DELSAN TRANSPORT LINES, INC., petitioner, vs. THE HON.

COURT OF APPEALS and

AMERICAN HOME ASSURANCE CORPORATION, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CAG.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court
of Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million
Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and
costs and the Resolution[2] dated January 21, 1997 which denied the subsequent motion for
reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of
affreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the
said common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery
to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun,
2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in
Zamboanga City. The shipment was insured with the private respondent, American Home Assurance
Corporation.

November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to
cost. The trial court found that the vessel, MT Maysun, was seaworthy to undertake the voyage as
determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon
inspection during its annual dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier (herein petitioner) from
liability for the loss of its cargo.[3]
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The
appellate court gave credence to the weather report issued by the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAGASA for brevity) which showed that from 2:00 oclock
to 8:00 oclock in the morning on August 16, 1986, the wind speed remained at 10 to 20 knots per hour
while the waves measured from .7 to two (2) meters in height only in the vicinity of the Panay Gulf
where the subject vessel sank, in contrast to herein petitioners allegation that the waves were twenty
(20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel
coupled with the finding that the same was improperly manned, the appellate court ruled that the
petitioner is liable on its obligation as common carrier [4] to herein private respondent insurance
company as subrogee of Caltex. The subsequent motion for reconsideration of herein petitioner was
denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant petition, [5] to wit:
I

On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the
vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the
entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) representing the insured value
of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the
private respondent demanded of the petitioner the same amount it paid to Caltex.
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of
money. After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on

THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL

TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL
PRESUMPTION THAT THE VESSEL MT MAYSUN WAS SEAWORTHY.
III

THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME
COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance
Code of the Philippines, which states that in every marine insurance upon a ship or freight, or
freightage, or upon any thing which is the subject of marine insurance there is an implied warranty by
the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any
loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the
insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of
the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy;
otherwise, private respondent was not legally liable to Caltex due to the latters breach of implied
warranty under the marine insurance policy that the vessel was seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not
seaworthy on the ground that the marine officer who served as the chief mate of the vessel, Francisco
Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the Philippines, the
implied warranty of seaworthiness of the vessel, which the private respondent admitted as having been
fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo, extends to the vessels
complement. Besides, petitioner avers that although Berina had merely a 2 nd officers license, he was
qualified to act as the vessels chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of the
Philippine Merchant Marine Rules and Regulations. In fact, all the crew and officers of MT Maysun
were exonerated in the administrative investigation conducted by the Board of Marine Inquiry after the
subject accident.[6]
In any event, petitioner further avers that private respondent failed, for unknown reason, to
present in evidence during the trial of the instant case the subject marine cargo insurance policy it
entered into with Caltex. By virtue of the doctrine laid down in the case of Home Insurance
Corporation vs. CA,[7] the failure of the private respondent to present the insurance policy in evidence
is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto.
Hence, the legal issues posed before the Court are:
I

Whether or not the payment made by the private respondent to Caltex for the insured value of the lost
cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery
against the petitioner.
II
Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of
sum of money for lack of cause of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the lost cargo operates as
waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex
under the marine insurance policy. However, the same cannot be validly interpreted as an automatic
admission of the vessels seaworthiness by the private respondent as to foreclose recourse against the
petitioner for any liability under its contractual obligation as a common carrier. The fact of payment
grants the private respondent subrogatory right which enables it to exercise legal remedies that would
otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.
[8]
Article 2207 of the New Civil Code provides that:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in
justice and good conscience ought to pay.[9] It is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment by the
insurance company of the insurance claim. [10] Consequently, the payment made by the private
respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the
remedies which the latter may have against the petitioner.

From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of passengers
transported by them, according to all the circumstances of each case. [11] In the event of loss, destruction
or deterioration of the insured goods, common carriers shall be responsible unless the same is brought
about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. [12] In
all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.

of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of
appeals:

[13]

Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the
issuance of certificates establishes seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62)

In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex,
petitioner attributes the sinking of MT Maysun to fortuitous event or force majeure. From the
testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated
vessel, it appears that a sudden and unexpected change of weather condition occurred in the early
morning of August 16, 1986; that at around 3:15 oclock in the morning a squall (unos) carrying strong
winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to
twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually
sink with its cargo.[14] This tale of strong winds and big waves by the said officers of the petitioner
however, was effectively rebutted and belied by the weather report [15] from the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA), the independent government
agency charged with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00
oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots
per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East
Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled,
petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not
seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity when
the said vessel sank.
The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and
Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to
testify against the interest of their employer, the herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence certificates [16] that tend to show
that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun,
was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition

At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued,
however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of
certificates issued in this regard, authorities are likewise clear as to their probative value, (thus):

And also:
Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel
owners obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the
condition of the vessel or her stowage does not establish due diligence if the vessel was in fact
unseaworthy, for the cargo owner has no obligation in relation to seaworthiness. (Ibid.) [17]
Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry
merely concerns their respective administrative liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liability arising from its failure to observe extraordinary
diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of
its employees, the determination of which properly belongs to the courts. [18] In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its
failure to rebut the presumption of fault or negligence as common carrier [19] occasioned by the
unexplained sinking of its vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as
insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.[20]

The presentation of the insurance policy was necessary in the case of Home Insurance
Corporation v. CA[21] (a case cited by petitioner) because the shipment therein (hydraulic engines)
passed through several stages with different parties involved in each stage. First, from the shipper to
the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the
M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the
port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to
the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the
consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the
hauler can be liable only for any damage that occurred from the time it received the cargo until it
finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the
cargo before it actually received it. The insurance contract, which was not presented in evidence in that
case would have indicated the scope of the insurers liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance
Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial
fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioners vessel, MT Maysun,
which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of
August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court
of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

[G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE
SHIPPING COMPANY, respondent.

COMPANY, petitioner, vs.

PKS

DECISION
VITUG, J.:
The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R.
CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional
Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner
insurance corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS
Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand
(75,000) bags of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos
(P3,375,000.00). DUMC insured the goods for its full value with petitioner Philippine American
General Insurance Company (Philamgen). The goods were loaded aboard the dumb barge Limar
I belonging to PKS Shipping. On the evening of 22 December 1988, about nine oclock, while Limar
I was being towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of miles off the
coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags
of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen
promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC
but the shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with
the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been
caused either by a fortuitous event, in which case the ship owner was not liable, or through the
negligence of the captain and crew of the vessel and that, under Article 587 of the Code of Commerce
adopting the Limited Liability Rule, the ship owner could free itself of liability by abandoning, as it
apparently so did, the vessel with all her equipment and earned freightage.

Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the
trial court. The appellate court ruled that evidence to establish that PKS Shipping was a common
carrier at the time it undertook to transport the bags of cement was wanting because the peculiar
method of the shipping companys carrying goods for others was not generally held out as a business
but as a casual occupation. It then concluded that PKS Shipping, not being a common carrier, was not
expected to observe the stringent extraordinary diligence required of common carriers in the care of
goods. The appellate court, moreover, found that the loss of the goods was sufficiently established as
having been due to fortuitous event, negating any liability on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent error in
ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject
cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such carrier can be held exempt
for the loss of the cargo would be if the loss were caused by natural disaster or calamity. Petitioner
avers that typhoon "APIANG" has not entered the Philippine area of responsibility and that, even if it
did, respondent would not be exempt from liability because its employees, particularly the tugmaster,
have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen
seeks is not a review on points or errors of law but a review of the undisputed factual findings of the
RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question of
whether it is a private carrier or a common carrier and, in either case, to the other question of whether
or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are consistent
with those of the trial court, may not at liberty be reviewed by this Court in a petition for review under
Rule 45 of the Rules of Court. [1] The conclusions derived from those factual findings, however, are not
necessarily just matters of fact as when they are so linked to, or inextricably intertwined with, a
requisite appreciation of the applicable law. In such instances, the conclusions made could well be
raised as being appropriate issues in a petition for review before this Court. Thus, an issue whether a

carrier is private or common on the basis of the facts found by a trial court or the appellate court can be
a valid and reviewable question of law.

So understood, the concept of `common carrier under Article 1732 may be seen to coincide neatly with
the notion of `public service, under the Public Service Act (Commonwealth Act No. 1416, as amended)
which at least partially supplements the law on common carriers set forth in the Civil Code.

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it
defines public service to be
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or steamship, or
steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight
or both, shipyard, marine repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire
or wireless communication systems, wire or wireless broadcasting stations and other similar public
services. x x x. (Underscoring supplied).
The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs.
Court of Appeals.[2] Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public
Service Act, this Court has held:
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
idiom, as `a sideline). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the `general public, i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general population. We
think that Article 1732 deliberately refrained from making such distinctions.

Much of the distinction between a common or public carrier and a private or special carrier lies in
the character of the business, such that if the undertaking is an isolated transaction, not a part of the
business or occupation, and the carrier does not hold itself out to carry the goods for the general public
or to a limited clientele, although involving the carriage of goods for a fee, [3] the person or corporation
providing such service could very well be just a private carrier. A typical case is that of a charter party
which includes both the vessel and its crew, such as in a bareboat or demise, where the charterer
obtains the use and service of all or some part of a ship for a period of time or a voyage or
voyages[4] and gets the control of the vessel and its crew.[5] Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry such goods for a
fee. The regularity of its activities in this area indicates more than just a casual activity on its part.
[6]
Neither can the concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation would make it easy
for a common carrier to escape liability by the simple expedient of entering into those distinct
agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. [7] The provisions of Article 1733,
notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of the
goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and

(5) Order or act of competent public authority.[8]

The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges or
the tugboats crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barges hatches. The official Certificate of Inspection of the barge
issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court are
contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of
the case and such findings are contrary to the admissions of both appellant and appellee; (6) when the
judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court of
Appeals failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are
conclusions without citation of the specific evidence on which they are based; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from
liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

G.R. No. 114167 July 12, 1995

COASTWISE
vs.
COURT
OF
APPEALS
COMPANY, respondents.

LIGHTERAGE
and

the

CORPORATION, petitioner,
PHILIPPINE

GENERAL

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which
the consignee may have against the carrier, which is presumed to have violated the contract of carriage.

INSURANCE
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court
of Appeals, the award was affirmed.

RESOLUTION
Hence, this petition.

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993,
affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to
pay herein private respondent the amount of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The
barges were towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long" 1 As a consequence, the molasses at the
cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the
consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-asa
Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise
Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pagasa Sales, Inc., the amount of P700,000.00, representing the value of the damaged cargo of molasses.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage
was transformed into a private carrier, by virtue of the contract of affreightment which it entered into
with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier,
did it exercise the ordinary diligence to which a private carrier is in turn bound? Second, whether or
not the insurer was subrogated into the rights of the consignee against the carrier, upon payment by the
insurer of the value of the consignee's goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was
a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the
shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc. 2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo or
chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel,
rather than a demise. As such, the liability of the shipowner for acts or negligence of
its captain and crew, would remain in the absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4 wherein we
ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally be
regarded as the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject to liability
to others for damages caused by negligence. To create a demise, the owner of a
vessel must completely and exclusively relinquish possession, command and
navigation thereof to the charterer, anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a contract for special
service to be rendered by the owner of the vessel and under such contract the general
owner retains the possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for his payment of the
charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of
the charterer, remains liable as carrier and must answer for any breach of duty as to
the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however is not
true in a contract of affreightment on account of the aforementioned distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
point to another, but the possession, command and navigation of the vessels remained with petitioner
Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract
of affreightment, was not converted into a private carrier, but remained a common carrier and was still
liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad
order makes for a prima facie case against the carrier.

It follows then that the presumption of negligence that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by its
hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause of
the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any effort to
prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to avoid
navigational accidents" 6 effectively contributed to the happening of this mishap. Thus, being unaware
of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the same.
Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by the
provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal
capacity to contract in accordance with this code, and prove the skill capacity and
qualifications necessary to command and direct the vessel, as established by marine
and navigation laws, ordinances or regulations, and must not be disqualified
according to the same for the discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful accident.
It may also logically, follow that a person without license to navigate, lacks not just the skill to do so,
but also the utmost familiarity with the usual and safe routes taken by seasoned and legally authorized
ones. Had the patron been licensed, he could be presumed to have both the skill and the knowledge that
would have prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by proof
of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule
against the petitioner. We have already found petitioner liable for breach of the contract of carriage it
entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of the cargo which
petitioner-carrier was transporting, it was not the carrier which paid the value thereof to Pag-asa Sales,
Inc. but the latter's insurer, herein private respondent PhilGen.

petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales,
Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the
order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay
respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus interest
thereon at the legal rate computed from March 29, 1989, the date the complaint was filed until fully
paid and another sum of P100,000.00 as attorney's fees and costs" 10 is likewise hereby AFFIRMED
SO ORDERED.

Article 2207 of the Civil Code is explicit on this point:

Feliciano, Romero, Melo and Vitug, JJ., concur.
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long line of
cases including Compania Maritima v. Insurance Company of North America; 7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court
of Appeals, 9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to the
assured will be subrogated to the rights of the assured to recover from the wrongdoer
to the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operated as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa
Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by

[G.R. No. 119602. October 6, 2000]

WILDVALLEY SHIPPING CO., LTD. petitioner, vs. COURT OF APPEALS and PHILIPPINE
PRESIDENT LINES INC., respondents.
DECISION

The master (captain) checked the position of the vessel [12] and verified that it was in the centre of
the channel.[13] He then went to confirm, or set down, the position of the vessel on the chart. [14] He
ordered Simplicio A. Monis, Chief Officer of the President Roxas, to check all the double bottom
tanks.[15]
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco River, [16] thus obstructing
the ingress and egress of vessels.

BUENA, J.:
This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals
which reversed the decision of the lower court in CA-G.R. CV No. 36821, entitled "Wildvalley
Shipping Co., Ltd., plaintiff-appellant, versus Philippine President Lines, Inc., defendant-appellant."
The antecedent facts of the case are as follows:
Sometime in February 1988, the Philippine Roxas, a vessel owned by Philippine President Lines,
Inc., private respondent herein, arrived in Puerto Ordaz, Venezuela, to load iron ore.Upon the
completion of the loading and when the vessel was ready to leave port, Mr. Ezzar del Valle Solarzano
Vasquez, an official pilot of Venezuela, was designated by the harbour authorities in Puerto Ordaz to
navigate the Philippine Roxas through the Orinoco River.[1] He was asked to pilot the said vessel on
February 11, 1988[2] boarding it that night at 11:00 p.m.[3]

As a result of the blockage, the Malandrinon, a vessel owned by herein petitioner Wildvalley
Shipping Company, Ltd., was unable to sail out of Puerto Ordaz on that day.
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the Regional Trial Court of
Manila, Branch III against Philippine President Lines, Inc. and Pioneer Insurance Company (the
underwriter/insurer of Philippine Roxas) for damages in the form of unearned profits, and interest
thereon amounting to US $400,000.00 plus attorney's fees, costs, and expenses of litigation. The
complaint against Pioneer Insurance Company was dismissed in an Order dated November 7, 1988.[17]
At the pre-trial conference, the parties agreed on the following facts:
"1. The jurisdictional facts, as specified in their respective pleadings;
"2. That defendant PPL was the owner of the vessel Philippine Roxas at the time of the incident;

The master (captain) of the Philippine Roxas, Captain Nicandro Colon, was at the bridge together
with the pilot (Vasquez), the vessel's third mate (then the officer on watch), and a helmsman when the
vessel left the port[4] at 1:40 a.m. on February 12, 1988.[5] Captain Colon left the bridge when the vessel
was under way.[6]
The Philippine Roxas experienced some vibrations when it entered the San Roque Channel at
mile 172.[7] The vessel proceeded on its way, with the pilot assuring the watch officer that the vibration
was a result of the shallowness of the channel.[8]
Between mile 158 and 157, the vessel again experienced some vibrations. [9] These occurred at
4:12 a.m.[10] It was then that the watch officer called the master to the bridge.[11]

"3. That defendant Pioneer Insurance was the insurance underwriter for defendant PPL;
"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel Malandrinon, whose passage
was obstructed by the vessel Philippine Roxas at Puerto Ordaz, Venezuela, as specified in par. 4, page
2 of the complaint;
"5. That on February 12, 1988, while the Philippine Roxas was navigating the channel at Puerto Ordaz,
the said vessel grounded and as a result, obstructed navigation at the channel;
"6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;

"7. That at the time of the incident, the vessel, Philippine Roxas, was under the command of the pilot
Ezzar Solarzano, assigned by the government thereat, but plaintiff claims that it is under the command
of the master;
"8. The plaintiff filed a case in Middleburg, Holland which is related to the present case;

"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is hereby rendered

reversing the Decision of the lower court. Plaintiff-appellant's Complaint is dismissed and it is ordered
to pay defendant-appellant the amount of Three Hundred Twenty-three Thousand, Forty-two Pesos and
Fifty-three Centavos (P323,042.53) as and for attorney's fees plus cost of suit. Plaintiff-appellant's
appeal is DISMISSED.

"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by the defendant PPL;

"SO ORDERED."[21]

"10. The Orinoco River is 150 miles long and it takes approximately 12 hours to navigate out of the
said river;

Petitioner filed a motion for reconsideration [22] but the same was denied for lack of merit in the
resolution dated March 29, 1995.[23]

"11. That no security for the plaintiff's claim was given until after the Philippine Collier was arrested;
and

Hence, this petition.

The petitioner assigns the following errors to the court a quo:

"12. That a letter of guarantee, dated 12-May-88 was issued by the Steamship Mutual Underwriters
Ltd."[18]
The trial court rendered its decision on October 16, 1991 in favor of the petitioner, Wildvalley
Shipping Co., Ltd. The dispositive portion thereof reads as follows:
"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine President Lines,
Inc. to pay to the plaintiff the sum of U.S. $259,243.43, as actual and compensatory damages, and U.S.
$162,031.53, as expenses incurred abroad for its foreign lawyers, plus additional sum of U.S.
$22,000.00, as and for attorney's fees of plaintiff's local lawyer, and to pay the cost of this suit.
"Defendant's counterclaim is dismissed for lack of merit.
"SO ORDERED."[19]
Both parties appealed: the petitioner appealing the non-award of interest with the private
respondent questioning the decision on the merits of the case.
After the requisite pleadings had been filed, the Court of Appeals came out with its questioned
decision dated June 14, 1994,[20] the dispositive portion of which reads as follows:

1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT

UNDER PHILIPPINE LAW NO FAULT OR NEGLIGENCE CAN BE ATTRIBUTED
TO THE MASTER NOR THE OWNER OF THE "PHILIPPINE ROXAS" FOR THE
GROUNDING OF SAID VESSEL RESULTING IN THE BLOCKAGE OF THE RIO
ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE
FINDINGS OF FACTS OF THE TRIAL COURT CONTRARY TO EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE
"PHILIPPINE ROXAS" IS SEAWORTHY;
4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING
VENEZUELAN LAW DESPITE THE FACT THAT THE SAME HAS BEEN
SUBSTANTIALLY PROVED IN THE TRIAL COURT WITHOUT ANY OBJECTION
FROM PRIVATE RESPONDENT, AND WHOSE OBJECTION WAS INTERPOSED
BELATEDLY ON APPEAL;

5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN AWARDING

ATTORNEY'S FEES AND COSTS TO PRIVATE RESPONDENT WITHOUT ANY
FAIR OR REASONABLE BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT
PETITIONER'S CAUSE IS MERITORIOUS HENCE, PETITIONER SHOULD BE
ENTITLED TO ATTORNEY'S FEES, COSTS AND INTEREST.
The petition is without merit.
The primary issue to be determined is whether or not Venezuelan law is applicable to the case at
bar.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are
not authorized to take judicial notice of them. Like any other fact, they must be alleged and proved.[24]
A distinction is to be made as to the manner of proving a written and an unwritten law. The
former falls under Section 24, Rule 132 of the Rules of Court, as amended, the entire provision of
which is quoted hereunder. Where the foreign law sought to be proved is "unwritten," the oral
testimony of expert witnesses is admissible, as are printed and published books of reports of decisions
of the courts of the country concerned if proved to be commonly admitted in such courts. [25]
Section 24 of Rule 132 of the Rules of Court, as amended, provides:
"Sec. 24. Proof of official record. -- The record of public documents referred to in paragraph (a) of
Section 19, when admissible for any purpose, may be evidenced by an official publication thereof or
by a copy attested by the officer having the legal custody of the record, or by his deputy, and
accompanied, if the record is not kept in the Philippines, with a certificate that such officer has the
custody. If the office in which the record is kept is in a foreign country, the certificate may be made by
a secretary of the embassy or legation, consul general, consul, vice consul, or consular agent or by any
officer in the foreign service of the Philippines stationed in the foreign country in which the record is
kept, and authenticated by the seal of his office." (Underscoring supplied)
The court has interpreted Section 25 (now Section 24) to include competent evidence like the
testimony of a witness to prove the existence of a written foreign law.[26]

In the noted case of Willamette Iron & Steel Works vs. Muzzal,[27] it was held that:
" Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the year 1918 under
oath, quoted verbatim section 322 of the California Civil Code and stated that said section was in force
at the time the obligations of defendant to the plaintiff were incurred, i.e. on November 5, 1928 and
December 22, 1928. This evidence sufficiently established the fact that the section in question was the
law of the State of California on the above dates. A reading of sections 300 and 301 of our Code of
Civil Procedure will convince one that these sections do not exclude the presentation of other
competent evidence to prove the existence of a foreign law.
"`The foreign law is a matter of fact You ask the witness what the law is; he may, from his recollection,
or on producing and referring to books, say what it is.' (Lord Campbell concurring in an opinion of
Lord Chief Justice Denman in a well-known English case where a witness was called upon to prove
the Roman laws of marriage and was permitted to testify, though he referred to a book containing the
decrees of the Council of Trent as controlling, Jones on Evidence, Second Edition, Volume 4, pages
3148-3152.) x x x.
We do not dispute the competency of Capt. Oscar Leon Monzon, the Assistant Harbor Master and
Chief of Pilots at Puerto Ordaz, Venezuela, [28] to testify on the existence of the Reglamento General de
la Ley de Pilotaje (pilotage law of Venezuela)[29] and the Reglamento Para la Zona de Pilotaje No 1 del
Orinoco (rules governing the navigation of the Orinoco River). Captain Monzon has held the
aforementioned posts for eight years.[30] As such he is in charge of designating the pilots for
maneuvering and navigating the Orinoco River. He is also in charge of the documents that come into
the office of the harbour masters.[31]
Nevertheless, we take note that these written laws were not proven in the manner provided by
Section 24 of Rule 132 of the Rules of Court.
The Reglamento General de la Ley de Pilotaje was published in the Gaceta Oficial[32]of the
Republic of Venezuela. A photocopy of the Gaceta Oficial was presented in evidence as an official
publication of the Republic of Venezuela.
The Reglamento Para la Zona de Pilotaje No 1 del Orinoco is published in a book issued by
the Ministerio de Comunicaciones of Venezuela.[33] Only a photocopy of the said rules was likewise
presented as evidence.

Both of these documents are considered in Philippine jurisprudence to be public documents for
they are the written official acts, or records of the official acts of the sovereign authority, official bodies
and tribunals, and public officers of Venezuela.[34]
For a copy of a foreign public document to be admissible, the following requisites are
mandatory: (1) It must be attested by the officer having legal custody of the records or by his deputy;
and (2) It must be accompanied by a certificate by a secretary of the embassy or legation, consul
general, consul, vice consular or consular agent or foreign service officer, and with the seal of his
office.[35] The latter requirement is not a mere technicality but is intended to justify the giving of full
faith and credit to the genuineness of a document in a foreign country.[36]
It is not enough that the Gaceta Oficial, or a book published by the Ministerio de
Comunicaciones of Venezuela, was presented as evidence with Captain Monzon attesting it. It is also
required by Section 24 of Rule 132 of the Rules of Court that a certificate that Captain Monzon, who
attested the documents, is the officer who had legal custody of those records made by a secretary of the
embassy or legation, consul general, consul, vice consul or consular agent or by any officer in the
foreign service of the Philippines stationed in Venezuela, and authenticated by the seal of his office
accompanying the copy of the public document. No such certificate could be found in the records of
the case.
With respect to proof of written laws, parol proof is objectionable, for the written law itself is the
best evidence. According to the weight of authority, when a foreign statute is involved, the best
evidence rule requires that it be proved by a duly authenticated copy of the statute. [37]
At this juncture, we have to point out that the Venezuelan law was not pleaded before the lower
court.
A foreign law is considered to be pleaded if there is an allegation in the pleading about the
existence of the foreign law, its import and legal consequence on the event or transaction in issue.[38]
A review of the Complaint[39] revealed that it was never alleged or invoked despite the fact that
the grounding of the M/V Philippine Roxas occurred within the territorial jurisdiction of Venezuela.
We reiterate that under the rules of private international law, a foreign law must be properly
pleaded and proved as a fact. In the absence of pleading and proof, the laws of a foreign country, or

state, will be presumed to be the same as our own local or domestic law and this is known as
processual presumption.[40]
Having cleared this point, we now proceed to a thorough study of the errors assigned by the
petitioner.
Petitioner alleges that there was negligence on the part of the private respondent that would
warrant the award of damages.
There being no contractual obligation, the private respondent is obliged to give only the diligence
required of a good father of a family in accordance with the provisions of Article 1173 of the New
Civil Code, thus:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the
time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
The diligence of a good father of a family requires only that diligence which an ordinary prudent
man would exercise with regard to his own property. This we have found private respondent to have
exercised when the vessel sailed only after the "main engine, machineries, and other auxiliaries" were
checked and found to be in good running condition; [41] when the master left a competent officer, the
officer on watch on the bridge with a pilot who is experienced in navigating the Orinoco River; when
the master ordered the inspection of the vessel's double bottom tanks when the vibrations occurred
anew.[42]
The Philippine rules on pilotage, embodied in Philippine Ports Authority Administrative Order
No. 03-85, otherwise known as the Rules and Regulations Governing Pilotage Services, the Conduct of
Pilots and Pilotage Fees in Philippine Ports enunciate the duties and responsibilities of a master of a
vessel and its pilot, among other things.

The pertinent provisions of the said administrative order governing these persons are quoted
hereunder:
Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage grounds, the Harbor
Pilot providing the service to a vessel shall be responsible for the damage caused to a vessel or to life
and property at ports due to his negligence or fault. He can be absolved from liability if the accident is
caused by force majeure or natural calamities provided he has exercised prudence and extra diligence
to prevent or minimize the damage.
The Master shall retain overall command of the vessel even on pilotage grounds whereby he can
countermand or overrule the order or command of the Harbor Pilot on board. In such event, any
damage caused to a vessel or to life and property at ports by reason of the fault or negligence of the
Master shall be the responsibility and liability of the registered owner of the vessel concerned without
prejudice to recourse against said Master.
Such liability of the owner or Master of the vessel or its pilots shall be determined by competent
authority in appropriate proceedings in the light of the facts and circumstances of each particular case.

xxx
"7. To be on deck on reaching land and to take command on entering and leaving ports, canals,
roadsteads, and rivers, unless there is a pilot on board discharging his duties. x x x.
The law is very explicit. The master remains the overall commander of the vessel even when
there is a pilot on board. He remains in control of the ship as he can still perform the duties conferred
upon him by law[43] despite the presence of a pilot who is temporarily in charge of the vessel. It is not
required of him to be on the bridge while the vessel is being navigated by a pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:
Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat, or passing through
rivers or straits within a pilotage district, as well as docking and undocking at any pier/wharf, or
shifting from one berth or another, every vessel engaged in coastwise and foreign trade shall be under
compulsory pilotage.
xxx.

xxx
Sec. 32. Duties and Responsibilities of the Pilots or Pilots Association. -- The duties and
responsibilities of the Harbor Pilot shall be as follows:
xxx
f) A pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a
pilot thereof until he leaves it anchored or berthed safely; Provided, however, that his responsibility
shall cease at the moment the Master neglects or refuses to carry out his order."
The Code of Commerce likewise provides for the obligations expected of a captain of a vessel, to
wit:
Art. 612. The following obligations shall be inherent in the office of captain:

The Orinoco River being a compulsory pilotage channel necessitated the engaging of a pilot who
was presumed to be knowledgeable of every shoal, bank, deep and shallow ends of the river. In his
deposition, pilot Ezzar Solarzano Vasquez testified that he is an official pilot in the Harbour at Port
Ordaz, Venezuela,[44] and that he had been a pilot for twelve (12) years.[45] He also had experience in
navigating the waters of the Orinoco River.[46]
The law does provide that the master can countermand or overrule the order or command of the
harbor pilot on board. The master of the Philippine Roxas deemed it best not to order him (the pilot) to
stop the vessel,[47] mayhap, because the latter had assured him that they were navigating normally
before the grounding of the vessel.[48] Moreover, the pilot had admitted that on account of his
experience he was very familiar with the configuration of the river as well as the course headings, and
that he does not even refer to river charts when navigating the Orinoco River.[49]
Based on these declarations, it comes as no surprise to us that the master chose not to regain
control of the ship. Admitting his limited knowledge of the Orinoco River, Captain Colon relied on the
knowledge and experience of pilot Vasquez to guide the vessel safely.

Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different class from ordinary
employees, for they assume to have a skill and a knowledge of navigation in the particular waters over
which their licenses extend superior to that of the master; pilots are bound to use due diligence and
reasonable care and skill. A pilot's ordinary skill is in proportion to the pilot's responsibilities, and
implies a knowledge and observance of the usual rules of navigation, acquaintance with the waters
piloted in their ordinary condition, and nautical skill in avoiding all known obstructions. The character
of the skill and knowledge required of a pilot in charge of a vessel on the rivers of a country is very
different from that which enables a navigator to carry a vessel safely in the ocean. On the ocean, a
knowledge of the rules of navigation, with charts that disclose the places of hidden rocks, dangerous
shores, or other dangers of the way, are the main elements of a pilot's knowledge and skill. But the
pilot of a river vessel, like the harbor pilot, is selected for the individual's personal knowledge of the
topography through which the vessel is steered."[50]
We find that the grounding of the vessel is attributable to the pilot. When the vibrations were first
felt the watch officer asked him what was going on, and pilot Vasquez replied that "(they) were in the
middle of the channel and that the vibration was as (sic) a result of the shallowness of the channel."[51]
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine Roxas as well as other
vessels on the Orinoco River due to his knowledge of the same. In his experience as a pilot, he should
have been aware of the portions which are shallow and which are not. His failure to determine the
depth of the said river and his decision to plod on his set course, in all probability, caused damage to
the vessel. Thus, we hold him as negligent and liable for its grounding.
In the case of Homer Ramsdell Transportation Company vs. La Compagnie Generale
Transatlantique, 182 U.S. 406, it was held that:

such a case the pilot cannot be deemed properly the servant of the master or the owner, but is forced
upon them, and the maxim Qui facit per alium facit per se does not apply." (Underscoring supplied)
Anent the river passage plan, we find that, while there was none, [52] the voyage has been
sufficiently planned and monitored as shown by the following actions undertaken by the pilot, Ezzar
Solarzano Vasquez, to wit: contacting the radio marina via VHF for information regarding the channel,
river traffic,[53] soundings of the river, depth of the river, bulletin on the buoys. [54] The officer on watch
also monitored the voyage.[55]
We, therefore, do not find the absence of a river passage plan to be the cause for the grounding of
the vessel.
The doctrine of res ipsa loquitur does not apply to the case at bar because the circumstances
surrounding the injury do not clearly indicate negligence on the part of the private respondent. For the
said doctrine to apply, the following conditions must be met: (1) the accident was of such character as
to warrant an inference that it would not have happened except for defendant's negligence; (2) the
accident must have been caused by an agency or instrumentality within the exclusive management or
control of the person charged with the negligence complained of; and (3) the accident must not have
been due to any voluntary action or contribution on the part of the person injured. [56]
As has already been held above, there was a temporary shift of control over the ship from the
master of the vessel to the pilot on a compulsory pilotage channel. Thus, two of the requisites
necessary for the doctrine to apply, i.e., negligence and control, to render the respondent liable, are
absent.
As to the claim that the ship was unseaworthy, we hold that it is not.

x x x The master of a ship, and the owner also, is liable for any injury done by the negligence of the
crew employed in the ship. The same doctrine will apply to the case of a pilot employed by the master
or owner, by whose negligence any injury happens to a third person or his property: as, for example, by
a collision with another ship, occasioned by his negligence. And it will make no difference in the case
that the pilot, if any is employed, is required to be a licensed pilot; provided the master is at liberty to
take a pilot, or not, at his pleasure, for in such a case the master acts voluntarily, although he is
necessarily required to select from a particular class. On the other hand, if it is compulsive upon the
master to take a pilot, and, a fortiori, if he is bound to do so under penalty, then, and in such case,
neither he nor the owner will be liable for injuries occasioned by the negligence of the pilot; for in

The Lloyds Register of Shipping confirmed the vessels seaworthiness in a Confirmation of Class
issued on February 16, 1988 by finding that "the above named ship (Philippine Roxas) maintained the
class "+100A1 Strengthened for Ore Cargoes, Nos. 2 and 8 Holds may be empty (CC) and +LMC"
from 31/12/87 up until the time of casualty on or about 12/2/88." [57] The same would not have been
issued had not the vessel been built according to the standards set by Lloyd's.
Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified thus:

"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to the
seaworthiness of the vessel?

The vessel is classed, meaning?

"A Meaning she is fit to travel, your Honor, or seaworthy."[58]

"A Well, judging on this particular vessel, and also basing on the class record of the vessel, wherein
recommendations were made on the top side tank, and it was given sufficient time to be
repaired, it means that the vessel is fit to travel even with those defects on the ship.

It is not required that the vessel must be perfect. To be seaworthy, a ship must be reasonably fit to
perform the services, and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy.[59]

"COURT
As further evidence that the vessel was seaworthy, we quote the deposition of pilot Vasquez:
What do you mean by that? You explain. The vessel is fit to travel even with defects? Is that what
you mean? Explain.

"Q Was there any instance when your orders or directions were not complied with because of the
inability of the vessel to do so?

"WITNESS
"A No.
"A Yes, your Honor. Because the class society which register (sic) is the third party looking into the
condition of the vessel and as far as their record states, the vessel was class or maintained, and
she is fit to travel during that voyage."

"Q. Was the vessel able to respond to all your commands and orders?
"A. The vessel was navigating normally.[60]

xxx
"ATTY. MISA
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class +100A1
Strengthened for Ore Cargoes', mean?

Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an accident report wherein
he stated that on February 11, 1988, he checked and prepared the main engine, machineries and all
other auxiliaries and found them all to be in good running condition and ready for maneuvering. That
same day the main engine, bridge and engine telegraph and steering gear motor were also tested.
[61]
Engineer Mata also prepared the fuel for consumption for maneuvering and checked the engine
generators.[62]

"WITNESS
Finally, we find the award of attorneys fee justified.
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is capable of
carrying ore bulk cargoes, but she is particularly capable of carrying Ore Cargoes with No. 2
and No. 8 holds empty.

Article 2208 of the New Civil Code provides that:

xxx

"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:

"COURT

xxx

"(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of
litigation should be recovered.

WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:

1)
Ordering defendants to pay plaintiff the sum of
P1,346,197.00 and an interest of 6% per annum to be reckoned from the filing of this case
on October 2, 1990;

xxx
Due to the unfounded filing of this case, the private respondent was unjustifiably forced to
litigate, thus the award of attorneys fees was proper.

2)
Ordering defendants to pay plaintiff the sum of P25,000.00
for attorneys fees and an additional sum of P10,000.00 as litigation expenses;

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED and the decision of
the Court of Appeals in CA G.R. CV No. 36821 is AFFIRMED.
SO ORDERED.

3)

With cost against defendants.

For the Third-Party Complaint:

FGU INSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, SAN

MIGUEL CORPORATION, and ESTATE OF ANG GUI, represented by LUCIO,
JULIAN, and JAIME, all surnamed ANG, and CO TO, respondents.

1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants the
amount of P632,700.00.[3]
The Facts

[G.R. No. 140704. March 31, 2005]

ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and
CO TO, petitioners, vs. THE HONORABLE COURT OF APPEALS, SAN MIGUEL
CORP., and FGU INSURANCE CORP., respondents.
DECISION

Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and
Co To, was engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio
barge which were operated as common carriers. Since the D/B Lucio had no engine of its own, it could
not maneuver by itself and had to be towed by a tugboat for it to move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on
board the D/B Lucio, for towage by M/T ANCO, the following cargoes:

CHICO-NAZARIO, J.:
Bill of Lading No. Shipment Destination
[1]

Before Us are two separate Petitions for review assailing the Decision of the Court of Appeals
in CA-G.R. CV No. 49624 entitled, San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang
Gui, represented by Lucio, Julian and Jaime, all surnamed Ang, and Co To, Defendants-Appellants,
ThirdParty Plaintiffs versus FGU Insurance Corporation, Third-Party Defendant-Appellant, which
affirmed in toto the decision[2] of the Regional Trial Court of Cebu City, Branch 22. The dispositive
portion of the Court of Appeals decision reads:

1 25,000 cases Pale Pilsen Estancia, Iloilo

350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique

200 cases Cerveza Negra San Jose, Antique

The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes
covered by Bill of Lading No. 2 was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose,
Antique. The vessels arrived at San Jose, Antique, at about one oclock in the afternoon of 30
September 1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979,
the clouds over the area were dark and the waves were already big. The arrastre workers unloading the
cargoes of SMC on board the D/B Lucio began to complain about their difficulty in unloading the
cargoes. SMCs District Sales Supervisor, Fernando Macabuag, requested ANCOs representative to
transfer the barge to a safer place because the vessel might not be able to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the barge could
withstand the waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at
the wharf of San Jose, Antique, as all other vessels already left the wharf to seek shelter. With the
waves growing bigger and bigger, only Ten Thousand Seven Hundred Ninety (10,790) cases of beer
were discharged into the custody of the arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio
abandoned the vessel because the barges rope attached to the wharf was cut off by the big waves. At
around midnight, the barge run aground and was broken and the cargoes of beer in the barge were
swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred
Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per
case of Pale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20). The value of a case of
Cerveza Negra was Forty-Seven Pesos and Ten Centavos (P47.10), hence, SMCs claim against ANCO
amounted to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
(P1,346,197.00).

As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and
Damages against ANCO for the amount of One Million Three Hundred Forty-Six Thousand One
Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation expenses and Twenty-Five
Percent (25%) of the total claim as attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC
filed a second amended complaint which was admitted by the Court impleading the surviving partner,
Co To and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The
substituted defendants adopted the original answer with counterclaim of ANCO since the substantial
allegations of the original complaint and the amended complaint are practically the same.
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint
were indeed loaded on the vessel belonging to ANCO. It claimed however that it had an agreement
with SMC that ANCO would not be liable for any losses or damages resulting to the cargoes by reason
of fortuitous event. Since the cases of beer Pale Pilsen and Cerveza Negra were lost by reason of a
storm, a fortuitous event which battered and sunk the vessel in which they were loaded, they should
not be held liable. ANCO further asserted that there was an agreement between them and SMC to
insure the cargoes in order to recover indemnity in case of loss. Pursuant to that agreement, the cargoes
to the extent of Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU)
for the total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per
Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging
that before the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC, the
cargoes, to the extent of Twenty Thousand (20,000) cases, were insured with FGU for a total amount of
Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) under Marine Insurance
Policy No. 29591. ANCO further alleged that on or about 02 October 1979, by reason of very strong
winds and heavy waves brought about by a passing typhoon, the vessel run aground near the vicinity of
San Jose, Antique, as a result of which, the vessel was totally wrecked and its cargoes owned by SMC
were lost and/or destroyed. According to ANCO, the loss of said cargoes occurred as a result of risks
insured against in the insurance policy and during the existence and lifetime of said insurance policy.
ANCO went on to assert that in the remote possibility that the court will order ANCO to pay SMCs
claim, the third-party defendant corporation should be held liable to indemnify or reimburse ANCO
whatever amounts, or damages, it may be required to pay to SMC.

In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of
the Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged loss of the
cargoes covered by the said insurance policy cannot be attributed directly or indirectly to any of the
risks insured against in the said insurance policy. According to FGU, it is only liable under the policy
to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;

cargo. Consequently, inasmuch as there was partial loss of only P1,346,197.00, the assured shall bear
53% of the loss[4] [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.

b) loss of any case as a result of the sinking of the vessel; or

The Issues

c) loss as a result of the vessel being on fire.

In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into
two: 1) Whether or not respondent Court of Appeals committed grave abuse of discretion in holding
FGU liable under the insurance contract considering the circumstances surrounding the loss of the
cargoes; and 2) Whether or not the Court of Appeals committed an error of law in holding that the
doctrine of res judicata applies in the instant case.

Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to
exercise ordinary diligence or the diligence of a good father of the family in the care and supervision of
the cargoes insured to prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for
actual, moral, and exemplary damages and attorneys fees.[1]
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was
failure on ANCOs part, through their representatives, to observe the degree of diligence required that
would exonerate them from liability. The trial court thus held the Estate of Ang Gui and Co To liable to
SMC for the amount of the lost shipment. With respect to the Third-Party complaint, the court a quo
found FGU liable to bear Fifty-Three Percent (53%) of the amount of the lost cargoes. According to
the trial court:

In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate
court based on the following assignments of error: 1) The Court of Appeals committed grave abuse of
discretion in affirming the findings of the lower court that the negligence of the crewmembers of the
D/B Lucio was the proximate cause of the loss of the cargoes; and 2) The respondent court acted with
grave abuse of discretion when it ruled that the appeal was without merit despite the fact that said court
had accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals and the
Supreme Court, as res judicata.
Ruling of the Court

. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was
broken and the beer cargoes on the said barge were swept away. It is the sense of this Court that the
risk insured against was the cause of the loss.

First, we shall endeavor to dispose of the common issue raised by both petitioners in their
respective petitions for review, that is, whether or not the doctrine of res judicata applies in the instant
case.

...

It is ANCOs contention that the decision in Civil Case No. R-19341, [5] which was decided in its
favor, constitutes res judicata with respect to the issues raised in the case at bar.

Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of
the policy was only for P858,500.00, defendants as assured, therefore, were considered co-insurers of
third-party defendant FGU Insurance Corporation to the extent of 975,405.00 value of the

The contention is without merit. There can be no res judicata as between Civil Case No. R-19341
and the case at bar. In order for res judicata to be made applicable in a case, the following essential

requisites must be present: 1) the former judgment must be final; 2) the former judgment must have
been rendered by a court having jurisdiction over the subject matter and the parties; 3) the former
judgment must be a judgment or order on the merits; and 4) there must be between the first and second
action identity of parties, identity of subject matter, and identity of causes of action. [6]

finding or judgment was rendered.[7] If a particular point or question is in issue in the second action,
and the judgment will depend on the determination of that particular point or question, a former
judgment between the same parties or their privies will be final and conclusive in the second if that
same point or question was in issue and adjudicated in the first suit.[8]

There is no question that the first three elements of res judicata as enumerated above are indeed
satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still inapplicable due to
the absence of the last essential requisite of identity of parties, subject matter and causes of action.

Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341,
only findings with respect to matters passed upon by the court in the former judgment are conclusive in
the disposition of the instant case. A careful perusal of the decision in Civil Case No. R-19341 will
reveal that the pivotal issues resolved by the lower court, as affirmed by both the Court of Appeals and
the Supreme Court, can be summarized into three legal conclusions: 1) that the D/B Lucio before and
during the voyage was seaworthy; 2) that there was proper notice of loss made by ANCO within the
reglementary period; and 3) that the vessel D/B Lucio was a constructive total loss.

The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in
the instant case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime,
all surnamed Ang and Co To as defendants, with the latter merely impleading FGU as third-party
defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO,
the owner of the vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the subject
matter of litigation is the loss of the cargoes of SMC, as shipper, loaded in the D/B Lucio and the
resulting failure of ANCO to deliver to SMCs consignees the lost cargo. Otherwise stated, the
controversy in the first case involved the rights and liabilities of the shipowner vis--vis that of the
insurer, while the present case involves the rights and liabilities of the shipper vis--vis that of the
shipowner. Specifically, Civil Case No. R-19341 was an action for Specific Performance and Damages
based on FGU Marine Hull Insurance Policy No. VMF-MH-13519 covering the vessel D/B Lucio,
while the instant case is an action for Breach of Contract of Carriage and Damages filed by SMC
against ANCO based on Bill of Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement
from FGU under Insurance Policy No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different
from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance contract
over the vessel while in the former, the third-party complaint arose from the insurance contract
covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already passed
upon by a court of competent jurisdiction in a former judgment, in another action between the same
parties based on a different claim or cause of action. The judgment in the prior action operates as
estoppel only as to those matters in issue or points controverted, upon the determination of which the

Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was
any discussion regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court
pass upon the issue of the alleged negligence of the crewmembers of the D/B Lucio being the cause of
the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of
Appeals that there is res judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding
that the negligence of ANCOs representatives was the proximate cause of the loss, said issue is a
question of fact assailing the lower courts appreciation of evidence on the negligence or lack thereof of
the crewmembers of the D/B Lucio. As a rule, findings of fact of lower courts, particularly when
affirmed by the appellate court, are deemed final and conclusive. The Supreme Court cannot review
such findings on appeal, especially when they are borne out by the records or are based on substantial
evidence.[9] As held in the case of Donato v. Court of Appeals,[10] in this jurisdiction, it is a fundamental
and settled rule that findings of fact by the trial court are entitled to great weight on appeal and should
not be disturbed unless for strong and cogent reasons because the trial court is in a better position to
examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case.
[11]

It is not the function of this Court to analyze or weigh evidence all over again, unless there is a
showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as
to constitute palpable error or grave abuse of discretion.[12]
A careful study of the records shows no cogent reason to fault the findings of the lower court, as
sustained by the appellate court, that ANCOs representatives failed to exercise the extraordinary degree
of diligence required by the law to exculpate them from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine
Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of
Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had
no engine of its own and could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO
left it to fend for itself notwithstanding the fact that as the two vessels arrived at the port of San Jose,
Antique, signs of the impending storm were already manifest. As stated by the lower court, witness Mr.
Anastacio Manilag testified that the captain or patron of the tugboat M/T ANCO left the barge D/B
Lucio immediately after it reached San Jose, Antique, despite the fact that there were already big
waves and the area was already dark. This is corroborated by defendants own witness, Mr. Fernando
Macabueg.[13]
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary
diligence in the vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO,
representing the defendant could have placed D/B Lucio in a very safe location before they left
knowing or sensing at that time the coming of a typhoon. The presence of big waves and dark clouds
could have warned the patron or captain of M/T ANCO to insure the safety of D/B Lucio including its
cargo. D/B Lucio being a barge, without its engine, as the patron or captain of M/T ANCO knew, could
not possibly maneuver by itself. Had the patron or captain of M/T ANCO, the representative of the
defendants observed extraordinary diligence in placing the D/B Lucio in a safe place, the loss to the
cargo of the plaintiff could not have occurred. In short, therefore, defendants through their
representatives, failed to observe the degree of diligence required of them under the provision of Art.
1733 of the Civil Code of the Philippines.[14]

Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of
respondents SMC and FGU that the crewmembers of D/B Lucio should have left port at the onset of
the typhoon is like advising the fish to jump from the frying pan into the fire and an advice that borders
on madness.[15]
The argument does not persuade. The records show that the D/B Lucio was the only vessel left at
San Jose, Antique, during the time in question. The other vessels were transferred and temporarily
moved to Malandong, 5 kilometers from wharf where the barge remained. [16] Clearly, the transferred
vessels were definitely safer in Malandong than at the port of San Jose, Antique, at that particular time,
a fact which petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the
typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence on their part. In
fact, ANCO claims that their crewmembers exercised due diligence to prevent or minimize the loss of
the cargoes but their efforts proved no match to the forces unleashed by the typhoon which, in
petitioners own words was, by any yardstick, a natural calamity, a fortuitous event, an act of God, the
consequences of which petitioners could not be held liable for.[17]
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735,
and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss. However, the common carrier must
exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood,
storm, or other natural disaster in order that the common carrier may be exempted from liability for the
loss, destruction, or deterioration of the goods . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from
liability)[18] by definition, are extraordinary events not foreseeable or avoidable, events that could not
be foreseen, or which though foreseen, were inevitable. It is therefore not enough that the event should
not have been foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid.[19]
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it
unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another
place, a circumstance which prompted SMCs District Sales Supervisor to request that the D/B Lucio be
likewise transferred, but to no avail. The D/B Lucio had no engine and could not maneuver by itself.
Even if ANCOs representatives wanted to transfer it, they no longer had any means to do so as the
tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the
tugboat should have had the foresight not to leave the barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster,
ANCO could not escape liability to respondent SMC. The records clearly show the failure of
petitioners representatives to exercise the extraordinary degree of diligence mandated by law. To be
exempted from responsibility, the natural disaster should have been the proximate and only cause of
the loss.[20] There must have been no contributory negligence on the part of the common carrier. As
held in the case of Limpangco Sons v. Yangco Steamship Co.:[21]
. . . To be exempt from liability because of an act of God, the tug must be free from any previous
negligence or misconduct by which that loss or damage may have been occasioned. For, although the
immediate or proximate cause of the loss in any given instance may have been what is termed an act of
God, yet, if the tug unnecessarily exposed the two to such accident by any culpable act or omission of
its own, it is not excused.[22]
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part
of M/T ANCOs crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the

storm without the assistance of the tugboat, and again in failing to heed the request of SMCs
representatives to have the barge transferred to a safer place, as was done by the other vessels in the
port; thus, making said blatant negligence the proximate cause of the loss of the cargoes.
We now come to the issue of whether or not FGU can be held liable under the insurance policy to
reimburse ANCO for the loss of the cargoes despite the findings of the respondent court that such loss
was occasioned by the blatant negligence of the latters employees.
One of the purposes for taking out insurance is to protect the insured against the consequences of
his own negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and
negligence of the insured or his agents constitute no defense on the part of the insurer. [23] This rule
however presupposes that the loss has occurred due to causes which could not have been prevented by
the insured, despite the exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured or
his agents that will deprive him the right to recover under the insurance contract. We say there is.
However, to what extent such negligence must go in order to exonerate the insurer from liability must
be evaluated in light of the circumstances surrounding each case. When evidence show that the
insureds negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer
must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,[24] the United States Supreme
Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the
insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does
not absolve the insurer from liability. But willful exposure, gross negligence, negligence amounting to
misconduct, etc., have often been held to release the insurer from such liability.[25] [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners
of an insured vessel attempted to put her across the bar at Hatteras Inlet. She struck on the bar and was
wrecked. The master knew that the depth of water on the bar was such as to make the attempted

passage dangerous. Judge Clifford held that, under the circumstances, the loss was not within the
protection of the policy, saying:

negligence being the proximate cause of the loss of the cargoes amounting to One Million Three
Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)

Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful
acts are hardly necessary, as the proposition involves an elementary principle of universal application.
Losses may be recovered by the insured, though remotely occasioned by the negligence or misconduct
of the master or crew, if proximately caused by the perils insured against, because such mistakes and
negligence are incident to navigation and constitute a part of the perils which those who engage in such
adventures are obliged to incur; but it was never supposed that the insured could recover indemnity for
a loss occasioned by his own wrongful act or by that of any agent for whose conduct he was
responsible.[26] [Emphasis ours]

This Court, taking into account the circumstances present in the instant case, concludes that the
blatant negligence of ANCOs employees is of such gross character that it amounts to a wrongful act
which must exonerate FGU from liability under the insurance contract.

From the above-mentioned decision, the United States Supreme Court has made a distinction
between ordinary negligence and gross negligence or negligence amounting to misconduct and its
effect on the insureds right to recover under the insurance contract. According to the Court, while
mistake and negligence of the master or crew are incident to navigation and constitute a part of the
perils that the insurer is obliged to incur, such negligence or recklessness must not be of such gross
character as to amount to misconduct or wrongful acts; otherwise, such negligence shall release the
insurer from liability under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the evidence
that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when the patron
(operator) of the tug boat immediately left the barge at the San Jose, Antique wharf despite the looming
bad weather. Negligence was likewise exhibited by the defendants-appellants representative who did
not heed Macabuags request that the barge be moved to a more secure place. The prudent thing to do,
as was done by the other sea vessels at San Jose, Antique during the time in question, was to transfer
the vessel to a safer wharf. The negligence of the defendants-appellants is proved by the fact that on 01
October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.[27] [Emphasis
ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the
lower court, as sustained by the Court of Appeals, that ANCOs representatives had failed to exercise
extraordinary diligence required of common carriers in the shipment of SMCs cargoes. Such blatant

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February
1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

[G.R. No. 150751. September 20, 2004]

CENTRAL SHIPPING COMPANY, INC., petitioner, vs. INSURANCE COMPANY OF NORTH
AMERICA, respondent.
DECISION
PANGANIBAN, J.:
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction
or deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one
of the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence
to prevent or minimize the loss. In the present case, the weather condition encountered by petitioners
vessel was not a storm or a natural disaster comprehended in the law. Given the known weather
condition prevailing during the voyage, the manner of stowage employed by the carrier was
insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in
improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.

The factual antecedents, summarized by the trial court and adopted by the appellate court, are as
follows:
On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V
Central Bohol, 376 pieces [of] Philippine Apitong Round Logs and undertook to transport said
shipment to Manila for delivery to Alaska Lumber Co., Inc.
The cargo was insured for P3,000,000.00 against total loss under [respondents] Marine Cargo Policy
No. MCPB-00170.
On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the
voyage to Manila.
At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees
starboardside, due to the shifting of logs in the hold.

The Case

At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered
his men to abandon ship and at about 0130 hours of the same day the vessel completely sank. Due to
the sinking of the vessel, the cargo was totally lost.

Before the Court is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to
reverse and set aside the March 23, 2001 Decision [2] of the Court of Appeals (CA) in CA-GR CV No.
48915. The assailed Decision disposed as follows:

[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the
[petitioner] and its captain and as direct consequence thereof the consignee suffered damage in the sum
of P3,000,000.00.

WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4,
1994 is hereby MODIFIED in so far as the award of attorneys fees is DELETED. The decision
is AFFIRMED in all other respects.[3]

The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the
[petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer,
paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against
the [petitioner].

The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution.[4]
The Facts

[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully
manned, fully equipped and in all respects seaworthy; that all the logs were properly loaded and
secured; that the vessels master exercised due diligence to prevent or minimize the loss before, during
and after the occurrence of the storm.

It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss
of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor the captain of its
vessel could have foreseen.[5]
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather
or any other caso fortuito. It noted that monsoons, which were common occurrences during the months
of July to December, could have been foreseen and provided for by an ocean-going vessel. Applying
the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for
the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount of P200,000
from the principal claim of respondent and found that the latter was entitled to be subrogated to the
rights of the insured. The court a quo disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and
against the [petitioner] ordering the latter to pay the following:
1) the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint
up to and until the same is fully paid;

Found untenable was petitioners insistence that the trial court should have given greater weight to
the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest
filed by the ship captain, Enriquito Cahatol. The CA further observed that what petitioner had
presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during the
course of the proceedings before the BMI, not the actual findings and conclusions of the agency.
Citing Arada v. CA,[7] it said that findings of the BMI were limited to the administrative liability of the
owner/operator, officers and crew of the vessel. However, the determination of whether the carrier
observed extraordinary diligence in protecting the cargo it was transporting was a function of the
courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of petitioners
negligence -- particularly its improper stowage of the logs.
Hence, this Petition.[8]
Issues
In its Memorandum, petitioner submits the following issues for our consideration:

2) P80,000.00 as and for attorneys fees;

3) Plus costs of suit.[6]
Ruling of the Court of Appeals
The CA affirmed the trial courts finding that the southwestern monsoon encountered by the vessel
was not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should
have anticipated the perils of the sea. The appellate court further held that the weather disturbance was
not the sole and proximate cause of the sinking of the vessel, which was also due to the concurrent
shifting of the logs in the hold that could have resulted only from improper stowage. Thus, the carrier
was held responsible for the consequent loss of or damage to the cargo, because its own negligence had
contributed thereto.
The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that the
Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a
vessel to be seaworthy, it must be fit to meet the perils of the sea.

(i) Whether or not the weather disturbance which caused the sinking of the vessel
M/V Central Bohol was a fortuitous event.
(ii) Whether or not the investigation report prepared by Claimsmen Adjustment
Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of Court.
(iii) Whether or not the finding of the Court of Appeals that the logs in the hold
shifted and such shifting could only be due to improper stowage has a valid and
factual basis.
(iv) Whether or not M/V Central Bohol is seaworthy.
(v) Whether or not the Court of Appeals erred in not giving credence to the factual
finding of the Board of Marine Inquiry (BMI), an independent government agency
tasked to conduct inquiries on maritime accidents.

(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar.
[9]

The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2)
whether the doctrine of limited liability is applicable. These issues involve a determination of factual
questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so,
whether its sole and proximate cause was such natural disaster or whether petitioner was partly to
blame for failing to exercise due diligence in the prevention of that loss.
The Courts Ruling
The Petition is devoid of merit.
First Issue:
Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport, according to all the circumstances of
each case.[10] In the event of loss, destruction or deterioration of the insured goods, common carriers are
responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about
-- among others -- by flood, storm, earthquake, lightning or other natural disaster or calamity. [11] In all
other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.
[12]

In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the
occurrence of a storm under Article 1734(1). It attributes the sinking of its vessel solely to the weather
condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.
At the outset, it must be stressed that only questions of law [13] may be raised in a petition for
review on certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in
this mode of appeal,[14] for [t]he Supreme Court is not a trier of facts. [15] Factual findings of the CA may
be reviewed on appeal[16] only under exceptional circumstances such as, among others, when the
inference is manifestly mistaken,[17] the judgment is based on a misapprehension of facts, [18] or the CA

manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify
a different conclusion.[19]
In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the
conclusion of the CA that the weather encountered by the vessel was not a storm as contemplated by
Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July
26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage.
The Note of Marine Protest,[20] which the captain of the vessel issued under oath, stated that he
and his crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another
monsoon about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking
of M/V Central Bohol had been caused by the strong southwest monsoon. [21] Having made such factual
representation, it cannot now be allowed to retreat and claim that the southwestern monsoon was a
storm.
The pieces of evidence with respect to the weather conditions encountered by the vessel showed
that there was a southwestern monsoon at the time. Normally expected on sea voyages, however, were
such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather specialist of the
Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), testified
that a thunderstorm might occur in the midst of a southwest monsoon. According to her, one did occur
between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather
Bureau.[22]
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time
as a storm within the absolutory causes enumerated in the law. Significantly, no typhoon was observed
within the Philippine area of responsibility during that period.[23]
According to PAGASA, a storm has a wind force of 48 to 55 knots, [24] equivalent to 55 to 63
miles per hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was
blowing around force 7 to 8 on the Beaufort Scale. [25] Consequently, the strong winds accompanying
the southwestern monsoon could not be classified as a storm. Such winds are the ordinary vicissitudes
of a sea voyage.[26]
Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739
of the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and

only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In
other words, the damaging effects blamed on the event or phenomenon must not have been caused,
contributed to, or worsened by the presence of human participation. [27] The defense of fortuitous event
or natural disaster cannot be successfully made when the injury could have been avoided by human
precaution.[28]
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss before, during and after
the occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The loss or
injury is not, in a legal sense, due to a natural disaster under Article 1734(1).[29]
We also find no reason to disturb the CAs finding that the loss of the vessel was caused not only
by the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been
due only to improper stowage. The assailed Decision stated:
Notably, in Master Cahatols account, the vessel encountered the first southwestern monsoon at about
1[0]:00 in the evening. The monsoon was coupled with heavy rains and rough seas yet the vessel
withstood the onslaught. The second monsoon attack occurred at about 12:00 midnight. During this
occasion, the master felt that the logs in the hold shifted, prompting him to order second mate Percival
Dayanan to look at the bodega. Complying with the captains order, 2 nd mate Percival Dayanan found
that there was seawater in the bodega. 2nd mate Dayanans account was:
14.T Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na
paglubog sa barkong M/V Central Bohol?
S Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay
nagnanabegar patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido,
Palawan, inutusan ako ni Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa
bodega, nakita ko ang loob nang bodega na maraming tubig at naririnig ko ang malakas na agos ng
tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito
Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega ng barko na ito ay
naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at
tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid
at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng
barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-

kanya nang talunan at languyan sa dagat na malakas ang alon at nang ako ay lumingon sa barko ito
ay di ko na nakita.
Additionally, [petitioners] own witnesses, boatswain Eduardo Vias Castro and oiler Frederick Perena,
are one in saying that the vessel encountered two weather disturbances, one at around 10 oclock to 11
oclock in the evening and the other at around 12 oclock midnight. Both disturbances were coupled
with waves and heavy rains, yet, the vessel endured the first and not the second. Why? The reason is
plain. The vessel felt the strain during the second onslaught because the logs in the bodega shifted and
there were already seawater that seeped inside.[30]
The above conclusion is supported by the fact that the vessel proceeded through the first
southwestern monsoon without any mishap, and that it began to list only during the second monsoon
immediately after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of
tons of water back and forth had created pressures that eventually caused the ship to sink. Had the logs
not shifted, the ship could have survived and reached at least the port of El Nido. In fact, there was
another motor launch that had been buffeted by the same weather condition within the same area, yet it
was able to arrive safely at El Nido.[31]
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the
latters Complaint [t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V Central
Bohol listed about 10 degrees starboardside, due to the shifting of logs in the hold. Further, petitioner
averred that [t]he vessel, while navigating through this second southwestern monsoon, was under
extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs
therein were felt to have shifted. The vessel thereafter immediately listed by ten (10) degrees
starboardside.[32]
Yet, petitioner now claims that the CAs conclusion was grounded on mere speculations and
conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted
exactly in the hold from the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed shift, and
that they had been improperly loaded.
According to the boatswains testimony, the logs were piled properly, and the entire shipment was
lashed to the vessel by cable wire. [33] The ship captain testified that out of the 376 pieces of round logs,

around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the
lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling. However,
while they were placed side by side, there were unavoidable clearances between them owing to their
round shape. Those loaded on deck were lashed together several times across by cable wire, which had
a diameter of 60 millimeters, and were secured from starboard to port.[34]
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not
sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of
different lengths ranging from 3.7 to 12.7 meters. [35] Being clearly prone to shifting, the round logs
should not have been stowed with nothing to hold them securely in place. Each pile of logs should
have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering the
strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule out the
possibility of their shifting. By force of gravity, those on top of the pile would naturally roll towards
the bottom of the ship.
The adjusters Report, which was heavily relied upon by petitioner to strengthen its claim that the
logs had not shifted, stated that the logs were still properly lashed by steel chains on deck.
Parenthetically, this statement referred only to those loaded on deck and did not mention anything
about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs
were still intact clearly pertained only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences during the
month of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated
heavy rains, strong winds and rough seas. They should then have taken extra precaution in stowing the
logs in the hold, in consonance with their duty of observing extraordinary diligence in safeguarding the
goods. But the carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it
cannot now escape responsibility for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce [36] is not applicable
to the present case. This rule does not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain. [37] It has already been established that the

sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs. Closer supervision on the part of the
shipowner could have prevented this fatal miscalculation.[38] As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.
WHEREFORE,
the
Petition
is DENIED,
Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez and Corona, JJ., concur.
Carpio-Morales. J., on official leave.

and

the

assailed

Decision

and

G.R. No. 186312

June 29, 2010

SPOUSES
DANTE
CRUZ
vs.
SUN HOLIDAYS, INC., Respondent.

The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B
Coco Beach III capsized putting all passengers underwater.
and

LEONORA

CRUZ, Petitioners,

DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 1 against Sun
Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising
from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11,
2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned and
operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by
virtue of a tour package-contract with respondent that included transportation to and from the Resort
and the point of departure in Batangas.
Miguel C. Matute (Matute), 2 a scuba diving instructor and one of the survivors, gave his account of the
incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the
Resort in the afternoon of September 10, 2000, but was advised to stay for another night because of
strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners
son and his wife trekked to the other side of the Coco Beach mountain that was sheltered from the
wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into
the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain
to step forward to the front, leaving the wheel to one of the crew members.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the
captain, Matute and the other passengers who reached the surface asked him what they could do to
save the people who were still trapped under the boat. The captain replied "Iligtas niyo na lang ang
sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera
passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting
of 18 passengers and four crew members, who were brought to Pisa Island. Eight passengers, including
petitioners son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui
Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900. 3
Petitioners, by letter of October 26, 2000, 4 demanded indemnification from respondent for the death of
their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility for the incident
which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the
amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that
respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to
the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it
exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners
allegation, there was no storm on September 11, 2000 as the Coast Guard in fact cleared the voyage;
and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its passengers. By
way of Counterclaim, respondent alleged that it is entitled to an award for attorneys fees and litigation
expenses amounting to not less than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four
conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance
from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the
Resorts assistant manager.8 He added that M/B Coco Beach III met all four conditions on September
11, 2000,9 but a subasco or squall, characterized by strong winds and big waves, suddenly occurred,
causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners Complaint
and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2, 2005, 12 they
appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding, among other
things, that the trial court correctly ruled that respondent is a private carrier which is only required to
observe ordinary diligence; that respondent in fact observed extraordinary diligence in transporting its
guests on board M/B Coco Beach III; and that the proximate cause of the incident was a squall, a
fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a common
carrier since by its tour package, the transporting of its guests is an integral part of its resort business.
They inform that another division of the appellate court in fact held respondent liable for damages to
the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is a
common carrier; that the Resorts ferry services for guests cannot be considered as ancillary to its
business as no income is derived therefrom; that it exercised extraordinary diligence as shown by the
conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was caused by
a fortuitous event without any contributory negligence on its part; and that the other case wherein the
appellate court held it liable for damages involved different plaintiffs, issues and evidence. 16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals 17 in characterizing respondent as a
common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom,
as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general population. We
think that Article 1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight
or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless broadcasting stations and other similar public
services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as
to be properly considered ancillary thereto. The constancy of respondents ferry services in its resort
operations is underscored by its having its own Coco Beach boats. And the tour packages it offers,
which include the ferry services, may be availed of by anyone who can afford to pay the same. These
services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would
be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of

beach resort operators offering tour packages to factor the transportation fee in arriving at the tour
package price. That guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately
refrained from making distinctions on whether the carrying of persons or goods is the carriers
principal business, whether it is offered on a regular basis, or whether it is offered to the general public.
The intent of the law is thus to not consider such distinctions. Otherwise, there is no telling how many
other distinctions may be concocted by unscrupulous businessmen engaged in the carrying of persons
or goods in order to avoid the legal obligations and liabilities of common carriers.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or
the failure of the debtors to comply with their obligations, must have been independent of human will;
(b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable,
impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors
to fulfill their obligation in a normal manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been the proximate
and only cause of the loss. And it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event.25

Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case. 19 They are bound to carry the passengers safely
as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.20

Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned
M/B Coco Beach III. As reflected above, however, the occurrence of squalls was expected under the
weather condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach III
suffered engine trouble before it capsized and sank. 26 The incident was, therefore, not completely free
from human intervention.

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the
common carrier is at fault or negligent. In fact, there is even no need for the court to make an express
finding of fault or negligence on the part of the common carrier. This statutory presumption may only
be overcome by evidence that the carrier exercised extraordinary diligence. 21

The Court need not belabor how respondents evidence likewise fails to demonstrate that it exercised
due diligence to prevent or minimize the loss before, during and after the occurrence of the squall.

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage
before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents position does not
impress.

Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity
for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone
warnings for shipping on September 10 and 11, 2000 advising of tropical depressions in Northern
Luzon which would also affect the province of Mindoro. 22 By the testimony of Dr. Frisco Nilo,
supervising weather specialist of PAGASA, squalls are to be expected under such weather condition. 23

As for damages representing unearned income, the formula for its computation is:

A very cautious person exercising the utmost diligence would thus not brave such stormy weather and
put other peoples lives at risk. The extraordinary diligence required of common carriers demands that
they take care of the goods or lives entrusted to their hands as if they were their own. This respondent
failed to do.

Life expectancy is determined in accordance with the formula:

Respondents insistence that the incident was caused by a fortuitous event does not impress either.

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at death])
adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality.31

Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living
expenses).

2 / 3 x [80 age of deceased at the time of death]30

The second factor is computed by multiplying the life expectancy by the net earnings of the deceased,
i.e., the total earnings less expenses necessary in the creation of such earnings or income and less
living and other incidental expenses.32 The loss is not equivalent to the entire earnings of the deceased,
but only such portion as he would have used to support his dependents or heirs. Hence, to be deducted
from his gross earnings are the necessary expenses supposed to be used by the deceased for his own
needs.33

Since respondent failed to prove that it exercised the extraordinary diligence required of common
carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary damages,
which are granted in contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral
damages and P100,000 as exemplary damages.381avvphi1

In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency Corp.
v. Borja34teaches that when, as in this case, there is no showing that the living expenses constituted the
smaller percentage of the gross income, the living expenses are fixed at half of the gross income.

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where exemplary
damages are awarded. The Court finds that 10% of the total amount adjudged against respondent is
reasonable for the purpose.

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy =

Life expectancy =

2/3 x [80
2/3
2/3 x [52]

age
x

of

deceased
[80

at

the

time
-

of

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an obligation, regardless
death] of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor
28] can be held liable for payment of interest in the concept of actual and compensatory damages, subject
to the following rules, to wit

35

Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 35 which, when
converted to Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,36 amounts
to P39,600. Ruelitos net earning capacity is thus computed as follows:
Net
Capacity

Earning = life expectancy x (gross annual income - reasonable and necessary living
expenses).
=
35
x
(P475,200
- P237,600)
= 35 x (P237,600)

Net
Capacity

Earning

= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of contract of
carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206 of the
Civil Code, petitioners are entitled to moral damages.

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be

12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the present
petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, in accordance with paragraph number 3 of the immediately cited guideline in
Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE.
Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the following:
(1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos loss
of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as exemplary damages; (5) 10% of
the total amount adjudged against respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum
computed from the finality of this decision until full payment.
SO ORDERED.

[G.R. No. 118126. March 4, 1996]

TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS and ATTY.
RENATO T. ARROYO, respondents.
DECISION
DAVIDE, JR., J.:
As formulated by the petitioner, the issue in this petition for review on certiorari under Rule 45
of the Rules of Court is as follows:
In case of interruption of a vessels voyage and the consequent delay in that vessels arrival at its port of
destination, is the right of a passenger affected thereby to be determined and governed by the vague
Civil Code provision on common carriers, or shall it be, in the absence of a specific provision
thereon, governed by Art. 698 of the Code of Commerce?[1]
The petitioner considers it a novel question of law.
Upon a closer evaluation, however, of the challenged decision of the Court of Appeals of 23
November 1994,[2] vis-a-vis, the decision of 29 June 1992 in Civil Case No. 91-491 of the Regional
Trial Court (RTC) of Cagayan de Oro City, Branch 24, [3] as well as the allegations and arguments
adduced by the parties, we find the petitioners formulation of the issue imprecise. As this Court sees it,
what stands for resolution is a common carriers liability for damages to a passenger who disembarked
from the vessel upon its return to the port of origin, after it suffered engine trouble and had to stop at
sea, having commenced the contracted voyage on one engine.
The antecedents are summarized by the Court of Appeals as follows:
Plaintiff [herein private respondent Atty. Renato Arroyo], a public attorney, bought a ticket [from]
defendant [herein petitioner], a corporation engaged in x x x inter-island shipping, for the voyage of
M/V Asia Thailand vessel to Cagayan de Oro City from Cebu City on November 12, 1991.

At around 5:30 in the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand vessel.
At that instance, plaintiff noticed that some repair works [sic] were being undertaken on the engine of
the vessel. The vessel departed at around 11:00 in the evening with only one (1) engine running.
After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor thereat.
After half an hour of stillness, some passengers demanded that they should be allowed to return
to Cebu Cityfor they were no longer willing to continue their voyage to Cagayan de Oro City. The
captain acceded [sic] to their request and thus the vessel headed back to Cebu City.
At Cebu City, plaintiff together with the other passengers who requested to be brought back
to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro City.
Plaintiff, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a
vessel of defendant.
On account of this failure of defendant to transport him to the place of destination on November 12,
1991, plaintiff filed before the trial court a complaint for damages against defendant.[4]
In his complaint, docketed as Civil Case No. 91-491, plaintiff (hereinafter private respondent)
alleged that the engines of the M/V Asia Thailand conked out in the open sea, and for more than an
hour it was stalled and at the mercy of the waves, thus causing fear in the passengers. It sailed back
to Cebu City after it regained power, but for unexplained reasons, the passengers, including the private
respondent, were arrogantly told to disembark without the necessary precautions against possible
injury to them. They were thus unceremoniously dumped, which only exacerbated the private
respondents mental distress. He further alleged that by reason of the petitioners wanton, reckless, and
willful acts, he was unnecessarily exposed to danger and, having been stranded in Cebu City for a day,
incurred additional expenses and loss of income. He then prayed that he be awarded P1,100.00,
P50,000.00, and P25,000.00 as compensatory, moral, and exemplary damages, respectively.[5]
In his pre-trial brief, the private respondent asserted that his complaint was an action for
damage&arising from bad faith, breach of contract and from tort, with the former arising from the
petitioners failure to carry [him] to his place of destination as contracted, while the latter from the
conduct of the [petitioner] resulting [in] the infliction of emotional distress to the private respondent. [6]

After due trial, the trial court rendered its decision[7] and ruled that the action was only for breach
of contract, with Articles 1170, 1172, and 1173 of the Civil Code as applicable law - not Article 2180
of the same Code. It was of the opinion that Article 1170 made a person liable for damages if, in the
performance of his obligation, he was guilty of fraud, negligence, or delay, or in any manner
contravened the tenor thereof; moreover, pursuant to Article 2201 of the same Code, to be entitled to
damages, the non-performance of the obligation must have been tainted not only by fraud, negligence,
or delay, but also bad faith, malice, and wanton attitude. It then disposed of the case as follows:
WHEREFORE, it not appearing from the evidence that plaintiff was left in the Port of Cebu because of
the fault, negligence, malice or wanton attitude of defendants employees, the complaint is
DISMISSED. Defendants counterclaim is likewise dismissed it not appearing also that filing of the
case by plaintiff was motivated by malice or bad faith.[8]
The trial court made the following findings to support its disposition:
In the light of the evidence adduced by the parties and of the above provisions of the New Civil Code,
the issue to be resolved, in the resolution of this case is whether or not, defendant thru its employee in
[sic] the night of November 12, 1991, committed fraud, negligence, bad faith or malice when it left
plaintiff in the Port of Cebu when it sailed back to Cagayan de Oro City after it has [sic] returned from
Kawit Island.
Evaluation of the evidence of the parties tended to show nothing that defendant committed fraud. As
early as 3:00 p.m. of November 12, 1991, defendant did not hide the fact that the cylinder head
cracked. Plaintiff even saw during its repair. If he had doubts as to the vessels capacity to sail, he had
time yet to take another boat. The ticket could be returned to defendant and corresponding cash
[would] be returned to him.
Neither could negligence, bad faith or malice on the part of defendant be inferred from the evidence of
the parties. When the boat arrived at [the] Port of Cebu after it returned from Kawit Island, there was
an announcement that passengers who would like to disembark were given ten (10) minutes only to do
so. By this announcement, it could be inferred that the boat will [sic] proceed to Cagayan de Oro City.
If plaintiff entertained doubts, he should have asked a member of the crew of the boat or better still, the
captain of the boat. But as admitted by him, he was of the impression only that the boat will not
proceed to Cagayan de Oro that evening so he disembarked. He was instead, the ones [sic] negligent.
Had he been prudent, with the announcement that those who will disembark were given ten minutes

only, he should have lingered a little by staying in his cot and inquired whether the boat will proceed to
Cagayan de Oro City or not. Defendant cannot be expected to be telling [sic] the reasons to each
passenger. Announcement by microphone was enough.
The court is inclined to believe that the story of defendant that the boat returned to
the Port of Cebu because of the request of the passengers in view of the waves. That it did not return
because of the defective engines as shown by the fact that fifteen (15) minutes after the boat docked
[at] the Port of Cebu and those who wanted to proceed to Cagayan de Oro disembarked, it left for
Cagayan de Oro City.
The defendant got nothing when the boat returned to Cebu to let those who did not want to proceed to
Cagayan de Oro City including plaintiff disembarked. On the contrary, this would mean its loss instead
because it will have to refund their tickets or they will use it the next trip without paying anymore. It is
hard therefore, to imagine how defendant by leaving plaintiff in Cebu could have acted in bad faith,
negligently, want only and with malice.
If plaintiff, therefore, was not able to [m]ake the trip that night of November 12, 1991, it was not
because defendant maliciously did it to exclude him [from] the trip. If he was left, it was because of his
fault or negligence.[9]
Unsatisfied, the private respondent appealed to the Court of Appeals (CA-G.R. CV No. 39901)
and submitted for its determination the following assignment of errors: (1) the trial court erred in not
finding that the defendant-appellee was guilty of fraud, delay, negligence, and bad faith; and (2) the
trial court erred in not awarding moral and exemplary damages.[10]
In its decision of 23 November 1994,[11] the Court of Appeals reversed the trial courts decision by
applying Article 1755 in relation to Articles 2201, 2208, 2217, and 2232 of the Civil Code and,
accordingly, awarded compensatory, moral, and exemplary damages as follows:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED and SET ASIDE
and another one is rendered ordering defendant-appellee to pay plaintiff-appellant:
1. P20,000.00 as moral damages;
2. P10,000.00 as exemplary damages;

3. P5,000.00 as attorneys fees;

4. Cost of suit.
SO ORDERED.[12]
It did not, however, allow the grant of damages for the delay in the performance of the petitioners
obligation as the requirement of demand set forth in Article 1169 of the Civil Code had not been met
by the private respondent. Besides, it found that the private respondent offered no evidence to prove
that his contract of carriage with the petitioner provided for liability in case of delay in departure, nor
that a designation of the time of departure was the controlling motive for the establishment of the
contract. On the latter, the court a quo observed that the private respondent even admitted he was
unaware of the vessels departure time, and it was only when he boarded the vessel that he became
aware of such. Finally, the respondent Court found no reasonable basis for the private respondents
belief that demand was useless because the petitioner had rendered it beyond its power to perform its
obligation; on the contrary, he even admitted that the petitioner had been assuring the passengers that
the vessel would leave on time, and that it could still perform its obligation to transport them as
scheduled.
To justify its award of damages, the Court of Appeals ratiocinated as follows:
It is an established and admitted fact that the vessel before the voyage had undergone some repair work
on the cylinder head of the engine. It is likewise admitted by defendant-appellee that it left
the port of Cebu City with only one engine running. Defendant-appellee averred:
x x x The dropping of the vessels anchor after running slowly on only one engine when it departed
earlier must have alarmed some nervous passengers x x x
The entries in the logbook which defendant-appellee itself offered as evidence categorically
stated therein that the vessel stopped at Kawit Island because of engine trouble. It reads:
2330 HRS STBD ENGINE EMERGENCY STOP
2350 HRS DROP ANCHOR DUE TO. ENGINE TROUBLE, 2 ENGINE STOP.

The stoppage was not to start and synchronized [sic] the engines of the vessel as claimed by
defendant-appellee. It was because one of the engines of the vessel broke down; it was because of the
disability of the vessel which from the very beginning of the voyage was known to defendant-appellee.
Defendant-appellee from the very start of the voyage knew for a fact that the vessel was not yet in
its sailing condition because the second engine was still being repaired. Inspite of this knowledge,
defendant-appellee still proceeded to sail with only one engine running.
Defendant-appellee at that instant failed to exercise the diligence which all common carriers
should exercise in transporting or carrying passengers. The law does not merely require extraordinary
diligence in the performance of the obligation. The law mandates that common carrier[s] should
exercise utmost diligence in the transport of passengers.
Article 1755 of the New Civil Code provides:
ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.
Utmost diligence of a VERY CAUTIOUS person dictates that defendant-appellee should have
pursued the voyage only when its vessel was already fit to sail. Defendant-appellee should have made
certain that the vessel [could] complete the voyage before starting [to] sail. Anything less than this, the
vessel [could not] sail x x x with so many passengers on board it.
However, defendant-appellant [sic] in complete disregard of the safety of the passengers, chose to
proceed with its voyage even if only one engine was running as the second engine was still being
repaired during the voyage. Defendant-appellee disregarded the not very remote possibility that
because of the disability of the vessel, other problems might occur which would endanger the lives of
the passengers sailing with a disabled vessel.
As expected, x x x engine trouble occurred. Fortunate[ly] for defendant-appellee, such trouble
only necessitated the stoppage of the vessel and did not cause the vessel to capsize. No wonder why
some passengers requested to be brought back to Cebu City. Common carriers which are mandated to
exercise utmost diligence should not be taking these risks.

On this premise, plaintiff-appellant should not be faulted why he chose to disembark from the
vessel with the other passengers when it returned back to Cebu City. Defendant-appellee may call him
a very panicky passenger or a nervous person, but this will not relieve defendant-appellee from the
liability it incurred for its failure to exercise utmost diligence.[13]

To serve as a deterrent to the commission of similar acts in the future, exemplary damages should
be imposed upon defendant-appellee.[17] Exemplary damages are designed by our civil law to permit
the courts to reshape behavior that is socially deleterious in its consequence by creating x x x negative
incentives or deterrents against such behavior.[18]

xxx xxx xxx

Moral damages having been awarded, exemplary damages maybe properly awarded. When
entitlement to moral damages has been established, the award of exemplary damages is proper.[19]

As to the second assigned error, we find that plaintiff-appellant is entitled to the award of moral
and exemplary damages for the breach committed by defendant-appellee.
As discussed, defendant-appellee in sailing to Cagayan de Oro City with only one engine and
with full knowledge of the true condition of the vessel, acted in bad faith with malice, in complete
disregard for the safety of the passengers and only for its own personal advancement/interest.

The petitioner then instituted this petition and submitted the question of law earlier adverted to.
Undoubtedly, there was, between the petitioner and the private respondent, a contract of common
carriage. The laws of primary application then are the provisions on common carriers under Section 4,
Chapter 3, Title VIII, Book IV of the Civil Code, while for all other matters not regulated thereby, the
Code of Commerce and special laws.[20]

The Civil Code provides:

Art 2201.
xxx xxx xxx
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation.
Plaintiff-appellant is entitled to moral damages for the mental anguish, fright and serious anxiety
he suffered during the voyage when the vessels engine broke down and when he disembarked from the
vessel during the wee hours of the morning at Cebu City when it returned.[14]
Moral damages are recoverable in a damage suit predicated upon a breach of contract of carriage
where it is proved that the carrier was guilty of fraud or bad faith even if death does not result.[15]
Fraud and bad faith by defendant-appellee having been established, the award of moral damages
is in order.[16]

Under Article 1733 of the Civil Code, the petitioner was bound to observe extraordinary diligence
in ensuring the safety of the private respondent. That meant that the petitioner was, pursuant to Article
1755 of the said Code, bound to carry the private respondent safely as far as human care and foresight
could provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances. In this case, we are in full accord with the Court of Appeals that the petitioner failed to
discharge this obligation.
Before commencing the contracted voyage, the petitioner undertook some repairs on the cylinder
head of one of the vessels engines. But even before it could finish these repairs, it allowed the vessel to
leave the port of origin on only one functioning engine, instead of two. Moreover, even the lone
functioning engine was not in perfect condition as sometime after it had run its course, it conked out.
This caused the vessel to stop and remain adrift at sea, thus in order to prevent the ship from capsizing,
it had to drop anchor. Plainly, the vessel was unseaworthy even before the voyage began. For a vessel
to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number
of competent officers and crew.[21] The failure of a common carrier to maintain in seaworthy condition
its vessel involved in a contract of carriage is a clear breach of is duty prescribed in Article 1755 of the
Civil Code.
As to its liability for damages to the private respondent, Article 1764 of the Civil Code expressly
provides:

ART. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title
XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger
caused by the breach of contract by common carrier.
The damages comprised in Title XVIII of the Civil Code are actual or compensatory, moral, nominal,
temperate or moderate, liquidated, and exemplary.
In his complaint, the private respondent claims actual or compensatory, moral, and exemplary
damages.
Actual or compensatory damages represent the adequate compensation for pecuniary loss
suffered and for profits the obligee failed to obtain.[22]
In contracts or quasi-contracts, the obligor is liable for all the damages which may be reasonably
attributed to the non-performance of the obligation if he is guilty of fraud, bad faith, malice, or wanton
attitude.[23]

Court, there was in fact no delay in the commencement of the contracted voyage. If any delay was
incurred, it was after the commencement of such voyage, more specifically, when the voyage was
subsequently interrupted when the vessel had to stop near KawitIsland after the only functioning
engine conked out.
As to the rights and duties of the parties strictly arising out of such delay, the Civil Code is silent.
However, as correctly pointed out by the petitioner, Article 698 of the Code of Commerce specifically
provides for such a situation. It reads:
In case a voyage already begun should be interrupted, the passengers shall be obliged to pay the fare in
proportion to the distance covered, without right to recover for losses and damages if the interruption is
due to fortuitous event or force majeure, but with a right to indemnity if the interruption should have
been caused by the captain exclusively. If the interruption should be caused by the disability of the
vessel and a passenger should agree to await the repairs, he may not be required to pay any increased
price of passage, but his living expenses during the stay shall be for his own account.
This article applies suppletorily pursuant to Article 1766 of the Civil Code.

Moral damages include moral suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, or similar injury. They may be
recovered in the cases enumerated in Article 2219 of the Civil Code, likewise, if they are the proximate
result of, as in this case, the petitioners breach of the contract of carriage. [24] Anent a breach of a
contract of common carriage, moral damages may be awarded if the common carrier, like the
petitioner, acted fraudulently or in bad faith.[25]
Exemplary damages are imposed by way of example or correction for the public good, in addition
to moral, temperate, liquidated or compensatory damages. [26] In contracts and quasi-contracts,
exemplary damages may be awarded if the defendant acted in a wanton fraudulent, reckless,
oppressive or malevolent manner.[27] It cannot, however, be considered as a matter of right; the court
having to decide whether or not they should be adjudicated. [28] Before the court may consider an award
for exemplary damages, the plaintiff must first show that he is entitled to moral, temperate or
compensatory damages; but it is not necessary that he prove the monetary value thereof. [29]
The Court of Appeals did not grant the private respondent actual or compensatory damages,
reasoning that no delay was incurred since there was no demand, as required by Article 1169 of the
Civil Code. This article, however, finds no application in this case because, as found by the respondent

Of course, this does not suffice for a resolution of the case at bench for, as earlier stated, the cause
of the delay or interruption was the petitioners failure to observe extraordinary diligence. Article 698
must then be read together with Articles 2199, 2200, 2201, and 2208 in relation to Article 21 of the
Civil Code. So read, it means that the petitioner is liable for any pecuniary loss or loss of profits which
the private respondent may have suffered by reason thereof. For the private respondent, such would be
the loss of income if unable to report to his office on the day he was supposed to arrive were it not for
the delay. This, however, assumes that he stayed on the vessel and was with it when it thereafter
resumed its voyage; but he did not. As he and some passengers resolved not to complete the voyage,
the vessel had to return to its port of origin and allow them to disembark. The private respondent then
took the petitioners other vessel the following day, using the ticket he had purchased for the previous
days voyage.
Any further delay then in the private respondents arrival at the port of destination was caused by
his decision to disembark. Had he remained on the first vessel, he would have reached his destination
at noon of 13 November 1991, thus been able to report to his office in the afternoon. He, therefore,
would have lost only the salary for half of a day. But actual or compensatory damages must be proved,

[30]

which the private respondent failed to do. There is no convincing evidence that he did not receive
his salary for 13 November 1991 nor that his absence was not excused.
We likewise fully agree with the Court of Appeals that the petitioner is liable for moral and
exemplary damages. In allowing its unseaworthy M/V Asia Thailand to leave the port of origin and
undertake the contracted voyage, with full awareness that it was exposed to perils of the sea, it
deliberately disregarded its solemn duty to exercise extraordinary diligence and obviously acted with
bad faith and in a wanton and reckless manner. On this score, however, the petitioner asserts that the
safety of the vessel and passengers was never at stake because the sea was calm in the vicinity where it
stopped as faithfully recorded in the vessels log book (Exhibit 4). Hence, the petitioner concludes, the
private respondent was merely over-reacting to the situation obtaining then.[31]
We hold that the petitioners defense cannot exculpate it nor mitigate its liability. On the contrary,
such a claim demonstrates beyond cavil the petitioners lack of genuine concern for the safety of its
passengers. It was, perhaps, only providential that the sea happened to be calm. Even so, the petitioner
should not expect its passengers to act in the manner it desired. The passengers were not stoics;
becoming alarmed, anxious, or frightened at the stoppage of a vessel at sea in an unfamiliar zone at
nighttime is not the sole prerogative of the faint-hearted. More so in the light of the many tragedies at
sea resulting in the loss of lives of hopeless passengers and damage to property simply because
common carriers failed in their duty to exercise extraordinary diligence in the performance of their
obligations.
We cannot, however, give our affirmance to the award of attorneys fees. Under Article 2208 of
the Civil Code, these are recoverable only in the concept of actual damages, [32] not as moral
damages[33] nor judicial costs.[34] Hence, to merit such an award, it is settled that the amount thereof
must be proven.[35] Moreover, such must be specifically prayed for - as was not done in this case - and
may not be deemed incorporated within a general prayer for such other relief and remedy as this court
may deem just and equitable.[36] Finally, it must be noted that aside from the following, the body of the
respondent Courts decision was devoid of any statement regarding attorneys fees:

Plaintiff-appellant was forced to litigate in order that he can claim moral and exemplary damages for
the suffering he encurred [sic]. He is entitled to attorneys fees pursuant to Article 2208 of the Civil
Code. It states:
Article 2208. In the absence of stipulation, attorney s fees and expenses of litigation, other than judicial
costs cannot be recovered except:
1. When exemplary damages are awarded;
2. When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest.
This Court holds that the above does not satisfy the benchmark of factual, legal and equitable
justification needed as basis for an award of attorneys fees. [37] In sum, for lack of factual and legal
basis, the award of attorneys fees must be deleted.
WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of
Appeals in CA-G.R. CV No. 39901 is AFFIRMED subject to the modification as to the award for
attorneys fees which is hereby SET ASIDE.
Costs against the petitioner.
SO ORDERED.
Narvasa, C.J. (Chairman), Melo, Francisco, and Panganiban, JJ., concur.