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*
G.R. No. 156978. May 2, 2006.

ABOITIZ SHIPPING CORPORATION, petitioner, vs. NEW INDIA

ASSURANCE COMPANY, LTD., respondent.

Common Carriers; Ships and Shipping; Doctrine of Limited Liability;

An exception to the limited liability doctrine is when the damage is due to
the fault of the shipowner or to the concurrent negligence of the shipowner
and the captain.—It bears stressing that this Court has variedly applied the
doctrine of limited liability to the same incident—the sinking of M/V P.
Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to settle the
conflicting pronouncements of this Court relative to the sinking of M/V P.
Aboitiz. In Monarch, we said that the sinking of the vessel was not due to
force

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* THIRD DIVISION.

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Aboitiz Shipping Corporation vs. New India Assurance Company, Ltd.

majeure, but to its unseaworthy condition. Therein, we found petitioner

concurrently negligent with the captain and crew. But the Court stressed that
the circumstances therein still made the doctrine of limited liability
applicable. Our ruling in Monarch may appear inconsistent with the
exception of the limited liability doctrine, as explicitly stated in the earlier
part of the Monarch decision. An exception to the limited liability doctrine
is when the damage is due to the fault of the shipowner or to the concurrent
negligence of the shipowner and the captain. In which case, the shipowner
shall be liable to the full-extent of the damage. We thus find it necessary to
clarify now the applicability here of the decision in Monarch.
Same; Same; Same; From the nature of their business and for reasons
of public policy, common carriers are bound to observe extraordinary
diligence over the goods they transport according to all the circumstances

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of each case.—From the nature of their business and for reasons of public
policy, common carriers are bound to observe extraordinary diligence over
the goods they transport according to all the circumstances of each case. In
the event of loss, destruction or deterioration of the insured goods, common
carriers are responsible, unless they can prove that the loss, destruction or
deterioration was brought about by the causes specified in Article 1734 of
the Civil Code. In all other cases, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence. Moreover, where the vessel is found
unseaworthy, the shipowner is also presumed to be negligent since it is
tasked with the maintenance of its vessel. Though this duty can be
delegated, still, the shipowner must exercise close supervision over its men.
Same; Same; Same; To limit itself to the amount of insurance proceeds,
the shipowner has the burden of proving that the unseawor-thiness of its
vessel was not due to its fault or negligence.—In the present case, petitioner
has the burden of showing that it exercised extraordinary diligence in the
transport of the goods it had on board in order to invoke the limited liability
doctrine. Differently put, to limit its liability to the amount of the insurance
proceeds, petitioner has the burden of proving that the unseaworthiness of
its vessel was not due to its fault or negligence. Considering the evidence
presented and the circumstances obtaining in this case, we find that
petitioner failed to discharge this burden. It initially attributed the sinking to
the typhoon and relied on the BMI findings that it was not at fault.

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Aboitiz Shipping Corporation vs. New India Assurance Company, Ltd.

However, both the trial and the appellate courts, in this case, found that the
sinking was not due to the typhoon but to its unseaworthiness. Evidence on
record showed that the weather was moderate when the vessel sank. These
factual findings of the Court of Appeals, affirming those of the trial court are
not to be disturbed on appeal, but must be accorded great weight. These
findings are conclusive not only on the parties but on this Court as well.
Same; Same; Same; Board of Marine Inquiry (BMI); The findings of
the Board of Marine Inquiry (BMI) are not deemed always binding on the
courts.—In contrast, the findings of the BMI are not deemed always binding
on the courts. Besides, exoneration of the vessel’s officers and crew by the
BMI merely concerns their respective administrative liabilities. It does not
in any way operate to absolve the common carrier from its civil liabilities
arising from its failure to exercise extraordinary diligence, the determination
of which properly belongs to the courts.
Same; Same; Same; Where the shipowner fails to overcome the
presumption of negligence, the doctrine of limited liability cannot be

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applied.—Where the shipowner fails to overcome the presumption of

negligence, the doctrine of limited liability cannot be applied. Therefore, we
agree with the appellate court in sustaining the trial court’s ruling that
petitioner is liable for the total value of the lost cargo.

PETITION for review on certiorari of the decision and resolution of

the Court of Appeals.

The facts are stated in the opinion of the Court.

     Sycip, Salazar, Hernandez & Gatmaitan for petitioner.
     Dollete, Blanco, Ejercito & Associates for respondent.

QUISUMBING, J.:
1
For review on certiorari are the Decision dated August 29, 2002 of
the Court of Appeals in CA-G.R. CV No. 28770 and its

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1 Rollo, pp. 84-97. Penned by Associate Justice Romeo J. Callejo, Sr. (now a
member of this Court), with Associate Justices Remedios Salazar-Fernando, and
Danilo B. Pine concurring.

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Aboitiz Shipping Corporation vs. New India Assurance Company,
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2
Resolution dated January 23, 2003 denying reconsideration. The
3
Court of Appeals affirmed the Decision dated November 20, 1989
of the Regional Trial Court of Manila in Civil Case No. 82-1475, in
favor of respondent New India Assurance Company, Ltd.
This petition stemmed from the action for damages against
petitioner, Aboitiz Shipping Corporation, arising from the sinking of
its vessel, M/V P. Aboitiz, on October 31, 1980.
The pertinent facts are as follows:
Societe Francaise Des Colloides loaded a cargo of textiles and
auxiliary chemicals from France on board a vessel owned by
Franco-Belgian Services, Inc. The cargo was consigned to General
Textile, Inc., in Manila and insured by respondent New India
Assurance Company, Ltd. While in Hongkong, the cargo was
4
transferred to M/V P. Aboitiz for transshipment to Manila.
Before departing, the vessel was advised by the Japanese5
Meteorological Center that it was safe to travel to its destination.
But while at sea, the vessel received a report of a typhoon moving
within its general path. To avoid the typhoon, the vessel changed its
course. However, it was still at the fringe of the typhoon when its

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hull leaked. On October 31, 1980, the vessel sank, but the captain
and his crew were saved.
On November 3, 1980, the captain of M/V P. Aboitiz filed his
“Marine Protest,” stating that the wind force was at 10 to 15 knots at
the time the ship foundered and described the

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2 Id., at p. 99. Penned by Associate Justice Danilo B. Pine, with Associate Justices
Godardo A. Jacinto, and Remedios Salazar-Fernando concurring.
3 Id., at pp. 149-166.
4 Id., at pp. 84-85, 150.
5 Id., at p. 65.

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weather as “moderate breeze,

6
small waves, becoming longer, fairly
frequent white horses.”
7
Thereafter, petitioner notified the consignee, General Textile, of
the total loss of the vessel and all of its cargoes. General Textile,
lodged a claim with respondent for the amount of its loss.
Respondent 8
paid General Textile and was subrogated to the rights of
the latter.
Respondent hired a surveyor, Perfect, Lambert and Company, to
9
investigate the cause of the sinking. In its report, the surveyor
concluded that the cause was the flooding of the holds brought about
by the vessel’s questionable seaworthiness. Consequently,
respondent filed a complaint for damages against petitioner Aboitiz,
Franco-Belgian Services and the latter’s local agent, F.E. Zuellig,
Inc. (Zuellig). Respondent alleged that the proximate cause of the
loss of the shipment was the fault or negligence of the master and
crew of the vessel, its unseaworthiness, and the failure of defendants
therein to exercise extraordinary diligence in the transport of the
goods. Hence, respondent
10
added, defendants therein breached their
contract of carriage.
Franco-Belgian Services and Zuellig responded, claiming that
they exercised extraordinary diligence in handling the shipment
while it was in their possession; its vessel was seaworthy; and the
proximate cause of the loss of cargo was a fortuitous event. They
also filed a cross-claim against petitioner alleging that the loss
occurred during the transshipment with petitioner and so liability
should rest with petitioner.
For its part, petitioner also raised the same defense that the ship
was seaworthy. It alleged that the sinking of M/V P.
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6 Id., at pp. 163-164.

7 Exhibit “F-1,” folder of exhibits, p. 8.
8 Exhibits “G, G-1, G-2,” Id., at p. 11.
9 Records, pp. 562-580.
10 Id., at pp. 5-6.

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Aboitiz Shipping Corporation vs. New India Assurance Company,
Ltd.

Aboitiz was due to an unforeseen event and without fault or

negligence on its part. It also alleged that in accordance with the real
and hypothecary nature of maritime law, the sinking of 11
M/V P.
Aboitiz extinguished its liability on the loss of the cargoes.
Meanwhile, the Board of Marine Inquiry (BMI) conducted its
own investigation to determine whether the captain and crew were
administratively liable. However, petitioner neither informed
respondent nor the trial court of the investigation. The BMI
exonerated the captain and crew of any administrative liability; and
declared the vessel seaworthy and concluded that the sinking was
due to the vessel’s exposure to the approaching typhoon.
On November 20, 1989, the trial court, citing the Court of
Appeals decision in General Accident Fire and Life Assurance
12
Corporation v. Aboitiz Shipping Corporation involving the same
incident, ruled in favor of respondent. It held petitioner liable for the
total value of the lost cargo plus legal interest, thus:

“WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered

in favor of New India and against Aboitiz ordering the latter to pay unto the
former the amount of P142,401.60, plus legal interest thereon until the same
is fully paid, attorney’s fees equivalent to fifteen [percent] (15%) of the total
amount due and the costs of suit.
The complaint with respect to Franco and Zuellig is dismissed and their
counterclaim against New India is likewise dismissed.
13
SO ORDERED.”

Petitioner elevated the case to the Court of Appeals and presented

the findings of the BMI. However, on August 29,

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11 Id., at pp. 18-19, 23-24.

12 CA-G.R. C.V. No. 10609, March 9, 1989 (Now SC G.R No. 89757, August 6,
1990, 188 SCRA 387).
13 Records, p. 859.

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2002, the appellate court affirmed in toto the trial court’s decision. It
held that the proceedings before the BMI was only for the
administrative liability of the captain and crew, and was unilateral in
nature, hence not binding on the courts. Petitioner moved for
reconsideration but the same was denied on January 23, 2003.
Hence, this petition for review, alleging that the Court of Appeals
gravely erred in:

I.

x x x DISREGARDING THE RULINGS OF THE HONORABLE

SUPREME COURT ON THE APPLICATION OF THE RULE ON
LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837 OF THE
CODE OF COMMERCE TO CASES INVOLVING THE SINKING OF
THE M/V “P. ABOITIZ”;

A.

x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH

INSURANCE CO., INC., ET AL. V. COURT OF APPEALS, ET AL. AND ABOITIZ
SHIPPING CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORPORATION, LTD.;

B.

x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE

ON LIMITED LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE
CODE OF COMMERCE HAD BEEN CONSIDERED AND PASSED UPON IN
ITS DECISION;

II.

x x x NOT LIMITING THE AWARD OF DAMAGES TO

RESPONDENT TO ITS PRO RATA SHARES IN THE INSURANCE
14
PROCEEDS FROM THE SINKING OF THE M/V “P. ABOITIZ.”

Stated simply, we are asked to resolve whether the limited liability

doctrine, which limits respondent’s award of damages

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14 Rollo, pp. 68-69.

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to its pro rata share in the insurance proceeds, applies in this case.
Petitioner, citing Monarch Insurance Co., Inc. v. Court of
15
Appeals, contends that respondent’s claim for damages should only
be against the insurance proceeds and limited to its pro rata share in
view of the doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary
nature of maritime law is not applicable in the present case because
petitioner was found to have been negligent. Hence, according to
respondent, petitioner should be held liable for the total value of the
lost cargo.
It bears stressing that this Court has variedly applied the doctrine
of limited liability to the same incident—the sinking of M/V P.
Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to
settle the conflicting pronouncements of this Court relative to the
sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of
the vessel16 was not due to force majeure, but to its unseaworthy
condition. Therein, we found petitioner concurrently negligent with
17
the captain and crew. But the Court stressed that the circumstances
18
therein still made the doctrine of limited liability applicable.
Our ruling in Monarch may appear inconsistent with the
exception of the limited liability doctrine, as explicitly stated in the
earlier part of the Monarch decision. An exception to the limited
liability doctrine is when the damage is due to the fault of the
shipowner or to the concurrent negligence of the shipowner and the
captain. In which case, 19
the shipowner shall be liable to the full-
extent of the damage. We thus find it necessary to clarify now the
applicability here of the decision in Monarch.

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15 G.R. No. 92735, June 8, 2000, 333 SCRA 71.

16 Id., at pp. 98-99.
17 Id., at p. 101.
18 Id., at p. 103.
19 Id., at p. 97.

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From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence over
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the goods they transport according to all the circumstances of each

20
case. In the event of loss, destruction or deterioration of the insured
goods, common carriers are responsible, unless they can prove that
the loss, destruction or deterioration was brought about by the
21
causes specified in Article 1734 of the Civil Code. In all other
cases, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary
22
diligence. Moreover, where the vessel is found unseaworthy, the
shipowner is also presumed to be negligent since

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20 CIVIL CODE, Art. 1733. Common carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in articles 1755 and 1756.
21 Id., at Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.

22 Id., at Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5
of the preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required in article 1733.

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it is tasked with the maintenance of its vessel. Though this duty can
be delegated,23 still, the shipowner must exercise close supervision
over its men.
In the present case, petitioner has the burden of showing that it
exercised extraordinary diligence in the transport of the goods it had
on board in order to invoke the limited liability doctrine. Differently
put, to limit its liability to the amount of the insurance proceeds,
petitioner has the burden of proving that the unseaworthiness of its
vessel was not due to its fault or negligence. Considering the
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evidence presented and the circumstances obtaining in this case, we

find that petitioner failed to discharge this burden. It initially
attributed the sinking to the typhoon and relied on the BMI findings
that it was not at fault. However, both the trial and the appellate
courts, in this case, found that the sinking was not due to the
typhoon but to its unseaworthiness. Evidence on record showed that
the weather was moderate when the vessel sank. These factual
findings of the Court of Appeals, affirming those of the trial court
are not to be disturbed on appeal, but must be accorded great weight.
These findings are conclusive not only on the parties but on this
24
Court as well.
In contrast, the findings of the BMI are not deemed always
25
binding on the courts. Besides, exoneration of the vessel’s officers
and crew by the BMI merely concerns their respective
26
administrative liabilities. It does not in any way operate to absolve
the common carrier from its civil liabilities arising

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23 Philippine American General Insurance Co., Inc. v. Court of Appeals, G.R. No.
116940, June 11, 1997, 273 SCRA 262, 272.
24 Prudential Bank v. Chonney Lim, G.R. No. 136371, November 11, 2005, 474
SCRA 485, 491.
25 See Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, August
6, 1990, 188 SCRA 387, 390-391.
26 Delsan Transport Lines, Inc. v. Court of Appeals, G.R. No. 127897, November
15, 2001, 369 SCRA 24, 33.

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from its failure to exercise extraordinary diligence, the

27
determination of which properly belongs to the courts.
Where the shipowner fails to overcome the presumption of
28
negligence, the doctrine of limited liability cannot be applied.
Therefore, we agree with the appellate court in sustaining the trial
court’s ruling that petitioner is liable for the total value of the lost
cargo.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision dated August 29, 2002 and Resolution dated January 23,
2003 of the Court of Appeals in CA-G.R. CV No. 28770 are
AFFIRMED.
Costs against petitioner.
SO ORDERED.

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     Carpio, Carpio-Morales, Tinga and Velasco, Jr., JJ., concur.

Petition denied, judgment and resolution affirmed.

Notes.—Benefits of limited liability are subject to waiver such as

when the air carrier failed to raise timely objections during the trial
when questions and answers regarding the actual claims and
damages sustained by the passenger were asked. (British Airways vs.
Court of Appeals, 285 SCRA 450 [1998])
The COGSA, which is suppletory to the provisions of the Civil
Code, supplements the latter by establishing a statutory provision
limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading—the provisions on
limited liability are as much a part of the bill of lading as though
physically in it and as though placed

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27 Id., at pp. 33-34.

28 Central Shipping Company, Inc. v. Insurance Company of North America, G.R.
No. 150751, September 20, 2004, 438 SCRA 511, 523-524.

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Office of the Ombudsman vs. Laja

there by agreement of the parties. (Belgian Overseas Chartering and

Shipping N.V. vs. Philippine First Insurance Co., Inc., 383 SCRA 23
[2002])

——o0o——

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