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EN BANC

[G.R. No. L-9534. September 29, 1956.]

MANILA STEAMSHIP CO., INC., Petitioner, vs. INSA ABDULHAMAN (MORO) and LIM HONG TO, Respondents.

DECISION

REYES, J. B. L., J.:

This case was begun in the Court of First Instance of Zamboanga (Civil Case No. 170) by Insa Abdulhaman
against the Manila Steamship Co., owner of the M/S “Bowline Knot”, and Lim Hong To, owner of the M/L
“Consuelo V”, to recover damages for the death of his (Plaintiff’s) five children and loss of personal
properties on board the M/L “Consuelo V” as a result of a maritime collision between said vessel and the
M/S “Bowline Knot” on May 4, 1948, a few kilometers distant from San Ramon Beach, Zamboanga City.

On appeal, the Court of Appeals found the following facts to have been
established:chanroblesvirtuallawlibrary

“From 7:chanroblesvirtuallawlibrary00 to 8:chanroblesvirtuallawlibrary00 o’clock in the evening of May 4,


1948, the M/L “Consuelo V”, laden with cargoes and passengers left the port of Zamboanga City bound
for Siokon under the command of Faustino Macrohon. She was then towing a kumpit, named “Sta. Maria
Bay”. The weather was good and fair. Among her passengers were the Plaintiff Insa Abdulhaman, his wife
Carimla Mora and their five children already mentioned. The Plaintiff and his wife paid their fare before
the voyage started.

On that same night the M/S “Bowline Knot” was navigating from Maribojoc towards Zamboanga.

Between 9:chanroblesvirtuallawlibrary30 to 10:chanroblesvirtuallawlibrary00 in the evening the dark


clouds bloated with rain began to fall and the gushing strong wind began to blow steadily harder, lashing
the waves into a choppy and roaring sea. Such weather lasted for about an hour and then it became fair
although it was showering and the visibility was good enough.

When some of the passengers of the M/L “Consuelo V” were then sleeping and some were lying down
awake, all of a sudden they felt the shocking collision of the M/L “Consuelo V” and a big motorship, which
later on was identified as the M/V “Bowline Knot”.

Because the M/L “Consuelo V” capsized, her crew and passengers, before realizing what had happened,
found themselves swimming and floating on the crest of the waves and as a result of which nine (9)
passengers were dead and missing and all the cargoes carried on said boat, including those of the Plaintiff
as appear in the list, Exhibit “A”, were also lost.

Among the dead passengers found were Maria, Amlasa, Bidoaya and Bidalla, all surnamed Inasa, while
the body of the child Abdula Inasa of 6 years of age was never recovered. Before the collision, none of the
passengers were warned or informed of the impending danger as the collision was so sudden and
unexpected. All those rescued at sea were brought by the M/V “Bowline Knot” to Zamboanga City.”
(Decision of C. A., pp. 5-6).

As the cause of the collision, the Court of Appeals affirmed the findings of the Board of Marine Inquiry,
that the commanding officer of the colliding vessels had both been negligent in operating their respective
vessels. Wherefore, the Court held the owners of both vessels solidarily liable to Plaintiff for the damages
caused to him by the collision, under Article 827 of the Code of Commerce; chan
roblesvirtualawlibrarybut exempted Defendant Lim Hong To from liability by reason of the sinking and
total loss of his vessel, the M/L “Consuelo V”, while the other Defendant, the Manila Steamship Co.,
owner of the M/S “Bowline Knot”, was ordered to pay all of Plaintiff’s damages in the amount of
P20,784.00 plus one-half of the costs. It is from this judgment that Defendant Manila Steamship Co. had
appealed to this Court.

Petitioner Manila Steamship Co. pleads that it is exempt from any liability to Plaintiff under Article 1903
of the Civil Code because it had exercised the diligence of a good father of a family in the selection of its
employees, particularly Third Mate Simplicio Ilagan, the officer in command of its vessels, the M/S
“Bowline Knot”, at the time of the collision. This defense is untenable. While it is true that Plaintiff’s
action against Petitioner is based on a tort or quasi-delict, the tort in question is not a civil tort under the
Civil Code but a maritime tort resulting in a collision at sea, governed by Articles 826-939 of the Code of
Commerce. Under Article 827 of the Code of Commerce, in case of collision between two vessels
imputable to both of them, each vessel shall suffer her own damage and both shall be solidarily liable for
the damages occasioned to their cargoes. The characteristic language of the law in making the “vessels”
solidarily liable for the damages due to the maritime collision emphasizes the direct nature of the
responsibilities on account of the collision incurred by the shipowner under maritime law, as
distinguished from the civil law and mercantile law in general. This direct responsibility is recognized in
Article 618 of the Code of Commerce under which the captain shall be civilly liable to the ship agent, and
the latter is the one liable to third persons, as pointed out in the collision case of Yueng Sheng Exchange
& Trading Co. vs. Urrutia & Co., 12 Phil. 747, 753:chanroblesvirtuallawlibrary

“The responsibility involved in the present action is that derived from the management of the vessel,
which was defective on account of lack of skill, negligence, or fault, either of the captain or of the crew,
for which the captain is responsible to the agent, who in his turn is responsible to the third party
prejudiced or damaged. (Article 618, Code of Commerce).”

In fact, it is a general principle, well established maritime law and custom, that shipowners and ship
agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the
indemnities due the third persons (Article 587); chan roblesvirtualawlibraryso that injured parties may
immediately look for reimbursement to the owner of the ship, it being universally recognized that the
ship master or captain is primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42
Phil. 256, 260). This direct liability, moderated and limited by the owner’s right of abandonment of the
vessel and earned freight (Article 587), has been declared to exist, not only in case of breached contracts,
but also in cases of tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511,
515):chanroblesvirtuallawlibrary

“In the second assignment of error, the Appellant contends that the Defendant ought not to be held
liable for the negligence of his agents and employees.
It is proven that the agents and employees, through whose negligence the explosion and fire in question
occurred, were agents, employees and mandatories of the Defendant. Where the vessel is one of freight,
a public concern or public utility, its owner or agents is liable for the tortious acts of his agents (Articles
587, 613, and 618 Code of Commerce; chan roblesvirtualawlibraryand Article 1902, 1903, 1908, Civil
Code). This principle has been repeatedly upheld in various decisions of this court.

The doctrines cited by the Appellant in support of his theory have reference to the relations between
principal and agent in general, but not to the relations between ship agent and his agents and employees;
chan roblesvirtualawlibraryfor this reason they cannot be applied in the present case.”

It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and
vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would
render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater
protection of injured parties. Shipowners would be able to escape liability in practically every case,
considering that the qualifications and licensing of ship masters and officers are determined by the State,
and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To compel
the parties prejudiced to look to the crew for indemnity and redress would be an illusory remedy for
almost always its members are, from captains down, mere wage earners.

We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of
the Manila Steamship Co., that it is exempt from liability for the collision with the M/L “Consuelo V” due
to absence of negligence on its parts in the selection and supervision of the officers and crew of the M/S
“Bowline Knot”.

The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil. 517, invoked by Petitioner,
is not the point. Said case treated of a civil tort, in that the vessel of the Defendant, allegedly negligently
managed by its captain in the course of its maneuvers to moor at Plaintiff’s wharf, struck the same and
partially demolished it, causing damage to Plaintiff. Because the tort allegedly committed was civil, the
provisions of Article 1903 of the Civil Code were correctly applied. The present case, on the other hand,
involves tortious conduct resulting in a maritime collision; chan roblesvirtualawlibrarywherefore, the
liability of the shipowner is, as already stated, governed by the provisions of the Code of Commerce and
not by the Civil Code.

We agree, however, with Petitioner-Appellant, that the Court of Appeals was in error in declaring the
Respondent Lim Hong To, owner of the M/L “Consuelo V”, exempt from liability to the original Plaintiff,
Abdulhaman, in view of the total loss of his own vessel, that sank as a result of the collision. It is to be
noted that both the master and the engineer of the motor launch “Consuelo V” were not duly licensed as
such (Exh. 2). In applying for permission to operate, despite the lack of properly trained and experienced,
crew, Respondent Lim Hong To gave as a reason —

“that the income derived from the vessel is insufficient to pay licensed officers who demand high
salaries”,

and expressly declared:chanroblesvirtuallawlibrary

“That in case of any accident, damage or loss, I shall assume full risk and responsibility for all the
consequences thereof.” (Exhibit 2).
His permit to operate, in fact, stipulated —

“that in case of any accident, damage or loss, the registered owner thereof shall assume full risk and
responsibility for all the consequences thereof, and that said vessel shall be held answerable for any
negligence, disregard or violation of any of the conditions herein imposed and for any consequence
arising from such negligence, disregard or violations.” (Exhibit 3.)

The Court of Appeals held that neither the letter (Exhibit 2) nor the permit (Exhibit 3) contained any
waiver of the right of Respondent Lim Hong To to limit his liability to the value of his motor launch and
that he did not lose the statutory right to limit his liability by abandonment of the vessel, as conferred by
Article 587 of the Code of Commerce.

We find the ruling untenable. Disregarding the question whether mere inability to meet the salary
demands of duly licensed masters and engineers constitutes non-availability thereof that would excuse
noncompliance with the law and authorize operation without licensed officers under Act 3553, the fact
remains that by operating with an unlicensed master, Lim Hong To deliberately increased the risk to
which the passengers and shippers of cargo aboard the “Consuelo V” would be subjected. In his desire to
reap greater benefits in the maritime trade, Lim Hong To willfully augmented the dangers and hazards to
his vessel’s unwarry passengers, who would normally assume that the launch officers possessed the
necessary skill and experience to evade the perils of the sea. Hence, the liability of said Respondent
cannot be the identical to that of a shipowner who bears in mind the safety of the passengers and cargo
by employing duly licensed officers. To hold, as the Court of Appeals has done, that Lim Hong To may limit
his liability to the value of his vessels, is to erase all difference between compliance with law and the
deliberate disregard thereof. To such proposition we cannot assent.

The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner’s liability, does not apply to cases where the injury or the average is due to shipowner’s own
fault. Fariña (Derecho Comercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial precedents
from various nations, sets the rule to be as follows:chanroblesvirtuallawlibrary

“Esta generalmente admitido que el propietario del buque no tiene derecho a la limitacion legal de
responsibilidad si los daños o averias que dan origen a la limitacion provienen de sus propias culpas. El
Convenio de Bruselas de 25 de agosto de 1924 tambien invalida la limitacion en el caso de culpa personal
en los accidentes o averías sobrevenidos (Art. 2°).”

To the same effect, a noted French author states:chanroblesvirtuallawlibrary

“La limitacion de la responsabilidad maritima ha sido admitida para proteger a los armadores contra los
actos abusivos de sus encargados y no dejar su patrimonio entero a la discrecion del personal de sus
buques, porque este personal cumple sus obligaciones en condiciones especiales; chan
roblesvirtualawlibrarypero los armadores no tienen por sobre los demas derecho a ser amparados contra
ellos mismos ni a ser protegidos contra sus propios actos.”

(Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.)

That Lim Hong To understood that he would incur greater liability than that normally borne by
shipowners, is clear from his assumption of “ full” risk and responsibility for all the consequences” of the
operation of the M/L “Consuelo V”; chan roblesvirtualawlibrarya responsibility expressly assumed in his
letter Exhibit 2, and imposed in his special permit, in addition to the vessel itself being held answerable.
This express assumption of “full risk and responsibility” would be meaningless unless intended to broaden
the liability of Respondent Lim Hong To beyond the value of his vessel.

In resume, we hold:chanroblesvirtuallawlibrary

(1) That the Manila Steamship Co., owner of the M/S “Bowline Knot”, is directly and primarily responsible
in tort for the injuries caused to the Plaintiff by the collision of said vessel with the launch “Consuelo V”,
through the negligence of the crews of both vessels, and it may not escape liability on the ground that it
exercised due diligence in the selection and supervision of the officers and crew of the “Bowline Knot”;

(2) That Lim Hong To, as owner of the motor launch “Consuelo V”, having caused the same to sail
without licensed officers, is liable for the injuries caused by the collision over and beyond the value of said
launch;

(3) That both vessels being at fault, the liability of Lim Hong To and Manila Steamship Co. to the Plaintiff
herein is in solidum, as prescribed by Article 827 of the Code of Commerce.

In view of the foregoing, the decision of the Court of Appeals is modified, and that of the Court of First
Instance affirmed, in the sense of declaring both original Defendants solidarily liable to Plaintiff Insa
Abdulhaman in the sum of P20,784.00 and the cost of the litigation, without prejudice to the right of the
one who should pay the judgment in full to demand contribution from his co-Defendant.

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-42926 September 13, 1985

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO VASQUEZ and
MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.

Emilio D. Castellanes for petitioners.

Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.:

This litigation involves a claim for damages for the loss at sea of petitioners' respective children after the
shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and which
we find supported by the record, read as follows:

When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early morning of May 15,
1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-year
old boy, Mario Marlon Vasquez, among her passengers. The MV "Pioneer Cebu" encountered typhoon
"Klaring" and struck a reef on the southern part of Malapascua Island, located somewhere north of the
island of Cebu and subsequently sunk. The aforementioned passengers were unheard from since then.

Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez; plaintiffs Cleto Bagaipo
and Agustina Virtudes are the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and Maxima
Cainay are the parents of the child, Mario Marlon Vasquez. They seek the recovery of damages due to the
loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez, Filipinas Bagaipo
and Mario Marlon Vasquez, and the fact of the sinking of the MV "Pioneer Cebu". The issues of the case
were limited to the defenses alleged by the defendant that the sinking of the vessel was caused by force
majeure, and that the defendant's liability had been extinguished by the total loss of the vessel.

The evidence on record as to the circumstances of the last voyage of the MV "Pioneer Cebu" came
mainly, if not exclusively, from the defendant. The MV "Pioneer Cebu" was owned and operated by the
defendant and used in the transportation of goods and passengers in the inter-island shipping. Scheduled
to leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following
day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322) including the crew. It
undertook the said voyage on a special permit issued by the Collector of Customs inasmuch as, upon
inspection, it was found to be without an emergency electrical power system. The special permit
authorized the vessel to carry only two hundred sixty (260) passengers due to the said deficiency and for
lack of safety devices for 322 passengers (Exh. 2). A headcount was made of the passengers on board,
resulting on the tallying of 168 adults and 20 minors, although the passengers manifest only listed 106
passengers. It has been admitted, however, that the headcount is not reliable inasmuch as it was only
done by one man on board the vessel.

When the vessel left Manila, its officers were already aware of the typhoon Klaring building up
somewhere in Mindanao. There being no typhoon signals on the route from Manila to Cebu, and the
vessel having been cleared by the Customs authorities, the MV "Pioneer Cebu" left on its voyage to Cebu
despite the typhoon. When it reached Romblon Island, it was decided not to seek shelter thereat,
inasmuch as the weather condition was still good. After passing Romblon and while near Jintotolo island,
the barometer still indicated the existence of good weather condition continued until the vessel
approached Tanguingui island. Upon passing the latter island, however, the weather suddenly changed
and heavy rains felt Fearing that due to zero visibility, the vessel might hit Chocolate island group, the
captain ordered a reversal of the course so that the vessel could 'weather out' the typhoon by facing the
winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966, the vessel struck a
reef near Malapascua island, sustained leaks and eventually sunk, bringing with her Captain Floro Yap
who was in command of the vessel.

Due to the loss of their children, petitioners sued for damages before the Court of First Instance of Manila
(Civil Case No. 67139). Respondent defended on the plea of force majeure, and the extinction of its
liability by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay:

(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss of earning
capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and P10,000.00 for moral damages;

(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss of earning
capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral damages; and

(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of moral damages
by reason of the death of Mario Marlon Vasquez.

On appeal, respondent Court reversed the aforementioned judgment and absolved private respondent
from any and all liability.

Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.

The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:

... It is an admitted fact that even before the vessel left on its last voyage, its officers and crew were
already aware of the typhoon brewing somewhere in the same general direction to which the vessel was
going. The crew of the vessel took a calculated risk when it proceeded despite the typhoon advisory. This
is quite evident from the fact that the officers of the vessel had to conduct conferences amongst
themselves to decide whether or not to proceed. The crew assumed a greater risk when, instead of
seeking shelter in Romblon and other islands the vessel passed en route, they decided to take a change
on the expected continuation of the good weather the vessel was encountering, and the possibility that
the typhoon would veer to some other directions. The eagerness of the crew of the vessel to proceed on
its voyage and to arrive at its destination is readily understandable. It is undeniably lamentable, however,
that they did so at the risk of the lives of the passengers on board.

Contrariwise, respondent Appellate Court believed that the calamity was caused solely and proximately
by fortuitous event which not even extraordinary diligence of the highest degree could have guarded
against; and that there was no negligence on the part of the common carrier in the discharge of its duties.

Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso fortuito that
would exempt a person from responsibility, it is necessary that (1) the event must be independent of the
human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to
the creditor." 1 In the language of the law, the event must have been impossible to foresee, or if it could
be foreseen, must have been impossible to avoid. 2 There must be an entire exclusion of human agency
from the cause of injury or loss. 3

Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of
typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed all
the cargo in the hold before sailing in anticipation of strong winds and rough waters.4 They proceeded on
their way, as did other vessels that day. Upon reaching Romblon, they received the weather report that
the typhoon was 154 kms. east southeast of Tacloban and was moving west northwest.5 Since they were
still not within the radius of the typhoon and the weather was clear, they deliberated and decided to
proceed with the course. At Jintotolo Island, the typhoon was already reported to be reaching the
mainland of Samar. 6 They still decided to proceed noting that the weather was still "good" although,
according to the Chief Forecaster of the Weather Bureau, they were already within the typhoon zone. 7
At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the typhoon was in an area quite close to
Catbalogan, placing Tanguingui also within the typhoon zone. Despite knowledge of that fact, they again
decided to proceed relying on the forecast that the typhoon would weaken upon crossing the mainland
of Samar. 8 After about half an hour of navigation towards Chocolate Island, there was a sudden fall of
the barometer accompanied by heavy downpour, big waves, and zero visibility. The Captain of the vessel
decided to reverse course and face the waves in the open sea but because the visibility did not improve
they were in total darkness and, as a consequence, the vessel ran aground a reef and sank on May 16,
1966 around 12:45 P.M. near Malapascua Island somewhere north of the island of Cebu.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been kept
posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and crew
were well aware of the risk they were taking as they hopped from island to island from Romblon up to
Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of very
cautious persons, 9 they decided to take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the safety of the passengers transported by
them with due regard for an circumstances 10 and unnecessarily exposed the vessel and passengers to
the tragic mishap. They failed to overcome that presumption of fault or negligence that arises in cases of
death or injuries to passengers. 11

While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as "moot and academic," the
captain having "lived up to the true tradition of the profession." While we are bound by the Board's
factual findings, we disagree with its conclusion since it obviously had not taken into account the legal
responsibility of a common carrier towards the safety of the passengers involved.

With respect to private respondent's submission that the total loss of the vessel extinguished its liability
pursuant to Article 587 of the Code of Commerce12 as construed in Yangco vs. Laserna, 73 Phil. 330
[1941], suffice it to state that even in the cited case, it was held that the liability of a shipowner is limited
to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its
insurance answers for the damages that a shipowner or agent may be held liable for by reason of the
death of its passengers.

WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of First
Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.

SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC

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

DIONISIA ABUEG, ET AL., plaintiffs-appellees,


vs.
BARTOLOME SAN DIEGO, defendant-appellant.

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

CA-No. L-774 December 17, 1946

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


vs.
BARTOLOME SAN DIEGO, defendant-appellant.

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

CA-No. L-775 December 17, 1946

ROSARIO OCHING, ET AL., plaintiffs-appellees,


vs.
BARTOLOME SAN DIEGO, defendant-appellant.

Lichauco, Picazo and Mejia for appellant.


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

PADILLA, J.:

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

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

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

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

The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro Island
on Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and totally lost.
Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities perished in the
shipwreck (Appendix A, p. IV).

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

Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel
together with all her tackle and freight money earned during the voyage are abandoned, the agent's
liability to third persons for tortious acts of the captain in the care of the goods which the ship carried is
extinguished (Yangco vs. Laserna, 73 Phil., 330); article 837 of the same code which provides that in cases
of collision, the ship owners' liability is limited to the value of the vessel with all her equipment and
freight earned during the voyage (Philippine Shipping company vs. Garcia, 6 Phil., 281), and article 643 of
the same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages
of the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as
owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on
October 1, 1941, was extinguished.

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of
the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing continues of the maritime
trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship,
equipment, and freight, his liability was extinguished.

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of,
a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the
loss of the ship as result of collision; nor the responsibility for wages of the crew, but a liability created by
a statute to compensate employees and laborers in cases of injury received by or inflicted upon them,
while engaged in the performance of their work or employment, or the heirs and dependents and
laborers and employees in the event of death caused by their employment. Such compensation has
nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in
the cost of production which must be included in the budget of any well-managed industry.lawphil.net

Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57 Phil., 446), and Murillo vs. Mendoza (66
Phil., 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by
him was not fully discussed, as in the case of Yangco vs. Laserma, supra, is not entirely correct. In the last
mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight,
and insurance, if any, was the lis mota. In the case of Enciso vs. Dy-Liacco, supra, the application of the
Workmen's Compensation Act to a master or patron who perished as a result of the sinking of the
motorboat of which he was the master, was the controversy submitted to the court for decision. This
Court held in that case that "It has been repeatedly stated that the Workmen's Compensation Act was
enacted to abrogate the common law and our Civil Code upon culpable acts and omissions, and that the
employer need not be guilty of neglect or fault, in order that responsibility may attach to him" (pp. 449-
450); and that shipowner was liable to pay compensation provided for in the Workmen's Compensation
Act, notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs. Mendoza,
supra, this Court held that "The rights and responsibilities defined in said Act must be governed by its own
peculiar provisions in complete disregard of other similar mercantile law. If an accident is compensable
under the Workmen's Compensation Act, it must be compensated even when the workman's right is not
recognized by or is in conflict with other provisions of the Civil Code or the Code of Commerce. The
reason behind this principle is that the Workmen's Compensation Act was enacted by the Legislature in
abrogation of the other existing laws." This quoted part of the decision is in answer to the contention that
it was not the intention of the Legislature to repeal articles 643 and 837 of the Code of Commerce with
the enactment of the Workmen's Compensation Act.

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

This new point raised by counsel for the appellant is inconsistent with the first, for, if the motor ships in
question, while engaged in fishing, were to be considered as not engaged in interisland and coastwise
trade, the provisions of the Code of Commerce invoked by them regarding limitation of the shipowner's
liability or extinction thereof when the shipowner abandons the ship, cannot be applied (Lopez vs.
Duruelo, 52 Phil., 229). Granting however, that the motor ships run and operated by the appellant were
not engaged in the coastwise and interisland trade, as contemplated in section 38 of the Workmen's
Compensation Act, as amended, still the deceased officers of the motor ships in question were industrial
employees within the purview of section 39, paragraph (d), as amended, for industrial employment
"includes all employment or work at a trade, occupation or profession exercised by an employer for the
purpose of gain." The only exceptions recognized by the Act are agriculture, charitable institutions and
domestic service. Even employees engaged in agriculture for the operation of mechanical implements,
are entitled to the benefits of the Workmen's Compensation Act (Francisco vs. Consing, 63 Phil., 354). In
Murillo vs. Mendoza, supra, this Court held that "our Legislature has deemed it admissible to include in
the Workmen's Compensation Act all incidents that may occur to workmen or employees in factories,
shops and other industrial and agricultural workplaces as well as in the interisland seas of the
Archipelago." But we do not believe that the term "coastwise and interisland trade" has such a narrow
meaning as to confine it to the carriage for hire of passengers and/or merchandise on vessels between
ports and places in the Philippines, because while fishing is an industry, if the catch is brought to a port
for sale, it is at the same time a trade.

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

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 100446 January 21, 1993

ABOITIZ SHIPPING CORPORATION, petitioner,


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

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

Napoleon Rama collaborating counsel for petitioner.

Dollete, Blanco, Ejercito & Associates for private respondent.

MELO, J.:

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

The basic facts are not disputed.

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

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

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

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

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

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

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

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

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

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

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

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

An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows
that the same settles two principal matters, first of which is that the doctrine of primary administrative
jurisdiction is not applicable therein; and second is that a limitation of liability in said case would render
inefficacious the extraordinary diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one now
in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that
which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the
carrier's liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said
resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary
nature of maritime law, which was not raised therein, and which is the principal bone of contention in
this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on
primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are
now settled and should no longer be touched, the instant case raises a completely different issue. It
appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing other than factual to the
instant case.

This brings us to the primary question herein which is whether or not respondent court erred in granting
execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying
the application of the limited liability enunciated under the appropriate articles of the Code of
Commerce. The articles may be ancient, but they are timeless and have remained to be good law.
Collaterally, determination of the question of whether execution of judgments which have become final
and executory may be stayed is also an issue.

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

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

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

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

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order
its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes
the imperative in the higher interest of justice to direct the suspension of its execution (Vecine v.
Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v Tan, 85 Phil.
164); or when certain facts and circumstances transpired after the judgment became final which would
render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)
We now come to the determination of the principal issue as to whether the Limited Liability Rule arising
out of the real and hypothecary nature of maritime law should apply in this and related cases. We rule in
the affirmative.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending
freightage should now be deposited in trust. Moreover, petitioner should institute the necessary
limitation and distribution action before the proper admiralty court within 15 days from the finality of this
decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage
in order to safeguard the same pending final resolution of all incidents, for final pro-rating and settlement
thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila,
Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The
trial court is hereby directed to desist from proceeding with the execution of the judgment rendered in
Civil Case No. 144425 pending determination of the totality of claims recoverable from the petitioner as
the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to deposit the
proceeds of the insurance of subject vessel as above-described within fifteen (15) days from finality of
this decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby made
permanent.

SO ORDERED.

G.R. No. 92735 June 8, 2000

MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and Hon. Judge AMANTE PURISIMA,
petitioners,
vs.
COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, respondents.

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

G.R. No. 94867

ALLIED GUARANTEE INSURANCE COMPANY, petitioner,


vs.
COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24 and ABOITIZ SHIPPING CORPORATION,
respondents.

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

G.R. No. 95578

EQUITABLE INSURANCE CORPORATION, petitioner,


vs.
COURT OF APPEALS, Former First Division Composed of Hon. Justices RODOLFO NOCON, PEDRO RAMIREZ,
and JESUS ELBINIAS and ABOITIZ SHIPPING CORPORATION, respondents.

DE LEON, JR., J.:

Before us are three consolidated petitions. G.R. No. 92735 is a petition for review filed under Rule 45 of
the Rules of Court assailing the decision of the Court of Appeals dated March 29, 1990 in CA-G.R. SP. Case
No. 17427 which set aside the writ of execution issued by the lower court for the full indemnification of
the claims of the petitioners, Monarch Insurance Company (hereafter "Monarch") and Tabacalera
Insurance Company, Incorporated (hereafter "Tabacalera") against private respondent, Aboitiz Shipping
Corporation (hereafter "Aboitiz") on the ground that the latter is entitled to the benefit of the limited
liability rule in maritime law; G.R. No. 94867 is a petition for certiorari under Rule 65 of the Rules of Court
to annul and set aside the decision of the Court of Appeals dated August 15, 1990 in CA-G.R. SP No.
20844 which ordered the lower court to stay the execution of the judgment in favor of the petitioner,
Allied Guarantee Insurance Company (hereafter "Allied") against Aboitiz insofar as it impairs the rights of
the other claimants to their pro-rata share in the insurance proceeds from the sinking of the M/V P.
Aboitiz, in accordance with the rule on limited liability; and G.R. No. 95578 is a petition for review under
Rule 45 of the Rules of Court seeking a reversal of the decision of the Court of Appeals dated August 24,
1990 and its resolution dated October 4, 1990 in C.A. G.R. Civil Case No. 15071 which modified the
judgment of the lower court's award of actual damages to petitioner Equitable Insurance Corporation
(hereafter "Equitable") to its pro-rata share in the insurance proceeds from the sinking of the M/V P.
Aboitiz.

All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a common carrier
owned and operated by Aboitiz, sank on her voyage from Hong Kong to Manila on October 31, 1980.
Seeking indemnification for the loss of their cargoes, the shippers, their successors-in-interest, and the
cargo insurers such as the instant petitioners filed separate suits against Aboitiz before the Regional Trial
Courts. The claims numbered one hundred and ten (110) for the total amount of P41,230,115.00 which is
almost thrice the amount of the insurance proceeds of P14,500,000.00 plus earned freight of 500,000.00
according to Aboitiz. To this day, some of these claims, including those of herein petitioners, have not yet
been settled.

G.R. No. 92735.

Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the shippers and were
consequently subrogated to their rights, interests and actions against Aboitiz, the cargo carrier. 1 Because
Aboitiz refused to compensate Monarch, it filed two complaints against Aboitiz, docketed as Civil Cases
Nos. 82-2767 and 82-2770. For its part, Tabacalera also filed two complaints against the same defendant,
docketed as Civil Cases Nos. 82-2768 and 82-2769. As these four (4) cases had common causes of action,
they were consolidated and jointly tried. 2

In Civil Case No. 82-2767 where Monarch also named Malaysian International Shipping Corporation and
Litonja Merchant Shipping Agency as Aboitiz's co-defendants, Monarch sough recovery of P29,719.88
representing the value of three (3) pallets of glass tubing that sank with the M/V P. Aboitiz, plus
attorney's fees of not less than P5,000.00, litigation expenses, interest at the legal rate on all these
amounts, and the cost of suit. 3 Civil Case. No. 82-2770 was a complaint filed by Monarch against Aboitiz
and co-defendants Compagnie Maritime des Chargeurs Reunis and F.E. Zuellig (M), Inc. for the recovery
of P39,597.00 representing the value of the one case motor vehicle parts which was lost when the M/V P.
Aboitiz sank on her way to Manila, plus Attorney's fees of not less than P10,000.00 and cost of suit. 4

Tabacalera sought against Franco Belgian Services, F.E. Zuellig and Aboitiz in Civil Case No. 82-2768 the
recovery of P284,218.00 corresponding to the value of nine (9) cases of Renault spare parts, P213,207.00
for the value of twenty-five (25) cases of door closers and P42,254.00 representing the value of eighteen
(18) cases of plastic spangle, plus attorney's fees of not less than P50,000.00 and cost of suit. 5 In Civil
Case No. 82-2769, Tabacalera claimed from Hong Kong Island Shipping Co., Ltd., Citadel Lines and Aboitiz
indemnification in the amount of P75,058.00 for the value of four (4) cartons of motor vehicle parts
foundered with the M/V P. Aboitiz, plus attorney's fees of not less than P20,000.00 and cost of suit. 6

In its answer with counterclaim, Aboitiz rejected responsibility for the claims on the ground that the
sinking of its cargo vessel was due to force majeure or an act of God. 7 Aboitiz was subsequently declared
as in default for its failure to appear during the pre-trial. Its counsel fried a motion to set aside the order
of default with notice of his withdrawal as such counsel. Before the motion could be acted upon, Judge
Bienvenido Ejercjto, the presiding judge of the trial court, was promoted to the then intermediate
Appellate Court. The cases were thus re-raffled to Branch VII of the RTC of Manila presided by Judge
Amante P. Purisima, the co-petitioner in G.R. No. 92735. Without resolving the pending motion to set
aside the order of default, the trial court set the cases for hearing. However, since Aboitiz had repeatedly
failed to appear in court, the trial court denied the said motion and allowed Monarch and Tabacalera to
present evidence ex-parte. 8

Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert, a surveyor commissioned
to investigate the possible cause of the sinking of the cargo vessel. The survey established that on her
voyage to Manila from Hong Kong, the vessel did not encounter weather so inclement that Aboitiz would
be exculpated from liability for losses. In his note of protest, the master of M/V P. Aboitiz described the
wind force encountered by the vessel as from ten (10) to fifteen (15) knots, a weather condition classified
as typical and moderate in the South China Sea at that particular time of the year. The survey added that
the seaworthiness of the vessel was in question especially because the breaches of the hull and the
serious flooding of two (2) cargo holds occurred simultaneously in "seasonal weather." 9

In due course, the trial court rendered judgment against Aboitiz but the complaint against all the other
defendants was dismissed. Aboitiz was held liable for the following: (a) in Civil Case No. 82-2767,
P29,719.88 with legal interest from the filing of the complaint until fully paid plus attorney's fees of
P30,000.00 and cost of suit; (b) in Civil Case No. 82-2768, P539,679.00 with legal interest of 12% per
annum from date of filing of the complaint until fully paid, plus attorney's fees of P30,000.00, litigation
expenses and cost of suit; (c) in Civil Case No. 82-2769, P75,058.00 with legal interest of 12% per annum
from date of filing of the complaint until-fully paid, plus P5,000.00 attorney's fees, litigation expenses and
cost of suit, and (d) in Civil Case No. 82-2770, P39,579.66 with legal interest of 12% per annum from date
of filing of the complaint until fully paid, plus attorney's fees of P5,000.00, litigation expenses and cost of
suit.

Aboitiz filed a motion for reconsideration of the decision and/or for new trial to lift the order of default.
The court denied the motion on August 27, 1986. 10 Aboitiz appealed to the Court of Appeals but the
appeal was dismissed for its failure to file appellant's brief. It subsequently filed an urgent motion for
reconsideration of the dismissal with prayer for the admission of its attached appellant's brief. The
appellate court denied that motion for lack of merit in a Resolution dated July 8, 1988. 11

Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No. 84158, the petition was
denied in the Resolution of October 10, 1988 for being filed out of time. Aboitiz's motion for the
reconsideration of said Resolution was similarly denied. 12 Entry of judgment was made in the case. 13

Consequently, Monarch and Tabacalera moved for execution of judgment. The trial court granted the
motion on April 4, 1989 14 and issued separate writs of execution. However, on April 12, 1989, Aboitiz,
invoking the real and hypothecary nature of liability in maritime law, filed an urgent motion to quash the
writs of execution. 15 According to Aboitiz, since its liability is limited to the value of the vessel which was
insufficient to satisfy the aggregate claims of all 110 claimants, to indemnify Monarch and Tabacalera
ahead of the other claimants would be prejudicial to the latter. Monarch and Tabacalera opposed the
motion to quash. 16

On April 17, 1989, before the motion to quash could be heard, the sheriff levied upon five (5) heavy
equipment owned by Aboitiz for the public auction sale. At said sale, Monarch was the highest bidder for
one (1) unit FL-151 Fork Lift (big) and one (1) unit FL-25 Fork Lift (small). Tabacalera was also the highest
bidder for one (1) unit TCH TL-251 Hyster Container Lifter, one (1) unit Hyster Top Lifter (out of order),
and one (1) unit ER-353 Crane. The corresponding certificates of sale 17 were issued to Monarch and
Tabacalera.

On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz filed a supplement to its
motion, to add the fact that an auction sale had taken place. On April 19, 1989, Judge Purisima issued an
order denying the motion to quash but freezing execution proceedings for ten (10) days to give Aboitiz
time to secure a restraining order from a higher court. 18 Execution was scheduled to resume to fully
satisfy the judgment when the grace period shall have lapsed without such restraining order having been
obtained by Aboitiz.

Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with prayer for preliminary
injunction and/or temporary restraining order under CA-G.R. No. SP-17427. 19 On March 29, 1990, the
appellate court rendered a Decision the dispositive portion of which reads:

WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs of execution, auction
sale, certificates of sale, and the assailed orders of respondent Judge dated April 4 and April 19, 1989
insofar as the money value of those properties of Aboitiz, levied on execution and sold at public auction,
has exceeded the pro-rata shares of Monarch and Tabacalera in the insurance proceeds of Aboitiz in
relation to the pro-rata shares of the 106 other claimants.

The writ of prohibition is also granted to enjoin respondent Judge, Monarch and Tabacalera from
proceeding further with execution of the judgments in question insofar as the execution would satisfy the
claims of Monarch and Tabacalera in excess of their pro-rata shares and in effect reduce the balance of
the proceeds for distribution to the other claimants to their prejudice.

The question of whether or how much of the claims of Monarch and Tabacalera against the insurance
proceeds has already been settled through the writ of execution and auction sale in question, being
factual issues, shall be threshed out before respondent judge.

The writ of preliminary injunction issued in favor of Aboitiz, having served its purpose, is hereby lifted. No
pronouncement as to costs.

SO ORDERED. 20

Hence, the instant petition for review on certiorari where petitioners Monarch, Tabacalera and Judge
Purisima raise the following assignment of errors:

1. The appellate court grievously erred in re-opening the Purisima decisions, already final and executory,
on the alleged ground that the issue of real and hypothecary liability had not been previously resolved by
Purisima, the appellate court, and this Hon. Supreme Court;

2. The appellate court erred when it resolved that Aboitiz is entitled to the limited real and hypothecary
liability of a ship owner, considering the facts on record and the law on the matter.

3. The appellate court erred when it concluded that Aboitiz does not have to present evidence to prove
its entitlement to the limited real and hypothecary liability.
4. The appellate court erred in ignoring the case of "Aboitiz Shipping Corporation v. CA and Allied
Guaranty Insurance Co., Inc. (G.R. No. 88159), decided by this Honorable Supreme Court as early as
November 13, 1989, considering that said case, now factual and executory, is in pari materia with the
instant case.

5. The appellate court erred in not concluding that irrespective of whether Aboitiz is entitled to limited
hypothecary liability or not, there are enough funds to satisfy all the claimants.

6. The appellate court erred when it concluded that Aboitiz had made an "abandonment" as envisioned
by Art. 587 of the Code of Commerce.

7. The appellate court erred when it concluded that other claimants would suffer if Tabacalera and
Monarch would be fully paid.

8. The appellate court erred in concluding that certiorari was the proper remedy for Aboitiz. 21

G.R. NOS. 94867 & 95578

Allied as insurer-subrogee of consignee Peak Plastic and Metal Products Limited, filed a complaint against
Aboitiz for the recovery of P278,536.50 representing the value of 676 bags of PVC compound and 10 bags
of ABS plastic lost on board the M/V P. Aboitiz, with legal interest from the date of filing of the complaint,
plus attorney's fees, exemplary damages and costs. 22 Docketed as Civil Case No. 138643, the case was
heard before the Regional Trial Court of Manila, Branch XXIV, presided by Judge Sergio D. Mabunay.

On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel Manufacturing Corporation,


filed an amended complaint against Franco Belgian Services, F.E. Zuellig, Inc. and Aboitiz for the recovery
of P194,794.85 representing the value of 76 drums of synthetic organic tanning substances and 1,000
kilograms of optical bleaching agents which were also lost on board the M/V P. Aboitiz, with legal interest
from the date of filing of the complaint, plus 25% attorney's fees, exemplary damages, litigation expenses
and costs of suit.23 Docketed as Civil Case No. 138396, the complaint was assigned to the Regional Trial
Court of Manila, Branch VIII.

In its answer with counterclaim in the two cases, Aboitiz disclaimed responsibility for the amounts being
recovered, alleging that the loss was due to a fortuitous event or an act of God. It prayed for the dismissal
of the cases and the payment of attorney's fees, litigation expenses plus costs of suit. It similarly relied on
the defenses of force mejeure, seaworthiness of the vessel and exercise of due diligence in the carriage of
goods as regards the cross-claim of its co-defendants. 24

In support of its position, Aboitiz presented the testimonies of Capt. Gerry N. Racines, master mariner of
the M/V P. Aboitiz, and Justo C. Iglesias, a meteorologist of the Philippine Atmospheric Geophysical and
Astronomical Services Administration (PAGASA). The gist of the testimony of Capt. Racines in the two
cases follows:

The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of October 29, 1980 after
securing a departure clearance from the Hong Kong Port Authority. The departure was delayed for two
hours because he (Capt. Racines) was observing the direction of the storm that crossed the Bicol Region.
He proceeded with the voyage only after being informed that the storm had abated. At about 8:00 o'clock
in the morning of October 30, 1980, after more than twelve (12) hours of navigation, the vessel suddenly
encountered rough seas with waves about fifteen to twenty-five feet high. He ordered his chief engineer
to check the cargo holds. The latter found that sea water had entered cargo hold Nos. 1 and 2. He
immediately directed that water be pumped out by means of the vessel's bilge pump, a device capable of
ejecting 180 gallons of water per minute. They were initially successful in pumping out the water.

At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report from his chief engineer that
the water level in the cargo holds was rapidly rising. He altered the vessel's course and veered towards
the northern tip of Luzon to prevent the vessel from being continuously pummeled by the waves. Despite
diligent efforts of the officers and crew, however, the vessel, which was approximately 250 miles away
from the eye of the storm, began to list on starboard side at 27 degrees. Capt. Racines and his crew were
not able to make as much headway as they wanted because by 12:00 noon of the same day, the cargo
holds were already flooded with sea water that rose from three to twelve feet, disabling the bilge pump
from containing the water.

The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18 degrees North, longitude
170 degrees East in the South China Sea in between Hong Kong, the Philippines and Taiwan with the
nearest land being the northern tip of Luzon, around 270 miles from Cape Bojeador, Bangui, Ilocos Norte.
Responding to the captain's distress call, the M/V Kapuas (Capuas) manned by Capt. Virgilio Gonzales
rescued the officers and crew of the ill-fated M/V P. Aboitiz and brought them to Waileen, Taiwan where
Capt. Racines lodged his marine protest dated November 3, 1980.

Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz, testified in both cases that during
the inclusive dates of October 28-31, 1980, a stormy weather condition prevailed within the Philippine
area of responsibility, particularly along the sea route from Hong Kong to Manila, because of tropical
depression "Yoning." 25 PAGASA issued weather bulletins from October 28-30, 1980 while the storm was
still within Philippine territory. No domestic bulletins were issued the following day when the storm which
hit Eastern Samar, Southern Quezon and Southern Tagalog provinces, had made its exit to the South
China Sea through Bataan.

Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its cargo were lost due to force
majeure, relying mainly on the marine protest filed by Capt. Racines as well as on the Beaufort Scale of
Wind. In his marine protest under oath, Capt. Racines affirmed that the wind force an October 29-30,
1980 was only ten (10) to fifteen (15) knots. Under the Beaufort Scale of Wind, said wind velocity falls
under scale No. 4 that describes the sea condition as "moderate breeze," and "small waves becoming
longer, fairly frequent white horses." 26

To fortify its position, Equitable presented Rogelio T. Barboza who testified that as claims supervisor and
processor of Equitable, he recommended payment to Axel Manufacturing Corporation as evidenced by
the cash voucher, return check and subrogation receipt. Barboza also presented a letter of demand to
Aboitiz which, however, the latter ignored. 27

On April 24, 1984, the trial court rendered a decision that disposed of Civil Case No. 138643 as follows:

WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz Shipping Company to pay plaintiff
Allied Guarantee Insurance Company, Inc. the sum of P278,536.50, with legal interest thereon from
March 10, 1981, then date of the filing of the complaint, until fully paid, plus P30,000.00 as attorney's
fees, with costs of suit.
SO ORDERED. 28

A similar decision was arrived at in Civil Case No. 138396, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, this Court hereby renders judgment in favor of plaintiff and against
defendant Aboitiz Shipping Corporation, to pay the sum of P194,794.85 with legal rate of interest thereon
from February 27, 1981 until fully paid; attorney's fees of twenty-five (25%) percent of the total claim,
plus litigation expenses and costs of litigation.

SO ORDERED. 29

In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CA-G.R. CV No. 04121. On March
23, 1987, the Court of Appeals affirmed the decision of the lower court. A motion for reconsideration of
the said decision was likewise denied by the Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then
filed a petition for review with this Court docketed as G.R. No. 88159 which was denied for lack merit.
Entry of judgment was made and the lower court's decision in Civil Case No. 138643 became final and
executory. Allied prayed for the issuance of a writ of execution in the lower court which was granted by
the latter on April 4, 1990. To stay the execution of the judgment of the lower court, Aboitiz filed a
petition for certiorari and prohibition with preliminary injunction with the Court of Appeals docketed as
CA-G.R. SP No. 20844. 30 On August 15, 1990, the Court of Appeals rendered the assailed decision, the
dispositive portion of which reads as follows.

WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990 granting the execution is
hereby set aside. The respondent Judge is further ordered to stay the execution of the judgment insofar
as it impairs the rights of the 100 other claimants to the insurance proceeds including the rights of the
petitioner to pay more than the value of the vessel or the insurance proceeds and to desist from
executing the judgment insofar as it prejudices the pro-rata share of all claimants to the insurance
proceeds. No pronouncement as to costs.

SO ORDERED. 31

Hence, Allied filed the instant petition for certiorari, mandamus and injunction with preliminary injunction
and/or restraining order before this Court alleging the following assignment of errors:

1. Respondent Court of Appeals gravely erred in staying the immediate execution of the judgment of the
lower court as it has no authority nor jurisdiction to directly or indirectly alter, modify, amend, reverse or
invalidate a final judgment as affirmed by the Honorable Supreme Court in G.R. No. 88159.

2. Respondent Court of Appeals with grave abuse of discretion amounting to lack or excess of jurisdiction,
brushed aside the doctrine in G.R. No. 88159 which is now the law of the case and observance of time
honored principles of stare decisis, res adjudicata and estoppel by judgment.

3. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis
of the questioned decision (Annex "C" hereof) is without application in the face of the facts found by the
lower court, sustained by the Court of Appeals in CA-G.R. No. 04121 and affirmed in toto by the Supreme
Court in G.R. No. 88159.
4. Certiorari as a special remedy is unavailing for private respondent as there was no grave abuse of
discretion nor lack or excess of jurisdiction for Judge Mabunay to issue the order of April 4, 1990 which
was in accord with law and jurisprudence, nor were there intervening facts and/or supervening events
that will justify respondent court to issue a writ of certiorari or a restraining order on a final and
executory judgment of the Honorable Supreme Court. 32

From the decision of the trial court in Civil Case No. 138396 that favored Equitable, Aboitiz likewise
appealed to the Court of Appeals through CA-G.R. CV No. 15071. On August 24, 1990, the Court of
Appeals rendered the Decision quoting extensively its Decision in CA-G.R. No. SP-17427 (now G.R. No.
92735) and disposing of the appeal as follows:

WHEREFORE, we hereby affirm the trial court's awards of actual damages, attorney's fees and litigation
expenses, with the exception of legal interest, in favor of plaintiff-appellee Equitable Insurance
Corporation as subrogee of the consignee for the loss of its shipment aboard the M/V "P. Aboitiz" and
against defendant-appellant Aboitiz Shipping Corporation. However, the amount and payment of those
awards shall be subject to a determination of the pro-rata share of said appellee in relation to the pro-
rata shares of the 109 other claimants, which determination shall be made by the trial court. This case is
therefore hereby ordered remanded to the trial court which shall reopen the case and receive evidence
to determine appellee's pro-rata share as aforesaid. No pronouncement as to costs.

SO ORDERED. 33

On September 12, 1990, Equitable moved to reconsider the Court of Appeals' Decision. The Court of
Appeals denied the motion for reconsideration on October 4, 1990. 34 Consequently, Equitable filed with
this Court a petition for review alleging the following assignment of errors:

1. Respondent Court of Appeals, with grave abuse of discretion amounting to lack or excess of
jurisdiction, erroneously brushed aside the doctrine in G.R. No. 88159 which is now the law of the case as
held in G.R. No. 89757 involving the same and identical set of facts and cause of action relative to the
sinking of the M/V "P. Aboitiz" and observance of the time honored principles of stare decisis, and
estoppel by judgment.

2. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis
of the assailed decision and resolution is without application in the face of the facts found by the trial
court which conforms to the conclusion and finding of facts arrived at in a similar and identical case
involving the same incident and parties similarly situated in G.R. No. 88159 already declared as the "law
of the case" in a subsequent decision of this Honorable Court in G.R. No. 89757 promulgated on August 6,
1990.

3. Respondent Court of Appeals gravely erred in concluding that limited liability rule applies in case of loss
of cargoes when the law itself does not distinguish; fault of the shipowner or privity thereto constitutes
one of the exceptions to the application of limited liability under Article 587, 590 and 837 of the Code of
Commerce, Civil Code provisions on common carriers for breach of contract of carriage prevails. 35

These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated in the Resolution of August
5, 1991 on the ground that the petitioners "have identical causes of action against the same respondent
and similar reliefs are prayed for." 36
The threshold issue in these consolidated petitions is the applicability of the limited liability rule in
maritime law in favor of Aboitiz in order to stay the execution of the judgments for full indemnification of
the losses suffered by the petitioners as a result of the sinking of the M/V P. Aboitiz. Before we can
address this issue, however, there are procedural matters that need to be threshed out.

First. At the outset, the Court takes note of the fact that in G.R. No. 92735, Judge Amante Purisima,
whose decision in the Regional Trial Court is sought to be upheld, is named as a co-petitioner. In Calderon
v. Solicitor General, 37 where the petitioner in the special civil action of certiorari and mandamus was
also the judge whose order was being assailed, the Court held that said judge had no standing to file the
petition because he was merely a nominal or formal party-respondent under Section 5 of Rule 65 of the
Rules of Court. He should not appear as a party seeking the reversal of a decision that is unfavorable to
the action taken by him. The Court there said:

Judge Calderon should be-reminded of the well-known doctrine that a judge should detach himself from
cases where his decision is appealed to a higher court for review. The raison d'etre for such doctrine is
the fact that a judge is not an active combatant in such proceeding and must leave the opposing parties
to contend their individual positions and for the appellate court to decide the issues without his active
participation. By filing this case, petitioner in a way ceased to be judicial and has become adversarial
instead. 38

While the petition in G.R. No. 92735 does not expressly show whether or not Judge Purisima himself is
personally interested in the disposition of this petition or he was just inadvertently named as petitioner
by the real parties in interest, the fact that Judge Purisima is named as petitioner has not escaped this
Court's notice. Judges and litigants should be reminded of the basic rule that courts or individual judges
are not supposed to be interested "combatants" in any litigation they resolve.

Second. The petitioners contend that the inapplicability of the limited liability rule to Aboitiz has already
been decided on by no less than this Court in G.R. No. 88159 as early as November 13, 1989 which was
subsequently declared as "law of the case" in G.R. No. 89757 on August 6, 1990. Herein petitioners cite
the aforementioned cases in support of their theory that the limited liability rule based on the real and
hypothecary nature of maritime law has no application in the cases at bar.

The existence of what petitioners insist is already the "law of the case" on the matter of limited liability is
at best illusory. Petitioners are either deliberately misleading this Court or profoundly confused. As
elucidated in the case of Aboitiz Shipping Corporation vs. General Accident Fire and Life Assurance
Corporation, 39

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

It should be pointed out, however, that the limited liability discussed in said case is not the same one now
in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that
which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the
carrier's liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said
resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary
nature of maritime law, which was not raised therein, and which is the principal bone of contention in
this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on
primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are
now settled and should no longer be touched, the instant case raises a completely different issue. 40

Third. Petitioners asseverate that the judgments of the lower courts, already final and executory, cannot
be directly or indirectly altered, modified, amended, reversed or invalidated.

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order
its execution, is not an absolute one: We have allowed the suspension of execution in cases of special and
exceptional nature when it becomes imperative in the higher interest of justice. 41 The unjust and
inequitable effects upon various other claimants against Aboitiz should we allow the execution of
judgments for the full indemnification of petitioners' claims impel us to uphold the stay of execution as
ordered by the respondent Court of Appeals. We reiterate our pronouncement in Aboitiz Shipping
Corporation vs. General Accident Fire and Life Assurance Corporation on this very same issue.

This brings us to the primary question herein which is whether or not respondent court erred in granting
execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying
the application of the limited liability enunciated under the appropriate articles of the Code of
Commerce. . . . . Collaterally, determination of the question of whether execution of judgments which
have become final and executory may be stayed is also an issue.

We shall tackle the latter issue first. This Court has always been consistent in its stand that the very
purpose for its existence is to see the accomplishment of the ends of justice. Consistent with this view, a
number of decisions have originated herefrom, the tenor of which is that no procedural consideration is
sancrosanct if such shall result in the subverting of justice. The right to execution after finality of a
decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1885]), this Court ruled
that:

xxx xxx xxx

. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and
to exercise equitable control over such enforcement. The court has authority to inquire whether its
judgment has been executed, and will remove obstructions to the enforcement thereof. Such authority
extends not only to such orders and such writs as may be necessary to prevent an improper enforcement
of the judgment. If a judgment is sought to be perverted and made a medium of consummating a wrong
the court on proper application can prevent it. 42

Fourth. Petitioners in G.R. No. 92735 ever that it was error for the respondent Court of Appeals to allow
Aboitiz the benefit of the limited liability rule despite its failure to present evidence to prove its
entitlement thereto in the court below. Petitioners Monarch and Tabacalera remind this Court that from
the inception of G.R. No. 92735 in the lower court and all the way to the Supreme Court, Aboitiz had not
presented an iota of evidence to exculpate itself from the charge of negligence for the simple reason that
it was declared as in default. 43

It is true that for having been declared in default, Aboitiz was precluded from presenting evidence to
prove its defenses in the court a quo. We cannot, however, agree with petitioners that this circumstance
prevents the respondent Court of Appeals from taking cognizance of Aboitiz' defenses on appeal.
It should be noted that Aboitiz was declared as in default not for its failure to file an answer but for its
absence during pre-trial and the trial proper. In Aboitiz' answer with counterclaim, it claimed that the
sinking of the M/V P. Aboitiz was due to an act of God or unforeseen event and that the said ship had
been seaworthy and fit for the voyage. Aboitiz also alleged that it exercised the due diligence required by
law, and that considering the real and hypothecary nature of maritime trade, the sinking justified the
extinguishment of its liability for the lost shipment. 44

A judgment of default does not imply a waiver of rights except that of being heard and presenting
evidence in defendant's favor. It does not imply admission by the defendant of the facts and causes of
action of the plaintiff, because the codal section 45 requires the latter to adduce evidence in support of
his allegations as an indispensable condition before final judgment could be given in his favor. Nor could it
be interpreted as an admission by the defendant that the plaintiff's causes of action find support in the
law or that the latter is entitled to the relief prayed for. 46 This is especially true with respect to a
defendant who had filed his answer but had been subsequently declared in default for failing to appear at
the trial since he has had an opportunity to traverse, via his answer, the material averments contained in
the complaint. Such defendant has a better standing than a defendant who has neither answered nor
appeared at trial. 47 The former should be allowed to reiterate all affirmative defenses pleaded in his
answer before the Court of Appeals. Likewise, the Court of Appeals may review the correctness of the
evaluation of the plaintiffs evidence by the lower court.

It should also be pointed out that Aboitiz is not raising the issue of its entitlement to the limited liability
rule for the first time on appeal thus, the respondent Court of Appeals may properly rule on the same.

However, whether or not the respondent Court of Appeals erred in finding, upon review, that Aboitiz is
entitled to the benefit of the limited liability rule is an altogether different matter which shall be
discussed below.1awphi1

Rule on Limited Liability. The petitioners assert in common that the vessel M/V P. Aboitiz did not sink by
reason of force majeure but because of its unseaworthiness and the concurrent fault and/or negligence
of Aboitiz, the captain and its crew, thereby barring Aboitiz from availing of the benefit of the limited
liability rule.

The principle of limited liability is enunciated in the following provisions of the Code of Commerce:

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

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

Each co-owner may exempt himself from his liability by the abandonment, before a notary, of the part of
the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances and the freightage served
during the voyage.

Art. 837 appeals the principle of limited liability in cases of collision hence, Arts. 587 and 590 embody the
universal principle of limited liability in all cases. In Yangco v. Laserna, 48 this Court elucidated on the
import of Art. 587 as follows:

The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon-"the vessel with all her equipments
and the freight it may have earned during the voyage." It is true that the article appears to deal only with
the limited liability of the shipowners or agents for damages arising from the misconduct of the captain in
the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way
indicates the true extent of such liability. The consensus of authorities is to the effect that
notwithstanding the language of the aforequoted provision, the benefit of limited liability therein
provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain. 49

"No vessel, no liability," expresses in a nutshell the limited liability rule. The shipowner's or agent's liability
is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction.
The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which
it can attach. 50 This doctrine is based on the real and hypothecary nature of maritime law which has its
origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage
shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or
agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any. 51

Contrary to the petitioners' theory that the limited liability rule has been rendered obsolete by the
advances in modern technology which considerably lessen the risks involved in maritime trade, this Court
continues to apply the said rule in appropriate cases. This is not to say, however, that the limited liability
rule is without exceptions, namely: (1) where the injury or death to a passenger is due either to the fault
of the shipowner, or to the concurring negligence of the shipowner and the captain; 52 (2) where the
vessel is insured; and (3) in workmen's compensation claims. 53

We have categorically stated that Article 587 speaks only of situations where the fault or negligence is
committed solely by the captain. In cases where the ship owner is likewise to be blamed, Article 587 does
not apply. Such a situation will be covered by the provisions of the Civil Code on common carriers. 54

A finding that a fortuitous event was the sole cause of the loss of the M/V P. Aboitiz would absolve Aboitiz
from any and all liability pursuant to Article 1734(1) of the Civil Code which provides in part that common
carriers are responsible for the loss, destruction, or deterioration of the goods they carry, unless the
same is due to flood, storm, earthquake, lightning, or other natural disaster or calamity. On the other
hand, a finding that the M/V P. Aboitiz sank by reason of fault and/or negligence of Aboitiz, the ship
captain and crew of the M/V P. Aboitiz would render inapplicable the rule on limited liability. These issues
are therefore ultimately questions of fact which have been subject of conflicting determinations by the
trial courts, the Court of Appeals and even this Court.
In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving Monarch's and Tabacalera's
evidence, the trial court found that the complete loss of the shipment on board the M/V P. Aboitiz when
it sank was neither due to a fortuitous event nor a storm or natural cause. For Aboitiz' failure to present
controverting evidence, the trial court also upheld petitioners' allegation that the M/V P. Aboitiz was
unseaworthy. 55 However, on appeal, respondent Court of Appeals exculpated Aboitiz from fault or
negligence and ruled that:

. . ., even if she (M/V P. Aboitiz) was found to be unseaworthy, this fault (distinguished from civil liability)
cannot be laid on the shipowner's door. Such fault was directly attributable to the captain. This is so,
because under Art. 612 of the Code of Commerce, among the inherent duties of a captain, are to
examine the vessel before sailing and to comply with the laws on navigation. 56

and that:

. . . although the shipowner may be held civilly liable for the captain's fault . . . having abandoned the
vessel in question, even if the vessel was unseaworthy due to the captain's fault, Aboitiz is still entitled to
the benefit under the rule of limited liability accorded to shipowners by the Code of Commerce. 57

Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial court, which found that the
sinking of the M/V P. Aboitiz was not due to an act of God or force majeure. It added that the evidence
presented by the petitioner Equitable demonstrated the negligence of Aboitiz Shipping Corporation in the
management and operation of its, vessel M/V P. Aboitiz. 58

However, Aboitiz' appeal was favorably acted upon by the respondent Court of Appeals which reiterated
its ruling in G.R. No. 92735 that the unseaworthiness of the M/V P. Aboitiz was not a fault directly
attributable to Aboitiz but to the captain, and that Aboitiz is entitled to the benefit of the limited liability
rule for having abandoned its ship. 59

Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held that the M/V P. Aboitiz was not
lost due to a fortuitous event or force majeure, and that Aboitiz had failed to satisfactorily establish that it
had observed extraordinary diligence in the vigilance over the goods transported by it. 60

In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz and found that the sinking of
the vessel was due to its unseaworthiness and the failure of its crew and master to exercise extraordinary
diligence. 61 Subsequently, however, Aboitiz' petition before the Court of Appeals, docketed as CA-G.R.
SP No. 20844 (now G.R. No. 94867) to annul and set aside the order of execution issued by the lower
court was resolved in favor of Aboitiz. The Court of Appeals brushed aside the issue of Aboitiz' negligence
and/or fault and proceeded to allow the application of the limited liability rule "to accomplish the aims of
justice." 62 It elaborated thus: "To execute the judgment in this case would prejudice the substantial right
of other claimants who have filed suits to claim their cargoes that was lost in the vessel that sank and also
against the petitioner to be ordered to pay more than what the law requires." 63

It should be pointed out that the issue of whether or not the M/V P. Aboitiz sank by reason of force
majeure is not a novel one for that question has already been the subject of conflicting pronouncements
by the Supreme Court. In Aboitiz Shipping Corporation v. Court of Appeals, 64 this Court approved the
findings of the trial court and the appellate court that the sinking of the M/V P. Aboitiz was not due to the
waves caused by tropical storm "Yoning" but due to the fault and negligence of Aboitiz, its master and
crew. 65 On the other hand, in the later case of Country Bankers Insurance Corporation v. Court of
Appeals, 66 this Court issued a Resolution on August 28, 1991 denying the petition for review on the
ground that the Court of Appeals committed no reversible error, thereby affirming and adopting as its
own, the findings of the Court of Appeals that force majeure had caused the M/V P. Aboitiz to founder.

In view of these conflicting pronouncements, we find that now is the opportune time to settle once and
for all the issue or whether or not force mejeure had indeed caused the M/V P. Aboitiz to sink. After
reviewing the records of the instant cases, we categorically state that by the facts on record, the M/V P.
Aboitiz did not go under water because of the storm "Yoning."

It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, during the inclusive dates of October
28-31, 1980, a stormy weather condition prevailed within the Philippine area of responsibility, particularly
along the sea route from Hong Kong to Manila, because of tropical depression "Yoning". 67 But even
Aboitiz' own evidence in the form of the marine protest filed by Captain Racines affirmed that the wind
force when the M/V P. Aboitiz foundered on October 31, 1980 was only ten (10) to fifteen (15) knots
which, under the Beaufort Scale or Wind, falls within scale No. 4 that describes the wind velocity as
"moderate breeze," and characterizes the waves as "small . . . becoming longer, fairly frequent white
horses." 68 Captain Racines also testified in open court that the ill-fated M/V P. Aboitiz was two hundred
(200) miles away from storm "Yoning" when it sank. 69

The issue of negligence on the part of Aboitiz, and the captain and crew of the M/V P. Aboitiz has also
been subject of conflicting rulings by this Court. In G.R. No. 100373, Country Bankers Insurance
Corporation v. Court of Appeals, this Court found no error in the findings of the Court of Appeals that the
M/V P. Aboitiz sank by reason of force majeure, and that there was no negligence on the part of its
officers and crew. In direct contradiction is this Court's categorical declaration in Aboitiz Shipping
Corporation v. Court of Appeals," 70 to wit:

The trial court and the appellate court found that the sinking of the M/V P. Aboitiz was not due to the
waves caused by tropical storm "Yoning" but due to the fault and negligence of petitioner, its master and
crew. The court reproduces with approval said findings . . . . 71

However, in the subsequent case of Aboitiz Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd., 72 this Court exculpated Aboitiz from fault and/or negligence while holding
that the unseaworthiness of the M/V P. Aboitiz was only attributable to the negligence of its captain and
crew. Thus,

On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on
petitioner's lap, absent a factual basis for such conclusion. The unseaworthiness found in some cases
where the same has been ruled to exist is directly attributable to the vessel's crew and captain, more so
on the part of the latter since Article 612 of the Code of Commerce provides that among the inherent
duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a
construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While
the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis,
the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite
appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals,
whose finding of "unseaworthiness" clearly did not pertain to the structural condition of the vessel which
is the basis of the BMI's findings, but to the condition it was in at the time of the sinking, which condition
was a result of the acts of the captain and the crew. 73
It therefore becomes incumbent upon this Court to answer with finality the nagging question of whether
or not it was the concurrent fault and/or negligence of Aboitiz and the captain and crew of the ill-fated
vessel that had caused it to go under water.

Guided by our previous pronouncements and illuminated by the evidence now on record, we reiterate
our findings in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.
74 , that the unseaworthiness of the M/V P. Aboitiz had caused it to founder. We, however, take
exception to the pronouncement therein that said unseaworthiness could not be attributed to the ship
owner but only to the negligent acts of the captain and crew of the M/V P. Aboitiz. On the matter of
Aboitiz' negligence, we adhere to our ruling in Aboitiz Shipping Corporation v. Court of Appeals, 75 that
found Aboitiz, and the captain and crew of the M/V P. Aboitiz to have been concurrently negligent.

During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735), petitioners Monarch and
Tabacalera presented a survey from Perfect Lambert, a surveyor based in Hong Kong that conducted an
investigation on the possible cause of the sinking of the vessel. The said survey established that the cause
of the sinking of the vessel was the leakage of water into the M/V P. Aboitiz which probably started in the
forward part of the No. 1 hull, although no explanation was proffered as to why the No. 2 hull was
likewise flooded. Perfect Lambert surmised that the flooding was due to a leakage in the shell plating or a
defect in the water tight bulk head between the Nos. 1 and 2 holds which allowed the water entering hull
No. 1 to pass through hull No. 2. The surveyor concluded that whatever the cause of the leakage of water
into these hulls, the seaworthiness of the vessel was definitely in question because the breaches of the
hulls and serious flooding of the two cargo holds occurred simultaneously in seasonal weather. 76

We agree with the uniform finding of the lower courts that Aboitiz had failed to prove that it observed
the extraordinary diligence required of it as a common carrier. We therefore reiterate our
pronouncement in Aboitiz Corporation v. Court of Appeals 77 on the issue of Aboitiz' liability in the
sinking of its vessel, to wit:

In accordance with Article 1732 of the Civil Code, the defendant common carrier from the nature of its
business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by it according to all circumstances of the
case. While the goods are in the possession of the carrier, it is but fair that it exercise extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was due to
the carrier's fault or negligence; that is necessary to protect the interest of the shipper which is at the
mercy of the carrier . . . In the case at bar, the defendant failed to prove hat the loss of the subject cargo
was not due to its fault or negligence. 78

The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the
sinking of its vessel in the face of the foregoing expert testimony constrains us to hold that Aboitiz was
concurrently at fault and/or negligent with the ship captain and crew of the M/V P. Aboitiz. This is in
accordance with the rule that in cases involving the limited liability of shipowners, the initial burden of
proof of negligence or unseaworthiness rests on the claimants. However, once the vessel owner or any
party asserts the right to limit its liability, the burden of proof as to lack of privity or knowledge on its part
with respect to the matter of negligence or unseaworthiness is shifted to it. 79 This burden, Aboitiz had
unfortunately failed to discharge. That Aboitiz failed to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or negligence should not however mean that
the limited liability rule will not be applied to the present cases. The peculiar circumstances here demand
that there should be no strict adherence to procedural rules on evidence lest the just claims of
shippers/insurers be frustrated. The rule on limited liability should be applied in accordance with the
latest ruling in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.,
80 promulgated on January 21, 1993, that claimants be treated as "creditors in an insolvent corporation
whose assets are not enough to satisfy the totality of claims against it." 81 To do so, the Court set out in
that case the procedural guidelines:

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

xxx xxx xxx

In fairness to the claimants and as a matter of equity, the total proceeds of the insurance and pending
freightage should now be deposited in trust. Moreover, petitioner should institute the necessary
limitation and distribution action before the proper admiralty court within 15 days from finality of this
decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage
in order to safeguard the same pending final resolution of all incidents, for final pro-rating and settlement
thereof. 82 (Emphasis supplied.)

There is no record that Aboitiz. has instituted such action or that it has deposited in trust the insurance
proceeds and freightage earned. The pendency of the instant cases before the Court is not a reason for
Aboitiz to disregard the aforementioned order of the Court. In fact, had Aboitiz complied therewith, even
these cases could have been terminated earlier. We are inclined to believe that instead of filing the suit as
directed by this Court, Aboitiz tolerated the situation of several claimants waiting to gel hold of its
insurance proceeds, which, if correctly handled must have multiplied in amount by now. By its failure to
abide by the order of this Court, it had caused more damage to the claimants over and above that which
they have endured as a direct consequence of the sinking of the M/V P. Aboitiz. It was obvious that from
among the many cases filed against it over the years, Aboitiz was waiting for a judgment that might prove
favorable to it, in blatant violation of the basic provisions of the Civil Code on abuse of rights.

Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims singly rather than exert
effort towards the consolidation of all claims. Consequently, courts have arrived at conflicting decisions
while claimants waited over the years for a resolution of any of the cases that would lead to the eventual
resolution of the rest. Aboitiz failed to give the claimants their due and to observe honesty and good faith
in the exercise of its rights. 83

Aboitiz' blatant disregard of the order of this Court in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd. 84 cannot be anything but, willful on its part. An act is
considered willful if it is done with knowledge of its injurious effect; it is not required that the act be done
purposely to produce the injury. 85 Aboitiz is well aware that by not instituting the said suit, it caused the
delay in the resolution of all claims against it. Having willfully caused loss or injury to the petitioners in a
manner that is contrary to morals, good customs or public policy, Aboitiz is liable for damages to the
latter. 86
Thus, for its contumacious act of defying the order of this Court to file the appropriate action to
consolidate all claims for settlement, Aboitiz must be held liable for moral damages which may be
awarded in appropriate cases under the Chapter on human relations of the Civil Code (Articles 19 to 36).
87

On account of Aboitiz' refusal to satisfy petitioners' claims in accordance with the directive of the Court in
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., it acted in
gross and evident bad faith. Accordingly, pursuant to Article 2208 of the Civil Code, 88 petitioners should
be granted attorney's fees.

WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED. The decisions of the Court
of Appeals in CA-G.R. No. SP-17427 dated March 29, 1990, CA-G.R. SP No. 20844 dated August 15, 1990,
and CA-G.R. CV No. 15071 dated August 24, 1990 are AFFIRMED with the MODIFICATION that respondent
Aboitiz Shipping Corporation is ordered to pay each of the respective petitioners the amounts of
P100,000.00 as moral damages and P50,000.00 as attorney's fees, and treble the cost of suit.

Respondent Aboitiz Shipping Corporation is further directed to comply with the Order promulgated by
this Court on January 21, 1993 in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd., G.R. No. 100446, January 21, 1993, to (a) institute the necessary limitation and
distribution action before the proper Regional Trial Court, acting as admiralty court, within fifteen (15)
days from the finality of this decision, and (b) thereafter to deposit with the said court the insurance
proceeds from the loss of the vessel, M/V P. Aboitiz, and the freightage earned in order to safeguard the
same pending final resolution of all incidents relative to the final pro-rating thereof and to the settlement
of all claims.1âwphi1.nêt

SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-58897 December 3, 1987

LUZON STEVEDORING CORPORATION, petitioner,


vs.
COURT OF APPEALS, HIJOS DE F. ESCANO, INC., and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES,
respondents.

GANCAYCO, J.:

On May 30, 1968 at past 6:00 in the morning a maritime collision occurred within the vicinity of the
entrance to the North Harbor, Manila between the tanker LSCO "Cavite" owned by Luzon Stevedoring
Corporation and MV "Fernando Escano" a passenger ship owned by Hijos de F. Escano, Inc. as a result of
which said passenger ship sunk. An action in admiralty was filed by Hijos de F. Escano, Inc. and Domestic
Insurance Company of the Philippines against the Luzon Stevedoring Company (LSC) in the Court of First
Instance of Cebu. In the course of the trial, the trial court appointed two commissioners representing the
plaintiffs and defendant to determine the value of the LSCO "CAVITE." Said commissioners found the
value thereof to be P180,000.00.

After trial on the merits, a decision was rendered on January 24, 1974 finding that LSCO "Cavite" was
solely to blame for the collision, thus its dispositive portion reads as follows:

WHEREFORE, based on all the foregoing considerations, the Court renders judgment in favor of the
plaintiffs and against the defendant ordering the latter to pay to the plaintiff Domestic Insurance
Company of the Philippines the sum of P514,000.00, and to the plaintiff Hijos de F. Escano, Inc. the sum
of P68,819.00, with interest on both sums at the legal rate, from the date the complaint was filed and the
further sum of P252,346.70, with interest at the legal rate from August 7, 1972 and the sum of
P163,721.91, without interest in trust for, and with direction that it pay the same to, the claimants
concerned.

With costs against the defendant. 1

In the penultimate paragraph of the decision the trial court held:

With respect to the defense that defendant's liability is limited to the value of the LSCO "Cavite" and
freight earned, invoking Art. 837 of the Code of Commerce, the Court believes and so holds that the
defense has not been established. Moreover, the evidence is such that in principle Art. 837 does not
apply here. The counterclaim of the defendant is likewise ordered dismissed for lack of merit. 2

Not satisfied therewith the defendant interposed an appeal therefrom to the Court of Appeals wherein in
due course a decision was rendered on June 30, 1981 affirming the decision of the court a quo in toto
with costs against appellant. The motion for reconsideration filed by the defendant of the decision was
denied in a resolution of the Court of Appeals of November 7, 1981. Hence said defendant filed a petition
for certiorari in this Court based on the following grounds:

THE LOWER COURT ERRED IN FINDING THAT THE LSCO "CAVITE" WAS THE VESSEL AT FAULT IN THE
COLLISION.

II

THE LOWER COURT ERRED IN NOT FINDING THAT THE COLLISION BETWEEN THE M/V "FERNANDO
ESCANO" AND THE LSCO "CAVITE" WAS DUE SOLELY AND EXCLUSIVELY TO THE FAULT, NEGLIGENCE AND
LACK OF SKILL OF THE MASTER OF THE FORMER VESSEL.

III

THE LOWER COURT ERRED IN NOT RULING THAT THE CIVIL LIABILITY OF THE PETITIONER, IF ANY THERE
BE, SHOULD BE LIMITED TO THE VALUE OF THE LSCO "CAVITE" WITH ALL ITS APPURTENANCES AND
FREIGHT- AGE WHEN THE COLLISION TOOK PLACE. 3

In a resolution of February 26, 1982 this Court denied the petition for lack of merit.
A motion for reconsideration of said resolution was filed by petitioner limiting the issue to the legal
question of whether under Art. 837 of the Code of Commerce abandonment of vessel at fault is
necessary in order that the liability of owner of said vessel shall be limited only to the extent of the value
thereof, its appurtenances and freightage earned in the voyage. After respondents submitted their
comment to the motion as required, on September 29, 1982 this Court denied the motion for
reconsideration for lack of merit.

With leave of court petitioner filed a second motion for reconsideration of said resolution raising the
following issues:

1. Whether abandonment is required under Article 837 of the Code of Commerce. The decisions of
this Honorable Court cited by the parties in support of their respective positions only imply the answer to
the question, and the implied answers are contradictory.

2. If abandonment is required under Article 837 of the Code of Commerce, when should it be
made? The Code of Commerce is silent on the matter. The decision of this Honorable Court in Yangco v.
Laserna, 13 Phil. 330, left the question open and no other decision, as far as petitioner can ascertain, has
resolved the question.

3. Is the decision of this Honorable Court in Manila Steamship Co., Inc. v. Abdulhama,n 100 Phil. 32,
wherein it was held that "(t)he international rule to the effect that the right of abandonment of vessels,
as a legal station of a shipowner's own fault," invoked by private respondents and apparently a major
consideration in the denial of the motion for reconsideration, applicable to petitioner under the
circumstances of the case at bar?4

The respondents were required to comment thereto and after said comment was submitted petitioners
submitted a reply thereto to which the respondents filed a rejoinder.

On November 28, 1983, the Court gave due course to the petition for review and considered the
respondents' comment thereto as the Answer. The parties were required to file their briefs. Both parties
having filed their briefs the case is now submitted for decision.

Articles 587, 590, and 837 of the Code of Commerce provide as follows:

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

xxx xxx xxx

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

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

ART. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall
be understood as limited to the value of the vessel with all her appurtenances and freight earned during
the voyage.5

In the case of Philippine Shipping Company vs. Garcia,6 which is an action for damages instituted by the
Philippine Shipping Company for the loss of Steamship "Ntra. Sra. de Lourdes" as a result of the collision
with the Steamship "Navarra" of Garcia, it was found that the "Navarra" was responsible for the collision.
The claim of the Philippine Shipping is that the defendant should pay P18,000.00, the value of the
"Navarro" at the time of its loss, in accordance with the provision of Article 837 of the Code of
Commerce, and that it was immaterial that the "Navarro" had been entirely lost provided the value could
be ascertained since the extent of liability of the owner of the colliding vessel resulting from the collision
is to be determined by its value.

This Court speaking through the then Chief Justice Arellano held:

Article 837 of the Code of Commerce provides: "The civil liability contracted by the shipowners in the
cases prescribed in this section shall be understood as limited to the value of the vessel with all her
equipment and all the freight money earned during the voyage "

"This section is a necessary consequence of the right to abandon the vessel given to the shipowner in
article 587 of the code, and it is one of the many superfluities contained in the code." (Lorenzo Benito,
"Lecciones," 352.)

ART. 587. The agent shall also be civilly liable for the indemnities in favor of third persons which
arise from the conduct of the captain in the care of the goods which the vessel carried but he may
exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have
earned during the trip.

ART. 590. The part owners of a vessel shall be civilly liable, in the proportion of their contribution to
the common fund, for the results of the acts of the captain referred to in Article 587. Each part owner
may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.

The "Exposicion de motivos" of the Code of Commerce contains the following: "The present code (1829)
does not determine the juridical status of the agent where such agent is not himself the owner of the
vessel. This omission is supplied by the proposed code, which provides in accordance with the principles
of maritime law that by agent it is to be understood the person intrusted with the provisioning of the
vessel, or the one who represents her in the port in which she happens to be. This person is the only one
who represents the vessel that is to say, the only one who represents the interests of the owner of the
vessel. This provision has therefore cleared the doubt which existed as to the extent of the liability, both
of the agent and of the owner of the vessel. Such liability is limited by the proposed code to the value of
the vessel and other things appertaining thereto."

There is no doubt that if the Navarro had not been entirely lost, the agent, having been held liable for the
negligence of the captain of the vessel could have abandoned her with all her equipment and the freight
money earned during the voyage, thus bringing himself within the provisions of article 837 in so far as the
subsidiary civil liability is concerned This abandonment which would have amounted to an offer of the
value of the vessel, of her equipment, and freight money earned could not have been refused, and the
agent could not have been personally compelled, under such circumstances, to pay the 18,000 pesos, the
estimated value of the vessel at the time of the collision.

This is the difference which exists between the lawful acts and lawful obligations of the captain and the
liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts
and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason
that such obligations arise from the contract of agency (provided, however, that the captain does not
exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the ship
agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not
extend further. For this reason the Code of Commerce makes the agent liable to the extent of the value
of the vessel, as the codes of the principal maritime nations provide, with the vessel, and not individually.
Such is also the spirit of our code.

The spirit of our code is accurately set forth in a treatise on maritime law, from which we deem proper to
quote the following as the basis of this decision:

That which distinguishes the maritime from the civil law and even from the mercantile law in general is
the real and hypothecary nature of the former, and the many securities of a real nature that maritime
customs from time immemorial the laws, the codes, and the later jurisprudence, have provided for the
protection of the various and conflicting interests which are ventured and risked in maritime expeditions,
such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees,
those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of
the crew as to their wages, and those of a constructor as to repairs made to the vessel.

As evidence of this "real" nature of the maritime law we have (1) the limitation of the liability of the
agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and
the embargo and detention of the vessel even in cases where the ordinary civil law would not allow more
than a personal action against the debtor or person liable. It will be observed that these rights are
correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the
vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is
also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without
waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person.

This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no
personal action lies against the owner or agent of the vessel. For instance, where the' vessel is lost the
sailors and members of the crew can not recover their wages; in case of collision, the liability of the agent
is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and cargo lose
all their rights and can not claim reimbursement under the law.

There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which
the thing is exposed, and (2) the "real" nature of the maritime law, exclusively "real," according to which
the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent is only liable
with the vessel and freight money and both may be lost through the accidents of navigation it is only just
that the maritime creditor have some means of obviating this precarious nature of his rights by detaining
the ship, his only security, before it is lost.
The liens tacit or legal, which may exist upon the vessel and which a purchaser of the same would be
obliged to respect and recognize are — in addition to those existing in favor of the State by virtue of the
privileges which are granted to it by all the laws — pilot, tonnage, and port dues and other similar
charges, the wages of the crew earned during the last voyage as provided in article 646 of the Code of
Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case
his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner as
provided in article 608, and all other liabilities arising from collisions under Articles 837 and 838.'
(Madariaga pp. 60, 62, 63, 85.

We accordingly hold that the defendant is liable for the indemnification to which the plaintiff is entitled
by reason of the collision but he is not required to pay such indemnification for the reason that the
obligation thus incurred has been extinguished on account of the loss of the thing bound for the payment
thereof and in this respect the judgment of the court below is affirmed except in so far as it requires the
plaintiff to pay the costs of this action, which is not exactly proper. No special order is made as to costs of
this appeal. After the expiration of twenty days let judgment be entered in accordance herewith and ten
days thereafter the record be remanded to the Court of First Instance for execution. So ordered. 7

From the foregoing the rule is that in the case of collision, abandonment of the vessel is necessary in
order to limit the liability of the shipowner or the agent to the value of the vessel, its appurtenances and
freightage earned in the voyage in accordance with Article 837 of the Code of Commerce. The only
instance where such abandonment is dispensed with is when the vessel was entirely lost. In such case,
the obligation is thereby extinguished.

In the case of Government of the Philippines vs. Maritime this Court citing Philippine Shipping stated the
exception thereto in that while "the total destruction of the vessel extinguishes a maritime lien, as there
is no longer any risk to which it can attach, but the total destruction of the vessel does not affect the
liability of the owner for repairs of the vessel completed before its loss,8 interpreting the provision of
Article 591 of the Code of Commerce in relation with the other Articles of the same Code.

In Ohta Development Company vs. Steamship "Pompey" 9 it appears that at the pier sunk and the
merchandise was lost due to the fault of the steamship "Pompey" that was then docked at said pier. This
Court ruled that the liability of the owner of "Pompey" may not be limited to its value under Article 587 of
the Code of Commerce as there was no abandonment of the ship. We also held that Article 837 cannot
apply as it refers to collisions which is not the case here. 10

In the case of Guison vs. Philippine Shipping Company 11 involving the collision at the mouth of the Pasig
river between the motor launches Martha and Manila H in which the latter was found to be at fault, this
Court, applying Article 837 of the Code of Commerce limited the liability of the agent to its value.

In the case of Yangco vs. Laserna 12 which involved the steamers SS "Negros" belonging to Yangco which
after two hours of sailing from Romblon to Manila encountered rough seas as a result of which it capsized
such that many of its passengers died in the mishap, several actions for damages were filed against
Yangco, by a verified pleading, he sought to abandon the vessel to the plaintiffs in the three cases
together with all the equipment without prejudice to the right to appeal. This Court in resolving the issue
held as follows:

Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or
agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly
held liable in damages for the consequent death of its passengers? We are of the opinion and so hold that
this question is controlled by the provision of article 587 of the Code of Commerce. Said article reads:

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

The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to -abandon — "the vessel with all her
equipments and the freight it may have earned during the voyage." It is true that the article apears to
deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the
captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in
no way indicates the true extent of such liability. The consensus of authorities is to the effect that
notwithstanding the language of the afore-quoted provision, the benefit of limited liability therein
provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco commenting on said
article, said:

La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se
atiende a lo escrito, solo se refiere a las indemnizaciones a que diere lugar la conducta del Capitan en la
custodia de los efectos que cargo en el buque.

Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas de
obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para fortalecer
nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:

El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo que
quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del buque, la
garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos;
(Echavarri, Codigo de Comercio, Tomo 4, 2. ed., pags. 483- 484.)

A cursory examination will disclose that the principle of limited liability of a shipowner or agent is
provided for in but three articles of the Code of Commerce — Article 587 aforequoted and articles 590
and 837. Article 590 merely reiterates the principle embodied in article 587, where the vessel is owned by
several person Article 837 applies the same principle in cases of collision and it has been observed that
said article is but 'a necessary consequence of the right to abandon the vessel given to the shipowner in
Article 587 to the Code, and it is one of the many superfluities contained in the Code. (Lorenzo Benito,
Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect therefore, only
Articles 587 and 590 are the provisions contained in our Code of Commerce on the matter, and the
framers of said code had intended those provisions to embody the universal principle of limited liability in
all cases. ... . 13

In the said case We invoked our ruling in Philippine Shipping and concluded as follows:

In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held
civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of
collisions or shipwrecks, his liability is merely coextensive with his interest in the vessel such that a total
loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact
that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De
Villata v. Stanely 32 Phil. 541), and that the relationship between the petitioner and the passengers who
died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of
contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such
liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not
appear that the vessel was insured.

Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance
with law or not, is immaterial The vessel having totally perished any act of abandonment would be an Idle
ceremony. 14

In the case of Abueg vs. San Diego,15 which involves a claim of compensation under the Workmen's
Compensation Act for the deceased members of the crew of the MS "San Diego II" and MS "Bartolome"
which were caught by a typhoon in the vicinity of Mindoro Island and as a consequence of which they
were sunk and totally lost, this Court held as follows:

Counsel for the appellant cite article 7837 of the Code of Commerce which provides that if the vessel
together with all her tackle and freight money earned during the voyage are abandoned, the agent's
liability to third persons for tortious acts of the captain in the care of the goods which the ship carried is
extinguished (Yangco vs. Laserna, 73 Phil. 330) Article 937 of the same Code which provides that in cases
of collision, the shipowners' liability is limited to the value of the vessel with all her equipment and freight
earned during the voyage (Philippine Shipping Company vs. Garcia, 6 Phil. 281); and Article 643 of the
same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages of
the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as
owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on
October 1, 1941, was extinguished.

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of
the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel
equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship,
equipment, and freight, his liability was extinguished

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of,
a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the
loss of the ship as a result of collision; nor the responsibility for wages of the crew, but a liability created
by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them,
while engaged in the performance of their work or employment, or the heirs and dependents of such
laborers and employees in the event of death caused by their employment. Such compensation has
nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in
the cost of production which must be included in the budget of any well managed industry.
Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57 Phil. 446), and Murillo vs. Mendoza (66
Phil. 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by
him was not fully discussed, as in the case of Yangco vs. Laserna, supra, is not entirely correct. In the last
mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight,
and insurance, if any, was the lis mota In the case of Enciso vs. Dy-Liaco, supra, the application of the
Workmen's Compensation Act to a master or patron who perished as a result of the sinking of the
motorboat of which he was the master, was the controversy submitted to the court for decision. This
Court held in that case that .It has been repeatedly stated that the Workmen's Compensation Act was
enacted to abrogate the common law and our Civil Code upon culpable acts and omissions, and that the
employer need not be guilty of neglect or fault in order that responsibility may attach to him' (pp. 449-
450); and that the shipowner was liable to pay compensation provided for in the Workmen's
Compensation Act, notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs.
Mendoza, supra, this Court held that 'The rights and responsibilities defined in said Act must be governed
by its own peculiar provisions in complete disregard of other similar provisions of the Civil as well as the
mercantile law. If an accident is compensable under the Workmen's Compensation Act, it must be
compensated even when the workman's right is not recognized by or is in conflict with other provisions of
the Civil Code or of the Code of Commerce. The reason behind this principle is that the Workmen's
Compensation Act was enacted by the Legislature in abrogation of the other existing laws.' This quoted
part of the decision is in answer to the contention that it was not the intention of the Legislature to
repeal Articles 643 and 837 of the Code of Commerce with the enactment of the Workmen's
Compensation Act. 16

In said case the Court reiterated that the liability of the shipowner or agent under the provision of Articles
587 and 837 of the Code of Commerce is limited to the value of the vessel with all her equivalent and
freight earned during the voyage if the shipowner or agent abandoned the ship with all the equipment
and freight. However, it does not apply to the liability under the Workmen's Compensation Act where
even as in said case the vessel was lost the liability thereunder is still enforceable against the employer or
shipowner.

The case of Manila Steamship Company, Inc. vs. Insa Abdulhaman and Lim Hong To 17 is a case of
collision of the ML "Consuelo V" and MS "Bowline Knot" as a result of which the ML "Consuelo V"
capsized and was lost where nine (9) passengers died or were missing and all its cargoes were lost. In the
action for damages arising from the collision, applying Article 837 of the Code of Commerce, this Court
held that in such case where the collision was imputable to both of them, each vessel shall suffer her own
damages and both shall be solidarily liable for the damages occasioned to their cargoes.18 Thus, We held:

In fact, it is a general principle, well established maritime law and custom, that shipowners and ship
agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the
indemnities due the third persons (Article 587); so that injured parties may immediately look for
reimbursement to the owner of the ship, it being universally recognized that the ship master or captain is
primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260). This
direct liability, moderated and limited by the owner's right of abandonment of the vessel and earned
freight (Article 587) has been declared to exist not only in case of breached contracts, but also in cases of
tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511; 515):

xxx xxx xxx


It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and
vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would
render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater
protection of injured parties. Shipowners would be able to escape liability in practically every case,
considering that the qualifications and licensing of ship masters and officers are determined by the State,
and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To compel
the parties prejudiced to look to the crew for indemnity and redress would be an illusory remedy for
almost always its members. are, from captains down, mere wage earners.

We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of
the Manila Steamship Co., that it is exempt from liability for the collision with the M L "Consuelo V " due
to the absence of negligence on its part in the selection and supervision of the officers and crew of the
M/S "Bowline Knot. 19

However, insofar as respondent Lim Hong To, owner of M L "Consuelo V" who admittedly employed an
unlicensed master and engineer and who in his application for permission to operate expressly assumed
full risk and responsibility thereby (Exh. 2) this Court held that the liability of Lim Hong To cannot be
limited to the value of his motor launch by abandonment of the vessel as invoked in Article 587 of the
Code of Commerce, We said:

The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner's liability, does not apply to cases where the injury or the average is due to shipowner's own
fault. Farina (Derecho Commercial Maritima Vol. 1, pp. 122-123), on the authority of judicial precedents
from various nations, sets the rule to be as follows:

xxx xxx xxx 20

From the foregoing, it is clear that in case of collision of vessels, in order to avail of the benefits of Article
837 of the Code of Commerce the shipowner or agent must abandon the vessel. In such case the civil
liability shall be limited to the value of the vessel with all the appurtenances and freight earned during the
voyage. However, where the injury or average is due to the ship-owner's fault as in said case, the
shipowner may not avail of his right to limited liability by abandoning the vessel.

We reiterate what We said in previous decisions that the real and hypothecary nature of the liability of
the shipowner or agent is embodied in the provisions of the Maritime Law, Book III, Code of Commerce.
21 Articles 587, 590 and 837 of the same code are precisely intended to limit the liability of the
shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage,
provided that owner or agent abandons the vessel. Although it is not specifically provided for in Article
837 of the same code that in case of collision there should be such abandonment to enjoy such limited
liability, said article on collision of vessels is a mere amplification of the provisions of Articles 587 and 590
of same code where abandonment of the vessel is a pre-condition. Even without said article, the parties
may avail of the provisions of Articles 587 and 590 of same code in case of collision. This is the reason
why Article 837 of the same code is considered a superfluity. 22

Hence the rule is that in case of collision there should be abandonment of the vessel by the shipowner or
agent in order to enjoy the limited liability provided for under said Article 837.
The exception to this rule is when the vessel is totally lost in which case there is no vessel to abandon so
abandonment is not required. Because of such total loss the liability of the shipowner or agent for
damages is extinguished. Nevertheless, the shipowner or agent is personally liable for claims under the
Workmen's Compensation Act and for repairs of the vessel before its loss. 23

In case of illegal or tortious acts of the captain the liability of the shipowner and agent is subsidiary. In
such instance the shipowner or agent may avail of the provisions of Article 837 of the Code by
abandoning the vessel. 24

However, if the injury or damage is caused by the shipowner's fault as where he engages the services of
an inexperienced and unlicensed captain or engineer, he cannot avail of the provisions of Article 837 of
the Code by abandoning the vessel. 25 He is personally liable for the damages arising thereby.

In the case now before the Court there is no question that the action arose from a collision and the fault
is laid at the doorstep of LSCO "Cavite" of petitioner. Undeniably petitioner has not abandoned the vessel.
Hence petitioner can not invoke the benefit of the provisions of Article 837 of the Code of Commerce to
limit its liability to the value of the vessel, all the appurtenances and freightage earned during the voyage.

In the light of the foregoing conclusion, the issue as to when abandonment should be made need not be
resolved.

WHEREFORE, the petition is DENIED with costs against petitioner.

SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-51165 June 21, 1990

HEIRS OF AMPARO DE LOS SANTOS, HEIRS OF ERNANIE DELOS SANTOS, HEIRS OF AMABELLA DELOS
SANTOS, HEIRS OF LENNY DELOS SANTOS, HEIRS OF MELANY DELOS SANTOS, HEIRS OF TERESA PAMATIAN,
HEIRS OF DIEGO SALEM, AND RUBEN REYES, petitioners,
vs.
HONORABLE COURT OF APPEALS AND COMPANIA MARITIMA, respondents.

Severino Z. Macavinta, Jr. for petitioners.

Dinglasan Law Office for private respondent.

MEDIALDEA. J.:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals in CA-G.R. No.
58118-R affirming the decision in Civil Case No. 74593 of the then Court of First Instance (now Regional
Trial Court), Branch XI, Manila which dismissed the petitioners' claim for damages against Compania
Maritima for the injury to and death of the victims as a result of the sinking of M/V Mindoro on
November 4, 1967.

The trial court found the antecedent facts to be as follows:

This is a complaint originally filed on October 21, 1968 (p. 1, rec.) and amended on October 24, 1968 (p.
16 rec.) by the heirs of Delos Santos and others as pauper litigants against the Compania Maritima, for
damages due to the death of several passengers as a result of the sinking of the vessel of defendant, the
M/V 'Mindoro', on November 4, 1967.

There is no dispute in the record that the M/V 'Mindoro' sailed from pier 8 North Harbor, Manila, on
November 2,1967 at about 2:00 (should have been 6:00 p.m.) in the afternoon bound for New
Washington, Aklan, with many passengers aboard. It appears that said vessel met typhoon 'Welming' on
the Sibuyan Sea, Aklan, at about 5:00 in the morning of November 4, 1967 causing the death of many of
its passengers, although about 136 survived.

Mauricio delos Santos declared that on November 2, 1967 he accompanied his common-law wife,
Amparo delos Santos, and children, namely: Romeo, Josie, Hernani, who was 10 years old, Abella, 7 years
old, Maria Lemia, 5 years old and Melany, 5 months old, to pier 8, North Harbor, Manila, to board the
M/V Mindoro 'bound for Aklan. It appears that Amparo delos Santos and the aforesaid children brought
all their belongings, including household utensils valued at P 1,000.00, with the intention of living in Aklan
permanently.

As already stated, the boat met typhoon 'Welming' and due to the strong waves it sank causing the
drowning of many passengers among whom were Amparo delos Santos and all the aforesaid children. It
appears also that Teresa Pamatian and Diego Salim, who were also passengers also drowned. Plaintiff
Ruben Reyes was one of the survivors. 'The plaintiffs presented the birth and death certificates of Amparo
delos Santos and the children (Exhs. 1, I-1, J, J-1, K, K-1, L, L-1, 0 to S, pp. 180 to 194 rec.). They also
presented copies of the manifest of passengers of the M/V 'Mindoro' on November 2,1967 (Exhs. B & C,
pp. 163 to 161 rec.).

Eliadora Crisostomo de Justo, one of the survivors, corroborated the testimony of Mauricio delos Santos
that he accompanied Amparo delos Santos and her children to the port to board the M/V Mindoro. She is
a cousin of Amparo delos Santos' husband. According to her, when she boarded the second deck of the
vessel, she saw about 200 persons therein. She tried to see whether she could be accommodated in the
third deck or first deck because the second deck was very crowded. She admitted that she was not
included in the manifest because she boarded the boat without a ticket, but she purchased one in the
vessel. She testified further that the boat was not able to reach its destination due to its sinking. During
the typhoon before the vessel sunk, she was able to board a 'balsa'.

Ruben Reyes, the other survivor, declared that he paid for his ticket before boarding the M/V Mindoro. At
that time he had with him personal belongings and cash all in the amount of P2,900.00. It appears that
Felix Reyes Jakusalem, Teresa Pamatian and Amparo delos Santos drowned during the sinking of the
vessel. He was able to swim on (sic) an island and was with the others, rescued later on and brought to
the hospital. The survivors were then taken ashore (Exh. M, p. 188, rec.).
Dominador Salim declared that Teresa Pamatian, his aunt and Diego Salim, his father, drowned along with
the sinking of the M/V Mindoro. Tins witness declared that he accompanied both his father and his aunt
to the pier to board the boat and at the time Teresa Pamatian was bringing cash and personal belongings
of about P250.00 worth. His father brought with him P200.00 in cash plus some belongings. He admitted
that when his father boarded the vessel he did not have yet a ticket.

The plaintiffs further submitted in evidence a copy of a Radiogram stating among other things that the
MN Mindoro was loaded also with 3,000 cases of beer, one dump truck and 292 various goods (Exhs. D
and D-1, p. 162 rec).

In alleging negligence on the part of the vessel, plaintiffs introduced in evidence a letter sent to the
Department of Social Welfare concerning the resurvey of the M/V Mindoro victims (Exh. F, p. 169 rec.)
and a telegram to the Social Welfare Administration (Exh. G, p. 170 rec.), a resurvey of the M/V 'Mindoro'
victims (Exh. H, p. 171 rec.), a complete list of the M/V 'Mindoro' victims (Exhs. H-1 to H-8, pp. 172179
rec.), a certified true copy of the Special Permit to the Compania Maritima issued by the Bureau of
Customs limiting the vessel to only 193 passengers (Exh. X, p. 318 rec.).

It appears that in a decision of the Board of Marine Inquiry, dated February 2, 1970, it was found that the
captain and some officers of the crew were negligent in operating the vessel and imposed upon them a
suspension and/or revocation of their license certificates. It appears, however, that this decision cannot
be executed against the captain who perished with the vessel (Exhs. E, E-1, E-1-A, E-2 to E-9, pp. 163- 168
rec.).

Upon agreement of the parties, the plaintiffs also introduced in evidence the transcript of stenographic
notes of the testimony of Boanerjes Prado before Branch I of this Court (Exh. U, pp. 203-220) and that of
Felimon Rebano in the same branch (Exh. V, pp. 225-260 rec.).

The defendant alleges that no negligence was ever established and, in fact, the shipowners and their
officers took all the necessary precautions in operating the vessel. Furthermore, the loss of lives as a
result of the drowning of some passengers, including the relatives of the herein plaintiff, was due to force
majeure because of the strong typhoon 'Welming.' It appears also that there was a note of marine
protest in connection with the sinking of the vessel as substantiated by affidavits (Exhs. 3, 3-A, 3-B, 3-C, 3-
D, 3-E, 3-F and 3-G rec.). On this score Emer Saul, member of the PC Judge Advocate General's Office,
brought to Court records of this case which were referred to their office by the Board of Marine Inquiry.
According to him the decision referred to by the plaintiffs was appealed to the Department of National
Defense, although he did not know the result of the appeal. At any rate, he knew that the Department of
National Defense remanded the case to the Board of Marine Inquiry for further investigation. In the
second indorsement signed by Efren I. Plana, Undersecretary of National Defense, it is stated, among
other things, that the hearings of the Board of Marine Inquiry wherein the Philippine Coast Guard made
the decision lacked the necessary quorum as required by Section 827 of the Tariff and Customs Code.
Moreover, the decision of the Commandant of the Philippine Coast Guard relied principally on the
findings reached by the Board of Officers after an ex-parte investigation especially in those aspects
unfavorable to the captain (Exh. 1, folder of exhibits).

It appears also that there were findings and recommendations made by the Board of Marine Inquiry,
dated March 5, 1968, recommending among other things that the captain of the M/V 'Mindoro,' Felicito
Irineo, should be exonerated. Moreover, Captain Irineo went down with the vessel and his lips are forever
sealed and could no longer defend himself. This body also found that the ship's compliment (sic) and crew
were all complete and the vessel was in seaworthy condition. If the M/V Mindoro' sank, it was through
force majeure (Exhs. 2 & 2-A, folder of exhibits).

Defendant also introduced in evidence the transcripts of stenographic notes of the testimony of Francisco
Punzalan, marine officer, as well as of Abelardo F. Garcia, Harbor Pilot in Zamboanga City, in Civil Case No.
Q-12473 of Branch XXVIII, Court of First Instance of Rizal, Quezon City Branch (Exhs. 3-H & 10-H, folder of
exhibits), and of Arturo Ilagan, boat captain, in Civil Case No. Q-1 5962 of Branch V, of the same Court
(Exh. 9 folder of exhibits).

It appears that five other vessels left the pier at Manila on November 2, 1967, aside from the M/V
Mindoro' (Exhs 4 & 4-A). A certification of the Weather Bureau indicated the place of typhoon 'Welming'
on November 2, 1967 (Exh. 6). A certification of the shipyard named El Varadero de Manila stated among
other things that the M/V 'Mindoro' was dry-docked from August 25 to September 6, 1967 and was found
to be in a seaworthy condition (Exh. 5), and that the said M/V 'Mindoro' was duly inspected by the Bureau
of Customs (Exhs. 7, 7-A & 7-B). Another certification was introduced stating among other things that the
Bureau of Customs gave a clearance to the M/V 'Mindoro' after inspection (Exh. 8 folder of exhibits). (CFI
Decision, Records, pp. 468-471)

On the basis of these facts, the trial court sustained the position of private respondent Compania
Maritima (Maritima, for short) and issued a decision on March 27, 1974, to wit:

WHEREFORE, the Court finds that in view of lack of sufficient evidence, the case be, as it is hereby
DISMISSED.

For lack of evidence, the counterclaim is also hereby DISMISSED.

IT IS SO ORDERED. (Records, p. 474)

Forthwith, the petitioners' heirs and Reyes brought an appeal to the Court of Appeals. As earlier
mentioned, the appellate court affirmed the decision on appeal. While it found that there was concurring
negligence on the part of the captain which must be imputable to Maritima, the Court of Appeals ruled
that Maritima cannot be held liable in damages based on the principle of limited liability of the shipowner
or ship agent under Article 587 of the Code of Commerce.

The heirs and Reyes now come to Us with the following assignment of errors:

ERROR I

THE HONORABLE RESPONDENT COURT OF APPEALS ERRED IN NOT CONCENTRATING TO (sic) THE
PROVISION OF LAW IN THE NEW CIVIL CODE AS EXPRESSED) IN, —

Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be
governed by the Code of Commerce and by special laws.

ERROR II
RESPONDENT COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF THE LOWER COURT OF
ORIGIN AFTER FINDING A SERIES OF FAULTS AND NEGLIGENCE AND IN NOT ORDERING ITS CO-
RESPONDENT COMPANIA MARITIMA TO PAY THE DAMAGES IN ACCORDANCE WITH THE LAW.

ERROR III

THE HONORABLE RESPONDENT COURT OF APPEALS ERRED TO NOTE, OBSERVE AND COMPREHEND THAT
ART. 587 OF THE CODE OF COMMERCE IS ONLY FOR THE GOODS WHICH THE VESSEL CARRIED AND DO
NOT INCLUDE PERSONS. (Rollo, p. 8)

The petition has merit. At the outset, We note that there is no dispute as to the finding of the captain's
negligence in the mishap. The present controversy centers on the questions of Maritima's negligence and
of the application of Article 587 of the Code of Commerce. The said article provides:

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

Under this provision, a shipowner or agent has the right of abandonment; and by necessary implication,
his liability is confined to that which he is entitled as of right to abandon-"the vessel with all her
equipments and the freight it may have earned during the voyage" (Yangco v. Laserna, et al., 73 Phil. 330,
332). Notwithstanding the passage of the New Civil Code, Article 587 of the Code of Commerce is still
good law. The reason lies in the peculiar nature of maritime law which is 94 exclusively real and
hypothecary that operates to limit such liability to the value of the vessel, or to the insurance thereon, if
any (Yangco v. Laserna, Ibid). As correctly stated by the appellate court, "(t)his rule is found necessary to
offset against the innumerable hazards and perils of a sea voyage and to encourage shipbuilding and
marine commerce. (Decision, Rollo, p. 29). Contrary to the petitioners' supposition, the limited liability
doctrine applies not only to the goods but also in all cases like death or injury to passengers wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts of the captain (Yangco v.
Laserna, Ibid). It must be stressed at this point that Article 587 speaks only of situations where the fault or
negligence is committed solely by the captain. In cases where the shipowner is likewise to be blamed,
Article 587 does not apply (see Manila Steamship Co., Inc. v. Abdulhanan, et al., 100 Phil. 32, 38). Such a
situation will be covered by the provisions of the New Civil Code on Common Carriers. Owing to the
nature of their business and for reasons of public policy, common carriers are tasked to observe
extraordinary diligence in the vigilance over the goods and for the safety of its passengers (Article 1733,
New Civil Code). Further, 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 a due regard for all the
circumstances (Article 1755, New Civil Code). Whenever death or injury to a passenger occurs, common
carriers are presumed to have been at fault or to have acted negligently unless they prove that they
observed extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code).

Guided by the above legal provisions, We painstakingly reviewed the records of the case and found
imprints of Maritima's negligence which compel Us to reverse the conclusion of the appellate court.

Maritima claims that it did not have any information about typhoon 'Welming' until after the boat was
already at sea. Modem technology belie such contention. The Weather Bureau is now equipped with
modern apparatus which enables it to detect any incoming atmospheric disturbances. In his summary
report on tropical cyclone 'Welming' which occurred within the Philippine Area of Responsibility, Dr.
Roman L. Kintanar, Weather Bureau Director, stated that during the periods of November 15, 1967, the
Bureau issued a total of seventeen (17) warnings or advisories of typhoon 'Welming' to shipping
companies. Additionally, he reported that:

By 11:15 a.m. of November lst, or in less than twenty four hours, the storm intensified into a typhoon. It
was by then located at 8.7 N 137.3 E with sea level pressure of 978 millibars, an eye diameter of about
18.53 kilometers and a maximum surface wind of 139 kilometers per hour. "As it moved along in the open
sea, it intensified further and by 11.07 a.m. of November 2, when its center was at 103 N 131.4 E, it had
attained surface winds of about 240 kilometers per hour. ... (Exh. Z, p. 131, Index of Exhibits, p. 11 5,
Emphasis supplied).

Considering the above report and the evidence on record showing the late departure of the ship at 6:00
p.m. (instead of the scheduled 2:00 p.m. departure) on November 2, 1967, We find it highly improbable
that the Weather Bureau had not yet issued any typhoon bulletin at any time during the day to the
shipping companies. Maritima submitted no convincing evidence to show this omission. It's evidence
showing the Weather Bureau's forecast of November 3, 1967 is not persuasive. It merely indicated the
weather bulletin of that day. Nowhere could We find any statement therein from the Weather Bureau
that it had not issued any forecast on November I and 2, 1967 (Exh. 6, Records, p. 257). Significantly, the
appellate court found that the ship's captain through his action showed prior knowledge of the typhoon.
The court said:

... It cannot be true that he was apprised of the typhoon only at about 11:00 o'clock the following
morning on November 3, 1967 when the Weather report was transmitted to him from the Weather
Bureau at which time he plotted its position. For in his radiogram sent to defendant-appellee's office in
Manila as early as 8:07 in the morning of November 3, 1967 (Exh. D) he states in the concluding portion
'still observing weather condition.' thereby implicitly suggesting that he had known even before
departure of the unusual weather condition. ... (Decision, Rollo, p. 26)

If the captain knew of the typhoon beforehand, it is inconceivable for Maritima to be totally in the dark of
'Welming.' In allowing the ship to depart late from Manila despite the typhoon advisories, Maritima
displayed lack of foresight and minimum concern for the safety of its passengers taking into account the
surrounding circumstances of the case.

While We agree with the appellate court that the captain was negligent for overloading the ship, We,
however, rule that Maritima shares equally in his negligence. We find that while M/V Mindoro was
already cleared by the Bureau of Customs and the Coast Guard for departure at 2:00 p.m. the ship's
departure was, however, delayed for four hours. Maritima could not account for the delay because it
neither checked from the captain the reasons behind the delay nor sent its representative to inquire into
the cause of such delay. It was due to this interim that the appellate court noted that "(i)ndeed there is a
great probability that unmanifested cargo (such as dump truck, 3 toyota cars, steel bars, and 6,000 beer
cases) and passengers (about 241 more than the authorized 193 passengers) were loaded during the four
(4) hour interval" (Decision, p. 13, Rollo, p. 26). Perchance, a closer supervision could have prevented the
overloading of the ship. Maritima could have directed the ship's captain to immediately depart in view of
the fact that as of 11:07 in the morning of November 2, 1967, the typhoon had already attained surface
winds of about 240 kilometers per hour. As the appellate court stated, '(v)erily, if it were not for have
reached (its) destination and this delay, the vessel could thereby have avoided the effects of the storm"
(Decision, Rollo p. 26). This conclusion was buttressed by evidence that another ship, M/V Mangaren, an
interisland vessel, sailed for New Washington, Aklan on November 2, 1967, ahead of M/V Mindoro and
took the same route as the latter but it arrived safely (Exh. BB-2, Index of Exhibits, pp. 143-144 and Exh.
4-A, Ibid, p. 254).

Maritima presents evidence of the seaworthy condition of the ship prior to its departure to prove that it
exercised extraordinary diligence in this case. M/V Mindoro was drydocked for about a month. Necessary
repairs were made on the ship. Life saving equipment and navigational instruments were installed.

While indeed it is true that all these things were done on the vessel, Maritima, however, could not
present evidence that it specifically installed a radar which could have allowed the vessel to navigate
safely for shelter during a storm. Consequently, the vessel was left at the mercy of ''Welming' in the open
sea because although it was already in the vicinity of the Aklan river, it was unable to enter the mouth of
Aklan River to get into New Washington, Aklan due to darkness and the Floripon Lighthouse at the
entrance of the Aklan River was not functioning or could not be seen at all (Exh. 3-H, Index of Exhibits, p.
192-195; see also Exh. 2-A, Ibid, p. 160). Storms and typhoons are not strange occurrences. In 1967 alone
before 'Welming,' there were about 17 typhoons that hit the country (Exh. M, Index of Exhibits, p. 115),
the latest of which was typhoon Uring which occurred on October 20-25, which cost so much damage to
lives and properties. With the impending threat of 'Welming,' an important device such as the radar could
have enabled the ship to pass through the river and to safety.

The foregoing clearly demonstrates that Maritima's lack of extraordinary diligence coupled with the
negligence of the captain as found by the appellate court were the proximate causes of the sinking of
M/V Mindoro.

Hence, Maritima is liable for the deaths and injury of the victims. amount of With the above finding, We
now come to the damages due to the petitioners. Ordinarily, We would remand the case to the trial court
for the reception of evidence. Considering however, that this case has been pending for almost twenty-
three (23) years now and that since all the evidence had already been presented by both parties and
received by the trial court, We resolve to decide the corresponding damages due to petitioners (see
Samal v. Court of Appeals, 99 Phil. 230; Del Castillo v. Jaymalin, L-28256, March 17, 1982, 112 SCRA 629).

In their complaint filed with the Court of First Instance, petitioners prayed for moral, actual and
exemplary damages, as well as for attorney's fees plus costs.

Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the death
of a passenger caused by the breach of contract by a common carrier is at least three thousand pesos
(P3,000.00). The prevailing jurisprudence has increased the amount of P3,000.00 to P30,000.00 (De Lima
v. Laguna Tayabas Co., L-35697-99, April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the
civil indemnity of P30,000.00 to the heirs of each of the victims. For mental anguish suffered due to the
deaths of their relatives, Maritima should also pay to the heirs the sum of P10,000.00 each as moral
damages.

In addition, it was proven at the trial that at the time of death, (1) Amparo delos Santos had with her cash
in the sum of P1,000.00 and personal belongings valued at P500.00; (2) Teresa Pamatian, cash in the sum
of P250.00 and personal belongings worth P200.00; and (3) Diego Salem, cash in the sum of P200.00 and
personal belongings valued at P100.00. Likewise, it was established that the heirs of Amparo delos Santos
and her deceased children incurred transportation and incidental expenses in connection with the trial of
this case in the amount of P500.00 while Dominador Salem, son of victim Diego Salem and nephew of
victim Teresa Pamatian spent about P100.00 for expenses at the trial. With respect to petitioner Reyes,
the evidence shows that at the time of the disaster, he had in his possession cash in the sum of P2,900.00
and personal belongings worth P100.00. Further, due to the disaster, Reyes was unable to work for three
months due to shock and he was earning P9.50 a day or in a total sum of P855.00. Also, he spent about
P100.00 for court expenses. For such losses and incidental expenses at the trial of this case, Maritima
should pay the aforestated amounts to the petitioners as actual damages.

Reyes' claim for moral damages cannot be granted inasmuch as the same is not recoverable in damage
action based on the breach of contract of transportation under Articles 2219 and 2220 of the New Civil
Code except (1) where the mishap resulted in the death of a passenger and (2) where it is proved that the
carrier was guilty of fraud or bad faith, even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109
Phil. 712). The exceptions do not apply in this case since Reyes survived the incident and no evidence was
presented to show that Maritima was guilty of bad faith. Mere carelessness of the carrier does not per se
constitute or justify an inference of malice or bad faith on its part (Rex Taxicab Co., Inc. v. Bautista, supra).

Anent the claim for exemplary damages, We are not inclined to grant the same in the absence of gross or
reckless negligence in this case.

As regards the claim for attorney's fees, the records reveal that the petitioners engaged the services of a
lawyer and agreed to pay the sum of P 3,000.00 each on a contingent basis (see TSN'S, July 21, 1971, p.
24; November 3, 1971, pp. 18 and 29). In view hereof, We find the sum of P 10,000.00 as a reasonable
compensation for the legal services rendered.

ACCORDINGLY, the appealed decision is hereby REVERSED and judgment is hereby rendered sentencing
the private respondent to pay the following: (1) P30,000.00 as indemnity for death to the heirs of each of
the victims; (2) P10,000.00 as moral damages to the heirs of each of the victims; (3) P6,805.00 as actual
damages divided among the petitioners as follows: heirs of Amparo Delos Santos and her deceased
children, P2,000.00; heirs of Teresa Pamatian, P450.00; heirs of Diego Salem, P400.00; and Ruben Reyes,
P2,955.00; (4) P10,000.00 as attorney's fees; and (5) the costs.

SO ORDERED.