law which defines the right, and the procedural law contained in the Code of Commerce by
which this right is to be enforced.9 x x x. But where neither the law nor the contract between the parties creates
any lien or charge upon the vessel, the only way in which it can be seized before judgment is by pursuing the
remedy relating to attachment under Rule 59 [now Rule 57] of the Rules of Court.10

But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner Crescent bases its claim of a
maritime lien on Sections 21, 22 and 23 of Presidential Decree No. 1521 (P.D. No. 1521), also known as
the Ship Mortgage Decree of 1978, viz:

Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. - Any person furnishing repairs, supplies,
towage, use of dry dock or maritime railway, or other necessaries, to any vessel, whether foreign or domestic,
upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on
the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was
given to the vessel.

Sec. 22. Persons Authorized to Procure Repairs, Supplies and Necessaries. - The following persons shall be
presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or marine
railway, and other necessaries for the vessel: The managing owner, ship’s husband, master or any person to
whom the management of the vessel at the port of supply is entrusted. No person tortuously or unlawfully in
possession or charge of a vessel shall have authority to bind the vessel.

Sec. 23. Notice to Person Furnishing Repairs, Supplies and Necessaries. - The officers and agents of a vessel
specified in Section 22 of this Decree shall be taken to include such officers and agents when appointed by a
charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel; but nothing in this
Decree shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable diligence could
have ascertained, that because of the terms of a charter party, agreement for sale of the vessel, or for any other
reason, the person ordering the repairs, supplies, or other necessaries was without authority to bind the vessel
therefor.

Petitioner Crescent submits that these provisions apply to both domestic and foreign vessels, as well as domestic
and foreign suppliers of necessaries. It contends that the use of the term "any person" in Section 21 implies that
the law is not restricted to domestic suppliers but also includes all persons who supply provisions and necessaries
to a vessel, whether foreign or domestic. It points out further that the law does not indicate that the supplies or
necessaries must be furnished in the Philippines in order to give petitioner the right to seek enforcement of the
lien with a Philippine court.11

Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. 1521 or the Ship
Mortgage Decree of 1978 does not apply to a foreign supplier like petitioner Crescent as the provision refers only
to a situation where the person furnishing the supplies is situated inside the territory of the Philippines and not
where the necessaries were furnished in a foreign jurisdiction like Canada. 12

We find against petitioner Crescent.

I.

P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted "to accelerate the growth and development of
the shipping industry" and "to extend the benefits accorded to overseas shipping under Presidential Decree No.
214 to domestic shipping."13 It is patterned closely from the U.S. Ship Mortgage Act of 1920 and the Liberian
Maritime Law relating to preferred mortgages. 14 Notably, Sections 21, 22 and 23 of P.D. No. 1521 or the Ship
Mortgage Decree of 1978 are identical to Subsections P, Q, and R, respectively, of the U.S. Ship Mortgage Act of
1920, which is part of the Federal Maritime Lien Act. Hence, U.S. jurisprudence finds relevance to determining
whether P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies in the present case.

The various tests used in the U.S. to determine whether a maritime lien exists are the following:

One. "In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign port, whether
such lien exists, or whether the court has or will exercise jurisdiction, depends on the law of the country where
the supplies were furnished, which must be pleaded and proved."15 This principle was laid down in the 1888
case of The Scotia,16 reiterated in The Kaiser Wilhelm II17(1916), in The Woudrichem18 (1921) and in The City
of Atlanta19 (1924).

Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor methodologies as the
law of the place of supply. 20

In Lauritzen v. Larsen,21 a Danish seaman, while temporarily in New York, joined the crew of a ship of Danish
flag and registry that is owned by a Danish citizen. He signed the ship’s articles providing that the rights of the
crew members would be governed by Danish law and by the employer’s contract with the Danish Seamen’s
Union, of which he was a member. While in Havana and in the course of his employment, he was negligently

24
injured. He sued the shipowner in a federal district court in New York for damages under the Jones Act. In holding
that Danish law and not the Jones Act was applicable, the Supreme Court adopted a multiple-contact test to
determine, in the absence of a specific Congressional directive as to the statute’s reach, which jurisdiction’s law
should be applied. The following factors were considered: (1) place of the wrongful act; (2) law of the flag; (3)
allegiance or domicile of the injured; (4) allegiance of the defendant shipowner; (5) place of contract; (6)
inaccessibility of foreign forum; and (7) law of the forum.

Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. International Terminal
Operating Co.22 again considered a foreign seaman’s personal injury claim under both the Jones Act and the
general maritime law. The Court held that the factors first announced in the case of Lauritzen were applicable
not only to personal injury claims arising under the Jones Act but to all matters arising under maritime
law in general.23

Hellenic Lines, Ltd. v. Rhoditis24 was also a suit under the Jones Act by a Greek seaman injured aboard a ship
of Greek registry while in American waters. The ship was operated by a Greek corporation which has its largest
office in New York and another office in New Orleans and whose stock is more than 95% owned by a U.S.
domiciliary who is also a Greek citizen. The ship was engaged in regularly scheduled runs between various ports
of the U.S. and the Middle East, Pakistan, and India, with its entire income coming from either originating or
terminating in the U.S. The contract of employment provided that Greek law and a Greek collective bargaining
agreement would apply between the employer and the seaman and that all claims arising out of the employment
contract were to be adjudicated by a Greek court. The U.S. Supreme Court observed that of the seven factors
listed in the Lauritzen test, four were in favor of the shipowner and against jurisdiction. In arriving at the
conclusion that the Jones Act applies, it ruled that the application of the Lauritzen test is not a mechanical one. It
stated thus: "[t]he significance of one or more factors must be considered in light of the national interest served by
the assertion of Jones Act jurisdiction. (footnote omitted) Moreover, the list of seven factors in Lauritzen was not
intended to be exhaustive. x x x [T]he shipowner’s base of operations is another factor of importance in
determining whether the Jones Act is applicable; and there well may be others."

The principles enunciated in these maritime tort cases have been extended to cases involving unpaid supplies
and necessaries such as the
cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture,25 and Comoco Marine Services v. M/V El
Centroamericano. 26

Three. The factors provided in Restatement (Second) of Conflicts of Law have also been applied, especially
in resolving cases brought under the Federal Maritime Lien Act. Their application suggests that in the absence of
an effective choice of law by the parties, the forum contacts to be considered include: (a) the place of contracting;
(b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of
the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the
parties.27

In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield,28 an admiralty action in rem was brought
by an American supplier against a vessel of Norwegian flag owned by a Norwegian Company and chartered by a
London time charterer for unpaid fuel oil and marine diesel oil delivered while the vessel was in U.S. territory. The
contract was executed in London. It was held that because the bunker fuel was delivered to a foreign flag vessel
within the jurisdiction of the U.S., and because the invoice specified payment in the U.S., the admiralty and
maritime law of the U.S. applied. The U.S. Court of Appeals recognized the modern approach to maritime conflict
of law problems introduced in the Lauritzen case. However, it observed that Lauritzen involved a torts claim under
the Jones Act while the present claim involves an alleged maritime lien arising from unpaid supplies. It made a
disclaimer that its conclusion is limited to the unique circumstances surrounding a maritime lien as well as the
statutory directives found in the Maritime Lien Statute and that the initial choice of law determination is
significantly affected by the statutory policies surrounding a maritime lien. It ruled that the facts in the case
call for the application of the Restatement (Second) of Conflicts of Law. The U.S. Court gave much significance to
the congressional intent in enacting the Maritime Lien Statute to protect the interests of American supplier of
goods, services or necessaries by making maritime liens available where traditional services are routinely
rendered. It concluded that the Maritime Lien Statute represents a relevant policy of the forum that serves the
needs of the international legal system as well as the basic policies underlying maritime law. The court also gave
equal importance to the predictability of result and protection of justified expectations in a particular field of law. In
the maritime realm, it is expected that when necessaries are furnished to a vessel in an American port by an
American supplier, the American Lien Statute will apply to protect that supplier regardless of the place where the
contract was formed or the nationality of the vessel.

The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery I29 where the
American court refused to apply the Federal Maritime Lien Act to create a maritime lien for goods and services
supplied by foreign companies in foreign ports. In this case, a Swedish company supplied radio equipment in a
Spanish port to refurbish a Panamanian vessel damaged by fire. Some of the contract negotiations occurred in
Spain and the agreement for supplies between the parties indicated Swedish company’s willingness to submit to
Swedish law. The ship was later sold under a contract of purchase providing for the application of New York law
and was arrested in the U.S. The U.S. Court of Appeals also held that while the contacts-based framework set
forth in Lauritzen was useful in the analysis of all maritime choice of law situations, the factors were geared
towards a seaman’s injury claim. As in Gulf Trading, the lien arose by operation of law because the ship’s owner
was not a party to the contract under which the goods were supplied. As a result, the court found it more
appropriate to consider the factors contained in Section 6 of the Restatement (Second) of Conflicts of Law. The

25
U.S. Court held that the primary concern of the Federal Maritime Lien Act is the protection of American suppliers
of goods and services.

The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah.30

II.

Finding guidance from the foregoing decisions, the Court cannot sustain petitioner Crescent’s insistence on the
application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and hold that a maritime lien exists.

First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under one – the law
of the forum. All other elements are foreign – Canada is the place of the wrongful act, of the allegiance or domicile
of the injured and the place of contract; India is the law of the flag and the allegiance of the defendant shipowner.
Balancing these basic interests, it is inconceivable that the Philippine court has any interest in the case that
outweighs the interests of Canada or India for that matter.

Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors under
Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S., P.D. No. 1521 or the
Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers and was not intended to create
a lien from a contract for supplies between foreign entities delivered in a foreign port.

Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritime lien exists would not
promote the public policy behind the enactment of the law to develop the domestic shipping industry. Opening up
our courts to foreign suppliers by granting them a maritime lien under our laws even if they are not entitled to a
maritime lien under their laws will encourage forum shopping.

Finally. The submission of petitioner is not in keeping with the reasonable expectation of the parties to the
contract. Indeed, when the parties entered into a contract for supplies in Canada, they could not have intended
the laws of a remote country like the Philippines to determine the creation of a lien by the mere accident of the
Vessel’s being in Philippine territory.

III.

But under which law should petitioner Crescent prove the existence of its maritime lien?

In light of the interests of the various foreign elements involved, it is clear that Canada has the most significant
interest in this dispute. The injured party is a Canadian corporation, the sub-charterer which placed the orders for
the supplies is also Canadian, the entity which physically delivered the bunker fuels is in Canada, the place of
contracting and negotiation is in Canada, and the supplies were delivered in Canada.

The arbitration clause contained in the Bunker Fuel Agreement which states that New York law governs the
"construction, validity and performance" of the contract is only a factor that may be considered in the choice-of-
law analysis but is not conclusive. As in the cases of Gulf Trading and Swedish Telecom, the lien that is the
subject matter of this case arose by operation of law and not by contract because the shipowner was not a party
to the contract under which the goods were supplied.

It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis for the existence of a
maritime lien. To the end, it insisted on its theory that Philippine law applies. Petitioner contends that even if
foreign law applies, since the same was not properly pleaded and proved, such foreign law must be presumed to
be the same as Philippine law pursuant to the doctrine of processual presumption.

Thus, we are left with two choices: (1) dismiss the case for petitioner’s failure to establish a cause of action31 or
(2) presume that Canadian law is the same as Philippine law. In either case, the case has to be dismissed.

It is well-settled that a party whose cause of action or defense depends upon a foreign law has the burden of
proving the foreign law. Such foreign law is treated as a question of fact to be properly pleaded and
proved.32 Petitioner Crescent’s insistence on enforcing a maritime lien before our courts depended on the
existence of a maritime lien under the proper law. By erroneously claiming a maritime lien under Philippine law
instead of proving that a maritime lien exists under Canadian law, petitioner Crescent failed to establish a cause
of action.33

Even if we apply the doctrine of processual presumption, the result will still be the same. Under P.D. No. 1521 or
the Ship Mortgage Decree of 1978, the following are the requisites for maritime liens on necessaries to exist: (1)
the "necessaries" must have been furnished to and for the benefit of the vessel; (2) the "necessaries" must have
been necessary for the continuation of the voyage of the vessel; (3) the credit must have been extended to the
vessel; (4) there must be necessity for the extension of the credit; and (5) the necessaries must be ordered by
persons authorized to contract on behalf of the vessel.34 These do not avail in the instant case.

First. It was not established that benefit was extended to the vessel. While this is presumed when the master of
the ship is the one who placed the order, it is not disputed that in this case it was the sub-charterer Portserv which

26
placed the orders to petitioner Crescent.35 Hence, the presumption does not arise and it is incumbent upon
petitioner Crescent to prove that benefit was extended to the vessel. Petitioner did not.

Second. Petitioner Crescent did not show any proof that the marine products were necessary for the continuation
of the vessel.

Third. It was not established that credit was extended to the vessel. It is presumed that "in the absence of fraud
or collusion, where advances are made to a captain in a foreign port, upon his request, to pay for necessary
repairs or supplies to enable his vessel to prosecute her voyage, or to pay harbor dues, or for pilotage, towage
and like services rendered to the vessel, that they are made upon the credit of the vessel as well as upon that of
her owners."36 In this case, it was the sub-charterer Portserv which requested for the delivery of the bunker fuels.
The issuance of two checks amounting to US$300,000 in favor of petitioner Crescent prior to the delivery of the
bunkers as security for the payment of the obligation weakens petitioner Crescent’s contention that credit was
extended to the Vessel.

We also note that when copies of the charter parties were submitted by respondents in the Court of Appeals, the
time charters between respondent SCI and Halla and between Halla and Transmar were shown to contain a
clause which states that "the Charterers shall provide and pay for all the fuel except as otherwise agreed." This
militates against petitioner Crescent’s position that Portserv is authorized by the shipowner to contract for supplies
upon the credit of the vessel.

Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed where it appears that the
repairs and supplies were necessary for the ship and that they were ordered by the master. This presumption
does not arise in this case since the fuels were not ordered by the master and there was no proof of necessity for
the supplies.

Finally. The necessaries were not ordered by persons authorized to contract in behalf of the vessel as provided
under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 - the managing owner, the ship’s
husband, master or any person with whom the management of the vessel at the port of supply is entrusted.
Clearly, Portserv, a sub-charterer under a time charter, is not someone to whom the management of the vessel
has been entrusted. A time 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 wherein the owner of the time-chartered vessel retains possession and
control through the master and crew who remain his employees.37 Not enjoying the presumption of authority,
petitioner Crescent should have proved that Portserv was authorized by the shipowner to contract for supplies.
Petitioner failed.

A discussion on the principle of forum non conveniens is unnecessary.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, dated November 28, 2001,
and its subsequent Resolution of September 3, 2002 are AFFIRMED. The instant petition for review on certiorari
is DENIED for lack of merit. Cost against petitioner.

SO ORDERED.

7. G.R. No. L-29166 October 22, 1928

AUGUSTO LOPEZ, plaintiff-appellant,

vs.
JUAN DURUELO, ET AL., defendants.
ALBINO JISON, appellee.

Angel S. Gamboa for appellant.

Feria and La O for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of Occidental Negros by Augusto Lopez, for the purpose of
recovering damages for personal injuries inflicted upon him by reason of the negligence of the defendants, Juan
Duruelo and Albino Jison. The defendants demurred to the complaint, and the demurrer having been sustained,
the plaintiff elected to stand upon his complaint, which was accordingly dismissed; and the plaintiff appealed.

27
The facts necessary to an understanding of the case as set out in the complaint are briefly these: On February 10,
1927, the plaintiff, who is a resident of the municipality of Silay, Occidental Negros, was desirous of embarking
upon the interisland steamer San Jacinto in order to go to Iloilo. This boat was at the time in the anchoring-ground
of the port of Silay, some half a mile distant from the port. The plaintiff therefore embarked at the landing in the
motor boat Jison, which was then engaged in conveying passengers and luggage back and forth from the landing
to boats at anchor, and which was owned and operated by the defendant Albino Jison, with Juan Duruelo as
patron. The engineer (maquinista) aboard on this trip was one Rodolin Duruelo, a boy of only 16 years of age. He
is alleged to have been a mere novice without experience in the running of motor boats; and the day of the
occurrence now in contemplation is said to have been the third day of his apprenticeship in this capacity. It is
alleged that the Jison, upon this trip, was grossly overladen, having aboard fourteen passengers, while its
capacity was only for eight or nine. As the motor boat approached the San Jacinto in a perfectly quiet sea, it came
too near to the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the blades of the
propeller struck the motor boat and sank it at once. It is alleged in the complaint that the approach of the Jison to
this dangerous proximity with the propeller of the San Jacinto was due to the fault, negligence and lack of skill of
the defendant Juan Duruelo, as patron of the Jison. As the Jison sank, the plaintiff was thrown into the water
against the propeller, and the revolving blades inflicted various injuries upon him, consisting of a bruise in the
breast, two serious fractures of the bones of the left leg, and a compound fracture of the left femur. As a
consequence of these injuries the plaintiff was kept in bed in a hospital in the City of Manila from the 28th of
February until October 19 of the year 1927, or approximately eight months. In the conclusion of his complaint the
plaintiff sets out the various items of damage which he suffered, amounting in all to something more than
P120,000. These damages he seeks to recover of the defendants in this action.

As a general ground of demurrer it is assigned by the defendants that the complaint does not show a right of
action, and in the course of the argument submitted with the demurrer attention is directed to the fact that the
complaint does not allege that a protest had been presented by the plaintiff, within twenty-four hours after the
occurrence, to the competent authority at the port where the accident occured. It is accordingly insisted that,
under article 835 of the Code of Commerce, the plaintiff has shown no cause of action.

Assuming that the article of the Code of Commerce relied upon states a condition precedent to the maintenance
of an action in case where protest is required and that the making of protest must be alleged in the complaint in
order to show a good cause of action — an assumption that is possibly without basis, for the reason that lack of
protest in a case where protest is necessary would seem to supply matter of defense proper to be set up in the
answer, — we nevertheless are of the opinion that protest was not necessary in the case now before us. The
article in question (835, Code of Com.) is found in the section dealing with collisions, and the context shows the
collisions intended are collisions of sea-going vessels. Said article cannot be applied to small boats engaged in
river and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime Commerce, of which the
section of Collisions forms a part, was evidently intended to define the law relative to mechant vessels and marine
shipping; and, as appears from said Code, the vessels intended in that Book are such as are run by masters
having special training, with the elaborate apparatus of crew and equipment indicated in the Code. The word
"vessel" (Spanish "buque," "nave"), used in the section referred to was not intended to include all ships, craft or
floating structures of every kind without limitation, and the provisions of that section should not be held to include
minor craft engaged only in river and bay traffic. Vessels which are licensed to engage in maritime commerce, or
commerce by sea, whether in foreign or coastwise trade, are no doubt regulated by Book III of the Code of
Commerce. Other vessels of a minor nature not engaged in maritime commerce, such as river boats and those
carrying passengers from ship to shore, must be governed, as to their liability to passengers, by the provisions of
the Civil Code or other appropriate special provisions of law.

This conclusion is substantiated by the writer Estasen who makes comment upon the word "vessel" to the
following effect:

When the mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they
do not include war ships furthermore, they almost always refer to craft which are not accessory to another
as is the case of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the words ship,
vessels, boat, embarkation, etc., refer exclusively to those which are engaged in the transportation of
passengers and freight from one port to another or from one place to another; in a word, they refer to
merchant vessels and in no way can they or should they be understood as referring to pleasure craft,
yachts, pontoons, health service and harbor police vessels, floating storehouses, warships or patrol
vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other uses, such as
for instance coast and geodetic survey, those engaged in scientific research and exploration, craft
engaged in the loading and discharge of vessels from same to shore or docks, or in transhipment and
those small craft which in harbors, along shore, bays, inlets, coves and anchorages are engaged in
transporting passengers and baggage. (Estasen, Der. Mer., vol IV, p. 195.)

In Yu Con vs. Ipil (41 Phil., 770), this court held that a small vessel used for the transportation of merchandise by
sea and for the making of voyages from one port to another of these Islands, equipped and victualed for this
purpose by its owner, is a vessel, within the purview of the Code of Commerce, for the determination of the
character and effect of the relations created between the owners of the merchandise laden on it and its owner. In
the case before us the Jison, as we are informed in the complaint, was propelled by a second-hand motor,
originally used for a tractor plow; and it had a capacity for only eight persons. The use to which it was being put
was the carrying of passengers and luggage between the landing at Silay and ships in the harbor. This was not
such a boat as is contemplated in article 835 of the Code of Commerce, requiring protest in case of collision.

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In Yu Con vs. Ipil, supra, the author of the opinion quotes a passage from the treaties on Mercantile Law by
Blanco. We now have before us the latest edition of Blanco, and we reproduced here, in both Spanish and
English, not only the passage thus quoted but also the sentence immediately following said passage; and this
latter part of the quotation is quite pertinent to the point now under consideration.

Says Blanco:

Las palabras "nave" y "buque", en su sentido gramatical se aplican para designar cualquier clase de
embarcaciones, grandes o pequenas, mercantes o de guerra, significacion que no difiere esencialmente
de la juridica, con arreglo a la cual se consideran buques para los efectos del Codigo y del Reglamento
para la organizacion del Registro mencantile, no solo las embarcaciones destinadas a la navegacion de
cabo taje o altura, sino tambien los diques flotantes, pontones, dragas, ganguiles y cualquier otro aparato
flotante destinado a servicios de la industria o del comercio maritimo. "Aun cuando, corforme a este
concepto legal, parece que todo aparato flotante que sirve directamente para el trasporte de cosas o
personas, o que inderectamente se relacionen con esta industria, han de sujertarse a los preceptos del
Codigo sobre propiedad, transmision, derechos, inscripciones, etc., entendemos con el Sr. Benito (obra
cit.) y asi ocurre en la practica, que no son aplicables a las pequeñas embarcaciones, que solo estan
sujetas a los de la administracion de marina para el servicio de los puertos o ejercicio de la industria de la
pesca. (Blanco, Der. Mer., vol. II, pag. 22.)

The words "ship" (nave) and "vessel" (buque), in their grammatical sense, are applied to designate every kind of
craft, large or small, merchant vessels or war vessels, a signification which does not differ essentially from its
juridical meaning, according to which vessels for the purposes of the Code and Regulations for the organization of
the Mercantile Registry, are considered not only those engaged in navigation, whether coastwise or on the high
seas, but also floating docks, pantoons, dredges, scows and any other floating apparatus destined for the service
of the industry or maritime commerce.

Yet notwithstanding these principles from which it would seem that any

floating apparatus which serves directly for the transportation of things or persons or which inderectly is
related to this industry, ought to be subjected to the principles of the Code with reference to ownership,
transfer, rights, registration, etc., we agre with Benito (obra cit.) and it so happens in practice that they are
not aplicable to small which are subject to administrative (customs) regulations in the matter of port
service and in the fishing industry.1awph!l.net

We may add that the word "nave" in Spanish, which is used interchangeably with "buque" in the Code of
Commerce, means, according to the Spanish-English Dictionary complied by Edward R. Bensley and published at
Paris in the year 1896, "Ship, a vessel with decks and sails." Particularly significant in this definition is the use of
the word "decks" since a deck is not a feature of the smallest types of water craft.

In this connection a most instructive case from a Federal Court in the United States is that of the Mamie (5 Fed.,
813), wherein it was held that only vessels engaged in what is ordinarily known as maritime commerce are within
the provisions of law conferring limited liability on the owner in case maritime disaster. In the course of the opinion
in that case the author cites the analogous provisions in the laws of foreign maritime, nations, especially the
provisions of the Commercial Code of France; and it is observed that the word "vessel" in these codes is limited to
ships and other sea-going vessels. "Its provisions are not applicable," said the court, "to vessels in inland
navigation, which are especially designated by the name of boats." Quoting from the French author Dufour (1
Droit Mer., 121), the writer of the opinion in the case cited further says: "Thus, as a general rule, it appears to me
clearly, both by the letter and spirit of the law, that the provisions of the Second Book of the Commercial Code
[French] relate exclusively to maritime and not to fluvial navigation; and that consequently the word 'ship' when it
is found in these provisions, ought to be understand in the sense of a vessel serving the purpose of maritime
navigation of seagoing vessel, and not in the sense of a vessel devoted to the navigation of rivers."

It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not required to make
protest as a condition precedent to his right of action for the injury suffered by him in the collision described in the
complaint. In other words, article 835 of the Code of Commerce does not apply. But even if said provision had
been considered applicable to the case in hand, a fair interpretation of the allegations of the complaint indicates,
we think, that the injuries suffered by the plaintiff in this case were of such a nature as to excuse protest; for,
under article 836, it is provided that want to protest cannot prejudice a person not in a condition to make known
his wishes. An individual who has suffered a compound fracture of the femur and received other physical injuries
sufficient to keep him in a hospital for may months, cannot be supposed to have in a condition to make protest
within twenty-four hours of such occurrence. It follows that the demurrer in this case was not well taken and
should have been overruled.

In their brief in this court the attorneys for the defendant have criticised the complaint for a general lack of
certainty and precision in more than one respect. However, we have read the document attentively and, in our
opinion, it states a good cause of action upon a civil liability arising from tort under articles 1902 and 1903 of the
Civil Code, and our attention has not been drawn to any provision of law which would constitute an obstacle to the
maintenance of the action.

We have repeatedly called the attention of trial courts to the general rule that a case should not be dismissed on
demurrer when, under any reasonable interpretation of the complaint, a cause of action can be made out; and the

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fact that a complaint is inartificially drawn or in a certain degree lacking in precision constitutes no sufficient
reason for dismissing it. In passing upon a demurrer, every reasonable intendment is to be taken in favor of the
pleader. In this connection it should be borne in mind that if a complaint does not show a good cause of action,
the action can be dismissed at a later stage of the proceedings; and even where no objection has been previously
made, the point can be raised in the Supreme Court under section 93 of the Code of Civil Procedure (Abiera vs.
Orin, 8 Phil., 193). Little or no appreciable prejudice to the defendant will therefore ordinarily result from overruling
a demurrer, and no harm is done to anyone by requiring the defendant to answer. On the contrary, grave
prejudice may result to a plaintiff from the erroneous sustaining of a demurrer, because of the delay and even
expense necessary to set the matter right upon appeal.

The judgment appealed from is reversed, the demurrer overruled, and the defendant is required to answer the
complaint within five days after notification of the return of this decision to the court of origin. So ordered, with
costs against the appellee.

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