Real and Hypothecary Nature

Yangco v. Lasema 73 Phil 330 (1941)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-47447-47449 October 29, 1941

TEODORO R. YANGCO, ETC., petitioner,

vs.
MANUEL LASERNA, ET AL., respondents.

Claro M. Recto for petitioner.

Powell & Vega for respondents.

MORAN, J.:

At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging
to petitioner here, Teodoro R. Yangco, left the port of Romblon on its retun trip to Manila.
Typhoon signal No. 2 was then up, of which fact the captain was duly advised and his
attention thereto called by the passengers themselves before the vessel set sail. The boat
was overloaded as indicated by the loadline which was 6 to 7 inches below the surface of
the water. Baggage, trunks and other equipments were heaped on the upper deck, the hold
being packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and
about one hundred sacks of copra and some lumber. The passengers, numbering about 180,
were overcrowded, the vessel's capacity being limited to only 123 passengers. After two
hours of sailing, the boat encountered strong winds and rough seas between the islands of
Banton and Simara, and as the waves splashed the ladies' dresses, the awnings were
lowered. As the sea became increasingly violent, the captain ordered the vessel to turn left,
evidently to return to port, but in the manuever, the vessel was caught sidewise by a big
wave which caused it to capsize and sink. Many of the passengers died in the mishap,
among them being Antolin Aldaña and his son Victorioso, husband and son, respectively, of
Emilia Bienvenida who, together with her other children and a brother-in-law, are
respondents in G.R. No. 47447; Casiana Laserna, the daughter of respondents Manuel
Laserna and P.A. de Laserna in G.R. 47448; and Genaro Basaña, son of Filomeno Basaña,
respondent in G.R. No. 47449. These respondents instituted in the Court of First Instance of
Capiz separate civil actions against petitioner here to recover damages for the death of the
passengers aforementioned. The court awarded the heirs of Antolin and Victorioso Aldana
the sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro Basana, also
P590. After the rendition of the judgment to this effcet, petitioner, by a verified pleading,
sought to abandon th evessel to the plainitffs in the three cases, together with all its
equipments, without prejudice to his right to appeal. The abandonment having been denied,
an appeal was taken to the Court of Appeals, wherein all the judgmnets were affirmed
except that which sums was increased to P4,000. Petitioner, now deceased, appealed and is
here represented by his legal representative.
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
provisions 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 provisions 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 shipowners or agents for
damages arising from the misconduct of the captain in the care of the goods which the
vessel carries, but this is a mere deficiency of language and in no way indicates the true
extent of such liability. The consensus of authorities is to the effect that notwithstanding the
language of the aforequoted provision, the benefit of limited liability therein provided for,
applies in all cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco,
commenting on said article, said:

La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho
de abandono, si se atiende a lo escrito, solo se refiere a las indemnizaciones a que
dierQe 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. a ed., pags. 483-
484.)

A cursory examination will disclose that the principle of liomited liability of a shipowner or
agent is provided for in but three articles of the Code of Commerce — article 587
aforequoted and article 590 and 837. Article 590 merely reiterates the principle embodied in
article 587, applies the same principle in cases of collision, and it has been observed that
said article is but "a necessary consequences 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, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil.
281, 282.) In effect, therefore, only articles 587 and 590 are the provisions conatined 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. Thus, in the
"Exposicon de Motivos" of the Code of Commerce, we read:
 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.

In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves
in such a comprehensive manner as to leave no room for doubt on the applicability of
our ratio decidendi not only to cases of collision but also to those of shipwrecks, etc. We
said:

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 te 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 s accurately set forth in a treatise on maritime law, from which
we deem proper to quote the following as the basis of this decision:lawphil.net

"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 cannot 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 cannot
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 to 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, tonnate, 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."

We are shared in this conclusion by the eminent commentators on the subject. Agustin
Vicente y Gella, asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929
(pages 374-375), the like principle of limited liability of shipowners or agent in cases of
accidents, collisions, shipwrecks, etc., said:

De las responsabilities que pueden resultar como consequencia del comercio

maritimo, y no solo por hechos propios sino tambien por las que se ocasionen por los
del capitan y la tripulacion, responde frente a tercero el naviero que representa el
buque; pero el derecho maritimo es sobre todo tradicional y siguiendo un viejo
principio de la Edad Media la responsabilidad del naviero se organiza de un modo
especifico y particularisimo que no encuentra similar en el derecho general de las
obligaciones.

Una forma corrientisima de verificarse el comercio maritimo durante la epoca

medieval, era prestar un propietario su navio para que cargase en el mercancias
determinada persona, y se hiciese a la mar, yendo al frente de la expedicion un
patron del buque, que llegado al puerto de destino se encargaba de venderlas y
retornaba al de salida despues de adquirir en aquel otros efectos que igualmente
revendia a su regreso, verificado lo cual los beneficios de la expedicion se repartian
entre el dueño del buque, el cargador y el capitan y tripulantes en la proporcion
estipulada. El derecho maritimo empezo a considerar la asociacion asi formada como
 una verdadera sociedad mercantil, de responsabilidad limitada, y de acuerdo con los
principios que gobiernan aquella en los casos de accidentes, abordajes, naufragios,
etc., se resolvia que el dueño del buque perdia la nave, el cargador las mercancias
embarcadas y el capitan y la tripulacion su trabajo, sin que en ningun caso el tercer
acreedor pudiese reclamar mayor cantidad de ninguno de ellos, porque su
responsabilidad quedaba limitada a lo que cada uno aporto a la sociedad. Recogidas
estas ideas en el derecho comercial de tiempos posteriores, la responsabilidad del
naviero se edifico sobre aquellos principios, y derogando la norma general civil de
que del cumplimiento de sus obligaciones responde el deudor con todos sus bienes
presentes y futuros, la responsabilidad maritima se considero siempre limitada ipso
jure al patrimonio de mar. Y este es el origen de la regla trascendental de derecho
maritimo segun la cual el naviero se libera de toda responsabilidad abandonando el
buque y el flete a favor de los acreedores.

From the Enciclopedia Juridica Española, Vol. 23, p. 347, we read:

Ahora bien: ¿hasta donde se extiende esta responsabilidad del naviero? ¿sobre que
bienes pueden los acreedores resarcirse? Esta es otra especialidad del Derecho
maritimo; en el Derecho comun la responsabilidad es limitada; tambien lo era en el
antiguo Derecho maritimo romano; es daba la actio exercitoria contra el exercitor
navis sin ninguna restriccion, pero en la Edad Media una idea nueva se introdujo en
los usos maritimos. Las cargas resultantes de las expediciones maritimas se
consideraron limitadas por los propietarios de las naves a los valores comprometidos
por ellos en cada expedicion; se separo ficticiamente el patrimonio de los navieros en
dos partes que todavia se designan de una manera bastante exacta; fortuna de
tierra y fortuna de mar o flotante; y se admitio la teoria de que esta era la que
respondia solo de las deudas provinientes de los actos del capitan o de la tripulacion,
es decir, que el conjunto del patrimonio del naviero escaparia a estas cargas desde el
momento en que abandonara la nave y los fletes a los acreedores. . . .

Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:

La responsabilidad del naviero, en el caso expuesto, se funda en el principio de

derecho comun de ser responsable todo el que pone al frente de un establecimiento
a una persona, de los daños o perjuicios que ocasionare esta desempeñando su
cometido, y en que estando facultado el naviero para la eleccion de capitan de la
nave, viene a tener indirectamente culpa en la negligencia o actos de este que o
casionaron daños o perjuicios, puesto que no se aseguro de su pericia o buena fe.
Limitase, sin embargo, la responsabilidad del naviero a la perdida de la nave, sus
aparejos, y fletes devengados durante el viaje; porque no pudiendo vigilar de un
modo directo e inmediato la conducta del capitan, hubiera sido duro hacerla
extensiva a todos sus bienes que podria comprometer el capitan con sus faltas o
delitos.

The views of these learned commentators, including those of Estasen (Derecho Mercantil,
Vol. 4, 259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and
nothing to be doubted on the principle. It only remains to be noted that the rule of limited
liability provided for in our Code of Commerce reflects merely, or is but a restatement,
imperfect though it is, of the almost universal principle on the subject. While previously
under the civil or common law, the owner of a vessel was liable to the full amount for
damages caused by the misconduct of the master, by the general maritime law of modern
Europe, the liability of the shipowner was subsequently limited to his interest in the vessel.
(Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation
was placed by the British Parliament upon the liability of Englosh shipowners through a
series of statutes beginning in 1734 with the Act of 7 George II, chapter 15. The legislatures
of Massachusetts and Maine followed suit in 1818 and 1821, and finally, Congress enacted
the Limited Liability Act of March 3, 1851, embodying most of the provisions contained in
the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes
(sec. 183, Tit. 46, Code of Laws of U. S. A.) reads:

LIABILITY OF OWNER NOT TO EXCEED INTEREST. — The liability of the owner of any
vessel, for any embezzlement, loss, or destruction, by any person, of any property,
goods, or merchandise, shipped or put on board of such vessel, or for any loss,
damage, or injury by collision, or for any act, matter or thing, loss, damage, or
forfeiture, done, occasioned, or incurred without the privity, or knowledge of such
owner or owners, shall in no case exceed the amount or value of the interest of such
owner in such vessel, and her freight then pending.

The policy which the rule is designed to promote is the encouragement of shipbuilding and
investment in maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The
Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in that spirit that the American
courts construed the Limited Liability Act of Congress whereby the immunities of the Act
were applied to claims not only for lost goods but also for injuries and "loss of life of
passengers, whether arising under the general law of admiralty, or under Federal or State
statutes." (The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360;
Butler v. Boston & Savannah Steamship Co., 32 Law. ed. 1017; Craig v. Continental
Insurance Co., 35 Law. ed. 836.) The Supreme Court of the United States in Norwich & N.
Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-590, accounting for the history
of the principle, clinches our exposition of the supporting authorities:

The history of the limitation of liability of shipowners is matter of common

knowledge. The learned opinion of Judge Ware in the case of The Rebecca, 1 Ware,
187-194, leaves little to be desired on the subject. He shows that it originated in the
maritime law of modern Europe; that whilst the civil, as well as the common law,
made the owner responsible to the whole extent of damage caused by the wrongful
act or negligence of the matter or crew, the maritime law only made then liable (if
personally free from blame) to the amount of their interest in the ship. So that, if
they surrendered the ship, they were discharged.

Grotius, in his law of War and Peace, says that men would be deterred from
investing in ships if they thereby incurred the apprehension of being rendered liable
to an indefinite amount by the acts of the master and, therefore, in Holland, they
had never observed the Roman Law on that subject, but had a regulation that the
ship owners should be bound no farther than the value of their ship and freight. His
words are: Navis et eorum quae in navi sunt," "the ship and goods therein." But he
is speaking of the owner's interest; and this, as to the cargo, is the freight thereon,
and in that sense he is understood by the commentators. Boulay Paty, Droit
Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec. XIII. The maritime law, as
codified in the celebrated French Ordonance de la Marine, in 1681, expressed the
rule thus: 'The proprietors of vessels shall be responsible for the acts of the master,
but they shall be discharged by abandoning the ship and freight.' Valin, in his
commentary on this passage, lib. 2, tit. 8, art. 2, after specifying certain
engagements of the master which are binding on the owners, without any limit of
responsibility, such as contracts for the benefit of the vessel, made during the
 voyage (except contracts of bottomry) says: "With these exceptions it is just that the
owner should not be bound for the acts of the master, except to the amount of the
ship and freight. Otherwise he would run the risk of being ruined by the bad faith or
negligence of his captain, and the apprehension of this would be fatal to the interests
of navigation. It is quite sufficient that he be exposed to the loss of his ship and of
the freight, to make it his interest, independently of any goods he may have on
board to select a reliable captain." Pardessus says: 'The owner is bound civilly for all
delinquencies committed by the captain within the scope of his authority, but he may
discharge himself therefrom by abandoning the ship and freight; and, if they are
lost, it suffices for his discharge, to surrender all claims in respect of the ship and its
freight," such as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec. 2.

The same general doctrine is laid down by many other writers on maritime law. So
that it is evident that, by this law, the owner's liability was coextensive with his
interest in the vessel and its freight, and ceased by his abandonment and surrender
of these to the parties sustaining loss.

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 co-
extensive 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 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 of not, is immaterial. The vessel having totally perished, any act of
abandonment would be an idle ceremony.

Judgement is reversed and petitioner is hereby absolved of all the complaints, without
costs.

Avanceña, C.J., Abad Santos, Diaz, Laurel, Horrilleno, and Ozaeta, JJ., concur.

Dela Torre v. Court of Appeals, G.R. No. 160088, 160565, 13 July 2011

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 160088 July 13, 2011

AGUSTIN P. DELA TORRE, Petitioner,

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

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

G.R. No. 160565

PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA

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

DECISION

MENDOZA, J.:

These consolidated petitions1 for review on certiorari seek to reverse and set aside the
September 30, 2002 Decision2 and September 18, 2003 Resolution3 of the Court of Appeals
(CA) in CA-G.R. CV No. 36035, affirming in toto the July 10, 1991 Decision 4 of the Regional
Trial Court, Branch 60, Angeles City (RTC). The RTC Decision in Civil Case No. 4609, an
action for Sum of Money and Damages, ordered the defendants, jointly and severally, to
pay various damages to the plaintiff.

The Facts:

Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel

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

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

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

3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should

be used by the FIRST PARTY (referring to Roland) for the maximum period of two (2)
years

4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said
vessel. [Underscoring Supplied]
On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation 7 (PTSC),
represented by Roland, entered into a "Contract of Agreement," 8 wherein the latter would
charter LCT-Josephine retroactive to May 1, 1984, under the following conditions:

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

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

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

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

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

n. Next x x year of dry-docking and repair of vessel shall be shouldered by the

SECOND PARTY (PTSC/Roland); (Underscoring Supplied]

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines

(TSL), a single proprietorship owned by Roland’s father, Agustin de la Torre (Agustin). 9 The
following are the terms and conditions of that "Contract of Agreement:" 10

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

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

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

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

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

f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost

for the duration of the usage;

g. All cost for the necessary repair of the vessel shall be on the account of the
SECOND PARTY (TSL/Agustin);
 h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in
the event the SECOND PARTY (TSL/Agustin) decides to stop operating;

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

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

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

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

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

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

4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in

loading and unloading of cargo load on the vessel.

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

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

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

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

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

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

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

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

1. The defendants, Philippine Trigon Shipping Corporation and Roland de la Torre,

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

2. The defendants, Philippine Trigon Shipyard Corporation and Roland de la Torre,

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

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

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

6. The fourth-party complaint against the fourth-party defendant, Ramon Larrazabal,

being without basis, is likewise DISMISSED; and

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

SO ORDERED.19

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

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

AGUSTIN’S STATEMENT OF THE ISSUES

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

II

THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON

LARRAZABAL AS SOLELY LIABLE FOR THE LOSS AND SINKING OF LCT JOSEPHINE.

III

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

IV

THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND

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

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED

ON CULPA CONTRACTUAL.

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

VII

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

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

PTSC and ROLAND’S STATEMENT OF THE ISSUES

I.

DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE PROVISIONS OF

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

II.

DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE FINDINGS OF

FACT OF THE TRIAL COURT.

III.

DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF

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

IV.

DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS JOINTLY

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

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

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

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

xxx

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

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

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

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

---

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

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

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

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

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

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

x x x.

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

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

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

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

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

xxx

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

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

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

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

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

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

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

In the present case, the charterer and the sub-charterer through their respective contracts
of agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The
vessel was likewise manned by the charterer and later by the sub-charterer’s people. With
the complete and exclusive relinquishment of possession, command and navigation of the
vessel, the charterer and later the sub-charterer became the vessel’s owner pro hac vice.
Now, and in the absence of any showing that the vessel or any part thereof was
commercially offered for use to the public, the above agreements/charter parties are that of
a private carriage where the rights of the contracting parties are primarily defined and
governed by the stipulations in their contract.34

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

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

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

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is
liable under Article 1651 of the New Civil Code.39 Although he was never privy to the
contract between PTSC and Concepcion, he remained bound to preserve the chartered
vessel for the latter. Despite his non-inclusion in the complaint of Concepcion, it was
deemed amended so as to include him because, despite or in the absence of that formality
of amending the complaint to include him, he still had his day in court40 as he was in fact
impleaded as a third-party defendant by his own son, Roland – the very same person who
represented him in the Contract of Agreement with Larrazabal.1avvphi1

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

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

August 17, 1984

Mr. Roland de la Torre

President
Phil. Trigon Shipyard Corp.
Cebu City
Dear Sir:

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

1. Name of Insurance Company

2. Policy No.

3. Amount of Premiums

4. Duration of coverage already paid

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

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

Hoping for your (prompt) action on this regard.

Truly yours,

(sgd)ROGELIO L. MARTINEZ
Owner’s representative43

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

WHEREFORE, the petitions are DENIED.

SO ORDERED.
 Limited Liability Rule

Chua Yek Hong v. IAC 166 SCRA 183 (1988)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 74811 September 30, 1988

CHUA YEK HONG, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR
OLIT, respondents.

Francisco D. Estrada for petitioner.

Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner seeks to set aside the Decision of
respondent Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano
Guno, et al.," promulgated on 3 April 1986, reversing the Trial Court and relieving private
respondents (defendants below) of any liability for damages for loss of cargo.

The basic facts are not disputed:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
private respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier
engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of
Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board
the vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila.
Said cargo, however, did not reach Manila because somewhere between Cape Santiago and
Calatagan, Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental
Mindoro, a Complaint for damages based on breach of contract of carriage against private
respondents (Civil Case No. R-3205).

In their Answer, private respondents averred that even assuming that the alleged cargo was
truly loaded aboard their vessel, their liability had been extinguished by reason of the total
loss of said vessel.
On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which
follows:

WHEREFORE, in view of the foregoing considerations, the court believes and

so holds that the preponderance of evidence militates in favor of the plaintiff
and against the defendants by ordering the latter, jointly and severally, to
pay the plaintiff the sum of P101,227.40 representing the value of the cargo
belonging to the plaintiff which was lost while in the custody of the
defendants; P65,550.00 representing miscellaneous expenses of plaintiff on
said lost cargo; attorney's fees in the amount of P5,000.00, and to pay the
costs of suit. (p. 30, Rollo).

On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of
the Code of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and
held that private respondents' liability, as ship owners, for the loss of the cargo is merely
co-extensive with their interest in the vessel such that a total loss thereof results in its
extinction. The decretal portion of that Decision 1 reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from

is hereby REVERSED, and another one entered dismissing the complaint
against defendants-appellants and absolving them from any and all liabilities
arising from the loss of 1,000 sacks of copra belonging to plaintiff-appellee.
Costs against appellee.
(p. 19, Rollo).

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has
availed of the present recourse.

The basic issue for resolution is whether or not respondent Appellate Court erred in applying
the doctrine of limited liability under Article 587 of the Code of Commerce as expounded
in Yangco vs. Laserna, supra.

Article 587 of the Code of Commerce provides:

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 the equipments and the freight it
may have earned during the voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship
owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision,
therefore, both the ship owner and ship agent are civilly and directly liable for the
indemnities in favor of third persons, which may arise from the conduct of the captain in the
care of goods transported, as well as for the safety of passengers transported Yangco vs.
Laserna, supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]).

However, under the same Article, this direct liability is moderated and limited by the ship
agent's or ship owner's right of abandonment of the vessel and earned freight. This
expresses the universal principle of limited liability under maritime law. The most
fundamental effect of abandonment is the cessation of the responsibility of the ship
agent/owner (Switzerland General Insurance Co., Ltd. vs. Ramirez, L-48264, February 21,
1980, 96 SCRA 297). It has thus been held that by necessary implication, the ship agent's
or ship owner's liability is confined to that which he is entitled as of right to abandon the
vessel with all her equipment and the freight it may have earned during the voyage," and
"to the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship
owner'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. "No vessel, no liability" expresses in a nutshell the
limited liability rule. The total destruction of the vessel extinguishes maritime liens as there
is no longer any res to which it can attach (Govt. Insular Maritime Co. vs. The Insular
Maritime, 45 Phil. 805, 807 [1924]).

As this Court held:

If the ship owner 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 co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction. (Yangco vs.
Laserna, et al., supra).

The rationale therefor has been explained as follows:

The real and hypothecary nature of the liability of the ship owner 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 ship
building 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 ship owner
or agent abandoned the ship, equipment, and freight, his liability was
extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946])

—0—

Without the principle of limited liability, a ship owner and investor in maritime
commerce would run the risk of being ruined by the bad faith or negligence of
his captain, and the apprehension of this would be fatal to the interest of
navigation." Yangco vs. Lasema, supra).

—0—

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. (Phil. Shipping Co. vs.
Vergara, 6 Phil. 284 [1906]).

The limited liability rule, however, is not without exceptions, namely: (1) where the injury
or death to a passenger is due either to the fault of the ship owner, or to the concurring
negligence of the ship owner and the captain (Manila Steamship Co., Inc. vs.
Abdulhaman supra); (2) where the vessel is insured; and (3) in workmen's compensation
claims Abueg vs. San Diego, supra). In this case, there is nothing in the records to show
that the loss of the cargo was due to the fault of the private respondent as shipowners, or
to their concurrent negligence with the captain of the vessel.

What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any
effect on the principle of limited liability for ship owners or ship agents. As was expounded
by this Court:

In arriving at this conclusion, the fact is not ignored that the illfated, S.S.
Negros, as a vessel engaged in interisland trade, is a common carrier, 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. (Yangco vs. Laserila, et
al., supra).

Moreover, Article 1766 of the Civil Code provides:

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.

In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof,
the Code of Commerce and other special laws are applied. Since the Civil Code contains no
provisions regulating liability of ship owners or agents in the event of total loss or
destruction of the vessel, it is the provisions of the Code of Commerce, more particularly
Article 587, that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction (Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited
liability being present, the liability of private respondents for the loss of the cargo of copra
must be deemed to have been extinguished. There is no showing that the vessel was
insured in this case.

WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Heirs of Amparo de los Santos v. CA 186 SCRA 649 (1990)

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.

Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur.

Phil-Nippon Kyoei, Corp. v. Gudelosao, G.R. No. 181375, 13 July 2016

 THIRD DIVISION

July 13, 2016

G.R. No. 181375

PHIL-NIPPON KYOEI, CORP., Petitioner,

vs.
ROSALIA T. GUDELOSAO, on her behalf and in behalf of minor children CHRISTY
MAE T. GUDELOSAO and ROSE ELDEN T. GUDELOSAO, CARMEN TANCONTIAN, on
her behalf and in behalf of the children CAMELA B. TANCONTIAN, BEVERLY B.
TANCONTIAN, and ACE B. TANCONTIAN, Respondents.

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari1under Rule 45 of the Revised Rules of Court filed by
Phil-Nippon Kyoei, Corp. (Petitioner) from the Decision 2 of the Court of Appeals (CA) dated
October 4, 2007 (CA Decision) and its Resolution3 dated January 11, 2008 in CA-G.R. SP
No. 95456. The CA reinstated the Labor Arbiter's Decision 4 dated August 5, 2004 (LA
Decision) with the modification, among others, that petitioner is liable to respondents under
the insurance cover it procured from South Sea Surety & Insurance Co., Inc. (SSSICI). The
CA ruled that petitioner's liability would be extinguished only upon payment by SSSICI of
the insurance proceeds to respondents.5

Facts

Petitioner, a domestic shipping corporation, purchased a "Ro-Ro" passenger/cargo vessel

"MV Mahlia" in Japan in February 2003.6 For the vessel's one month conduction voyage from
Japan to the Philippines, petitioner, as local principal, and Top Ever Marine Management
Maritime Co., Ltd. (TMCL), as foreign principal, hired Edwin C. Gudelosao, Virgilio A.
Tancontian, and six other crewmembers. They were hired through the local manning agency
of TMCL, Top Ever Marine Management Philippine Corporation (TEMMPC). TEMMPC, through
their president and general manager, Capt. Oscar Orbeta (Capt. Orbeta), and the eight
crewmembers signed separate contracts of employment. Petitioner secured a Marine
Insurance Policy (Maritime Policy No. 00001) from SSSICI over the vessel for
P10,800,000.00 against loss, damage, and third party liability or expense, arising from the
occurrence of the perils of the sea for the voyage of the vessel from Onomichi, Japan to
Batangas, Philippines. This Marine Insurance Policy included Personal Accident Policies for
the eight crewmembers for P3,240,000.00 each in case of accidental death or injury.7
On February 24, 2003, while still within Japanese waters, the vessel sank due to extreme
bad weather condition. Only Chief Engineer Nilo Macasling survived the incident while the
rest of the crewmembers, including Gudelosao and Tancontian, perished. 8

Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate

complaints for death benefits and other damages against petitioner, TEMMPC, Capt. Orbeta,
TMCL, and SSSICI, with the Arbitration Branch of the National Labor Relations Commission
(NLRC).9

On August 5, 2004, Labor Arbiter (LA) Pablo S. Magat rendered a Decision 10 finding solidary
liability among petitioner, TEMMPC, TMCL and Capt. Orbeta. The LA also found SSSICI liable
to the respondents for the proceeds of the Personal Accident Policies and attorney's fees.
The LA, however, ruled that the liability of petitioner shall be deemed extinguished only
upon SSSICI's payment of the insurance proceeds. The dispositive portion of the LA
Decision reads:

WHEREFORE, premises considered, CAPT. OSCAR ORBETA, [TEMMPC], [TMCL], and

PHIL-NIPPON KYOEI CORPORATION are hereby directed to pay solidarily the
complainants as follows:

Death Benefits Burial Expenses 10% atty's [fees]

1. ROSALIA T. GUDELOSAO: US$50,000 US$1,000 US$5,100
2. CARMEN B. TANCONTIAN: US$50,000 US$1,000 US$5,100
3. CARMELA B. TANCONTIAN: US$7,000 US$700
4. BEVERLY B. TANCONTIAN: US$7,000 US$700
5. ACE B. TANCONTIAN: US$7,000 US$700

Further, respondent SOUTH SEA SURETY & INSURANCE CO., INC. is hereby
directed to pay as beneficiaries complainants ROSALIA T. GUDELOSAO and
CARMEN B. TANCONTIAN [P]3,240,000.00 each for the proceeds of the Personal Accident
Policy Cover it issued for each of the deceased seafarers EDWIN C. GUDELOSAO and
VIRGILIO A. T ANCONTIAN plus 10% attorney's fees thereof at [P]324,000.00 each thereof
or a total of [P]648,000.00.

Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA
SURETY & INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to
all the complainants is deemed extinguished.

Any other claim is hereby dismissed for lack of merit.

SO ORDERED.11

On appeal, the NLRC modified the LA Decision in a Resolution12 dated February 28, 2006,
the dispositive portion of which reads:

WHEREFORE, premises considered, the Appeals of Complainants and PNKC are GRANTED
but only partially in the case of Complainants' Appeal, and the Appeal of [SSSICI] is
DISMISSED for lack of merit. Accordingly, the Decision is SUSTAINED subject to the
modification that [SSSICI] is DIRECTED to pay Complainants in addition to their awarded
claims, in the appealed decision, additional death benefits of US$7,000 each to the minor
children of Complainant Gudelosao, namely, Christy Mae T. Gudelosao and Rose Elden T.
Gudelosao.

As regards the other issues, the appealed Decision is SUSTAINED.

SO ORDERED.13

The NLRC absolved petitioner, TEMMPC and TMCL and Capt. Orbeta from any liability based
on the limited liability rule.14 It, however, affirmed SSSICI's liability after finding that the
Personal Accident Policies answer for the death benefit claims under the Philippine Overseas
Employment Administration Standard Employment Contract (POEASEC).15 Respondents filed
a Partial Motion for Reconsideration which the NLRC denied in a Resolution dated May 5,
2006.16

Respondents filed a petition for certiorari17before the CA where they argued that the NLRC
gravely abused its discretion in ruling that TEMMPC, TMCL, and Capt. Orbeta are absolved
from the terms and conditions of the POEA-SEC by virtue of the limited liability rule.
Respondents also argued that the NLRC gravely abused its discretion in ruling that the
obligation to pay the surviving heirs rests solely on SSSICI. The CA granted the petition, the
dispositive portion thereof reads:

WHEREFORE for being impressed with merit the petition is hereby GRANTED. Accordingly,
the Resolution dated February 28, 2006, and Resolution, dated May 5, 2006, of the public
respondent NLRC are hereby SET ASIDE. The Decision of the Labor Arbiter dated [August
5, 2004] is REINSTATED, subject to the following modifications:

(1) [R]espondents CAPT. OSCAR ORBETA, [TEMMPC] and [TMCL] (the manning agency),
are hereby directed to pay solidarily the complainants as follows:

Death Benefits Burial Expenses 10% atty's fees

ROSALIA T. GUDELOSAO: US$50,000 US$1,000 US$5,1OO
CARMEN B. TANCONTIAN: US$50,000 US$1,000 US$5,1OO
CARMELA B. TANCONTIAN: US$7,000 US$700
BEVERLY B. TANCONTIAN: US$7,000 US$700
ACE B. TANCONTIAN: US$7,000 US$700

Further, [respondents] CAPT. OSCAR ORBETA, [TEMMPC] and [TMCL] (the manning agency)
are hereby directed to pay solidarily the complainants in addition to their awarded claims,
additional death benefits of US$7,000 each to the minor children of petitioner Rosalia T.
Gudelosao, namely, Christy Mae T. Gudelosao and Rose Elden T. Gudelosao.

Respondent SOUTH SEA SURETY & INSURANCE CO., INC. is hereby directed to pay as
beneficiaries complainants ROSALIA T. GUDELOSAO and CARMEN B. TANCONTIAN
[P]3,240,000.00 each for the proceeds of the Personal Accident Policy Cover it issued for
each of the deceased seafarers EDWIN C. GUDELOSAO and VIRGILIO A. TANCONTIAN plus
10% attorney's fees thereof at [P]324,000.00 each thereof or a total of [P]648,000.00.
Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA
SURETY & INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all
the complainants is deemed extinguished.

SO ORDERED.18

The CA found that the NLRC erred when it ruled that the obligation of petitioner, TEMMPC
and TMCL for the payment of death benefits under the POEA-SEC was ipso facto transferred
to SSSICI upon the death of the seafarers. TEMMPC and TMCL cannot raise the defense of
the total loss of the ship because its liability under POEA-SEC is separate and distinct from
the liability of the shipowner.19 To disregard the contract, which has the force of law
between the parties, would defeat the purpose of the Labor Code and the rules and
regulations issued by the Department of Labor and Employment (DOLE) in setting the
minimum terms and conditions of employment for the protection of Filipino seamen. 20 The
CA noted that the benefits being claimed are not dependent upon whether there is total loss
of the vessel, because the liability attaches even if the vessel did not sink.21 Thus, it was
error for the NLRC to absolve TEMMPC and TMCL on the basis of the limited liability rule.

Significantly though, the CA ruled that petitioner is not liable under the POEA-SEC, but by
virtue of its being a shipowner.22 Thus, petitioner is liable for the injuries to passengers even
without a determination of its fault or negligence.1âwphi1 It is for this reason that petitioner
obtained insurance from SSSICI - to protect itself against the consequences of a total loss
of the vessel caused by the perils of the sea. Consequently, SSSICI's liability as petitioner's
insurer directly arose from the contract of insurance against liability (i.e., Personal Accident
Policy).23 The CA then ordered that petitioner's liability will only be extinguished upon
payment by SSSICI of the insurance proceeds.24

Petitioner filed a Motion for Reconsideration25 dated November 5, 2007 but this was denied
by the CA in its Resolution26 dated January 11, 2008. On the other hand, since SSSICI did
not file a motion for reconsideration of the CA Decision, the CA issued a Partial Entry of
Judgment27 stating that the decision became final and executory as to SSSICI on October
27, 2007.

Hence, this petition where petitioner claims that the CA erred in ignoring the fundamental
rule in Maritime Law that the shipowner may exempt itself from liability by abandoning the
vessel and freight it may have earned during the voyage, and the proceeds of the insurance
if any. Since the liability of the shipowner is limited to the value of the vessel unless there is
insurance, any claim against petitioner is limited to the proceeds arising from the insurance
policies procured from SSSICI. Thus, there is no reason in making petitioner's exoneration
from liability conditional on SSSICI's payment of the insurance proceeds.

On December 8, 2008, TEMMPC filed its Manifestation28 informing us of TEMMPC and TMCL's
Joint Motion to Dismiss the Petition and the CA's Resolution29 dated January 11, 2008
granting it. The dismissal is based on the execution of the Release of All Rights and Full
Satisfaction Claim30 (Release and Quitclaim) on December 14, 2007 between respondents
and TEMMPC, TMCL, and Capt. Orbeta. In a Resolution31 dated January 28, 2009, we noted
that TEMMPC, TMCL, and Capt. Orbeta will no longer comment on the Petition.

On the other hand, SSSICI filed its Comment32 to the petition dated September 3, 2010. It
alleged that the NLRC has no jurisdiction over the insurance claim because claims on the
Personal Accident Policies did not arise from employer-employee relations. It also alleged
that petitioner filed a complaint for sum of money33 in the Regional Trial Court (RTC) of
Manila, Branch 46, where it prays for the payment of the insurance proceeds on the
individual Marine Insurance Policy with a Personal Accident Policy covering the
crewmembers of MV Mahlia. This case was eventually dismissed and is now subject of an
appeal34 before the CA. SSSICI prays that this matter be considered in resolving the present
case.35

Issues

I. Whether the doctrine of real and hypothecary nature of maritime law (also known as the
limited liability rule) applies in favor of petitioner.

II. Whether the CA erred in ruling that the liability of petitioner is extinguished only upon
SSSICI's payment of insurance proceeds.

Discussion

I. Liability under the POEA

Standard Employment Contract.

At the outset, the CA erred in absolving petitioner from the liabilities under the POEA-SEC.
Petitioner was the local principal of the deceased seafarers for the conduction trip of MV
Mahlia. Petitioner hired them through TMCL, which also acted through its agent, TEMMPC.
Petitioner admitted its role as a principal of its agents TMCL, TEMMPC and Capt. Orbeta in
their Joint Partial Appeal36 before the NLRC.37 As such, it is solidarily liable with TEMMPC and
TMCL for the benefits under the POEA-SEC.

Doctrine of limited liability is not

applicable to claims under POEA-SEC.

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

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 care of the goods which the
vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her
equipment and the freightage he may have earned during the voyage.

Art. 590. The co-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
Art. 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.

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 its appurtenances and
freightage earned during the voyage.

Article 83 7 applies the limited liability rule in cases of collision. Meanwhile, Articles 587 and
590 embody the universal principle of limited liability in all cases wherein the shipowner or
agent may be properly held liable for the negligent or illicit acts of the captain.38 These
articles precisely intend to limit the liability of the shipowner or agent to the value of the
vessel, its appurtenances and freightage earned in the voyage, provided that the owner or
agent abandons the vessel.39 When the vessel is totally lost, in which case abandonment is
not required because there is no vessel to abandon, the liability of the shipowner or agent
for damages is extinguished.40 Nonetheless, the limited liability rule is not absolute and is
without exceptions. It does not apply in cases: (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; (2) where the vessel is insured; and (3) in workmen's compensation
claims.41

In Abueg v. San Diego,42 we ruled that the limited liability rule found in the Code of
Commerce is inapplicable in a liability created by statute to compensate employees and
laborers, or the heirs and dependents, in cases of injury received by or inflicted upon them
while engaged in the performance of their work or employment, to wit:

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.43 (Underscoring supplied.)

We see no reason why the above doctrine should not apply here.

Act No. 3428, otherwise known as The Workmen's Compensation Act 44 is the first law on
workmen's compensation in the Philippines for work-related injury, illness, or death. This
was repealed on November 1, 1974 by the Labor Code,45 and was further amended on
December 27, 1974 by Presidential Decree No. 626.46 The pertinent provisions are now
found in Title II, Book IV of the Labor Code on Employees Compensation and State
Insurance Fund.

The death benefits granted under Title II, Book IV of the Labor Code are similar to the death
benefits granted under the POEA-SEC.47 Specifically, its Section 20(A)(l) and (4)(c) provides
that:

1. In case of work-related death of the seafarer, during the term of his contract the
employer shall pay his beneficiaries the Philippine Currency equivalent to the amount of
Fifty Thousand US dollars (US$50,000) and an additional amount of Seven Thousand US
dollars (US$7,000) to each child under the age of twenty-one (21) but not exceeding four
(4) children, at the exchange rate prevailing during the time of payment.

xxx

4. The other liabilities of the employer when the seafarer dies as a result of work-related
injury or illness during the term of employment are as follows:

xxx

c. The employer shall pay the beneficiaries of the seafarer the [Philippine] currency
equivalent to the amount of One Thousand US dollars (US$1,000) for burial expenses at the
exchange rate prevailing during the time of payment.

Akin to the death benefits under the Labor Code, these benefits under the POEA-SEC are
given when the employee dies due to a work-related cause during the term of his
contract.48 The liability of the shipowner or agent under the POEA-SEC has likewise nothing
to do with the provisions of the Code of Commerce regarding maritime commerce. The
death benefits granted under the POEA-SEC is not due to the death of a passenger by or
through the misconduct of the captain or master of the ship; nor is it the liability for the loss
of the ship as result of collision; nor the liability for wages of the crew. It is a liability
created by contract between the seafarers and their employers, but secured through the
State's intervention as a matter of constitutional and statutory duty to protect Filipino
overseas workers and to secure for them the best terms and conditions possible, in order to
compensate the seafarers' heirs and dependents in the event of death while engaged in the
performance of their work or employment. The POEA-SEC prescribes the set of standard
provisions established and implemented by the POEA containing the minimum requirements
prescribed by the government for the employment of Filipino seafarers. While it is
contractual in nature, the POEA-SEC is designed primarily for the protection and benefit of
Filipino seamen in the pursuit of their employment on board ocean-going vessels.49 As such,
it is deemed incorporated in every Filipino seafarers' contract of employment.50 It is
established pursuant to POEA's power "to secure the best terms and conditions of
employment of Filipino contract workers and ensure compliance therewith" and "to protect
the well-being of Filipino workers overseas"51 pursuant to Article 17 of the Labor Code as
amended by Executive Order (EO) Nos. 79752 and 247.53

But while the nature of death benefits under the Labor Code and the POEA-SEC are similar,
the death benefits under the POEA-SEC are intended to be separate and distinct from, and
in addition to, whatever benefits the seafarer is entitled to under Philippine laws, including
those benefits which may be claimed from the State Insurance Fund.54

Thus, the claim for death benefits under the POEA-SEC is the same species as the
workmen's compensation claims under the Labor Code – both of which belong to a different
realm from that of Maritime Law. Therefore, the limited liability rule does not apply to
petitioner's liability under the POEA-SEC.

Nevertheless, the Release and Quitclaim benefit petitioner as a solidary debtor.

All the same, the Release and Quitclaim executed between TEMMPC, TMCL and Capt. Oscar
Orbeta, and respondents redounded to the benefit of petitioner as a solidary debtor.
Petitioner is solidarily liable with TEMMPC and TMCL for the death benefits under the POEA-
SEC. The basis of the solidary liability of the principal with the local manning agent is found
in the second paragraph of Section 10 of the Migrant Workers and Overseas Filipino Act of
1995,55 which, in part, provides: "[t]he liability of the principal/employer and the
recruitment/placement agency for any and all claims under this section shall be joint and
several." This provision, is in tum, implemented by Section 1 (e)(8), Rule 2, Part II of the
POEA Rules and Regulations Governing the Recruitment and Employment of Seafarers,
which requires the undertaking of the manning agency to "[a]ssume joint and solidary
liability with the employer for all claims and liabilities which may arise in connection with the
implementation of the employment contract [and POEA-SEC]."

We have consistently applied the Civil Code provisions on solidary obligations, specifically
Articles 121756 and 1222,57 to labor cases.58 We explained in Varorient Shipping Co.,
Inc. v. NLRC59the nature of the solidary liability in labor cases, to wit:

x x x The POEA Rules holds her, as a corporate officer, solidarily liable with the local
licensed manning agency. Her liability is inseparable from those of Varorient and Lagoa. If
anyone of them is held liable then all of them would be liable for the same obligation. Each
of the solidary debtors, insofar as the creditor/s is/are concerned, is the debtor of
the entire amount; it is only with respect to his co-debtors that he/she is liable to
the extent of his/her share in the obligation. Such being the case, the Civil Code
allows each solidary debtor, in actions filed by the creditor/s, to avail himself of
all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertaining to his share. He may also avail of those
defenses personally belonging to his co-debtors, but only to the extent of their share in the
debt. Thus, Varorient may set up all the defenses pertaining to Colarina and Lagoa; whereas
Colarina and Lagoa are liable only to the extent to which Varorient may be found liable by
the court. The complaint against Varorient, Lagoa and Colarina is founded on a common
cause of action; hence, the defense or the appeal by anyone of these solidary debtors would
redound to the benefit of the others.

xxx

x x x If Varorient were to be found liable and made to pay pursuant thereto, the entire
obligation would already be extinguished even if no attempt was made to enforce the
judgment against Colarina. Because there existed a common cause of action against
the three solidary obligors, as the acts and omissions imputed against them are
one and the same, an ultimate finding that Varorient was not liable would, under
these circumstances, logically imply a similar exoneration from liability for
Colarina and Lagoa, whether or not they interposed any defense.60 (Emphasis
supplied.)

Thus, the rule is that the release of one solidary debtor redounds to the benefit of the
others.61 Considering that petitioner is solidarily liable with TEMMPC and TMCL, we hold that
the Release and Quitclaim executed by respondents in favor of TEMMPC and TMCL
redounded to petitioner's benefit. Accordingly, the liabilities of petitioner under Section
20(A)(l) and (4)(c) of the POEA-SEC to respondents are now deemed extinguished. We
emphasize, however, that this pronouncement does not foreclose the right of
reimbursement of the solidary debtors who paid (i.e., TEMMPC and TMCL) from petitioner as
their co-debtor.

II. Liability under the Personal

Accident Policies.

The NLRC has jurisdiction over the

claim on the Personal Accident
Policies.

We find that the CA correctly upheld the NLRC's jurisdiction to order SSSICI to pay
respondents the value of the proceeds of the Personal Accident Policies.

The Migrant Workers and Overseas Filipinos Act of 1995 gives the Labor Arbiters of the
NLRC the original and exclusive jurisdiction over claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment, including claims for actual, moral, exemplary and other forms of damage. It
further creates a joint and several liability among the principal or employer, and the
recruitment/placement agency, for any and all claims involving Filipino workers, viz:

SEC. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the
Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the
original and exclusive jurisdiction to hear and decide, within ninety (90) calendar
days after the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for
overseas deployment including claims for actual, moral, exemplary and other forms of
damages. Consistent with this mandate, the NLRC shall endeavor to update and keep
abreast with the developments in the global services industry.

The liability of the principal/employer and the recruitment/placement agency for any and all
claims under this section shall be joint and several. This provision shall be incorporated in
the contract for overseas employment and shall be a condition precedent for its approval.
The performance bond to be filed by the recruitment/placement agency, as provided by law,
shall be answerable for all money claims or damages that may be awarded to the workers.
If the recruitment/placement agency is a juridical being, the corporate officers and directors
and partners as the case may be, shall themselves be jointly and solidarily liable with the
corporation or partnership for the aforesaid claims and damages. x x x (Emphasis supplied.)

In Finman General Assurance Corp. v. Inocencio,62 we upheld the jurisdiction of the POEA to
determine a surety's liability under its bond. We ruled that the adjudicatory power to do so
is not vested with the Insurance Commission exclusively. The POEA (now the NLRC) is
vested with quasi-judicial powers over all cases, including money claims, involving
employer-employee relations arising out of or by virtue of any law or contract involving
Filipino workers for overseas employment.63 Here, the award of the insurance proceeds
arose out of the personal accident insurance procured by petitioner as the local principal
over the deceased seafarers who were Filipino overseas workers. The premiums paid by
petitioner were, in actuality, part of the total compensation paid for the services of the
crewmembers.64 Put differently, the labor of the employees is the true source of the benefits
which are a form of additional compensation to them. Undeniably, such claim on the
personal accident cover is a claim under an insurance contract involving Filipino workers for
overseas deployment within the jurisdiction of the NLRC.

It must also be noted that the amendment under Section 37-A of the Migrant Workers and
Overseas Filipinos Act of 1995 on Compulsory Insurance Coverage does not
apply.1âwphi1 The amendment requires the claimant to bring any question or dispute in the
enforcement of any insurance policy before the Insurance Commission for mediation or
adjudication. The amendment, however, took effect on May 8, 2010 long after the Personal
Accident Policies in this case were procured in 2003. Accordingly, the NLRC has jurisdiction
over the claim for proceeds under the Personal Accident Policies.

In any event, SSSICI can no longer assail its liability under the Personal Accident Policies.
SSSICI failed to file a motion for reconsideration on the CA Decision. In a Resolution dated
April 24, 2008, the CA certified in a Partial Entry of Judgment that the CA Decision with
respect to SSSICI has become final and executory and is recorded in the Book of Entries of
Judgments.65 A decision that has acquired finality becomes immutable and unalterable. This
quality of immutability precludes the modification of a final judgment, even if the
modification is meant to correct erroneous conclusions of fact and law. This holds true
whether the modification is made by the court that rendered it or by the highest court in the
land. Thus, SSSICI's liability on the Personal Accident Policies can no longer be disturbed in
this petition.

SSSICI 's liability as insurer under the

Personal Accident Policies is direct.

We, however, find that the CA erred in ruling that "upon payment of [the insurance]
proceeds to said widows by respondent SOUTH SEA SURETY & INSURANCE CO., INC.,
respondent PHIL-NIPPON CORPORATION's liability to all the complainants is deemed
extinguished."66

This ruling makes petitioner's liability conditional upon SSSICI's payment of the insurance
proceeds. In doing so, the CA determined that the Personal Accident Policies are casualty
insurance, specifically one of liability insurance. The CA determined that petitioner, as
insured, procured from SSSICI the Personal Accident Policies in order to protect itself from
the consequences of the total loss of the vessel caused by the perils of the sea. The CA
found that the liabilities insured against are all monetary claims, excluding the benefits
under the POEA-SEC, of respondents in connection with the sinking of the vessel.

We rule that while the Personal Accident Policies are casualty insurance, they do not answer
for petitioner's liabilities arising from the sinking of the vessel. It is an indemnity insurance
procured by petitioner for the benefit of the seafarers. As a result, petitioner is not directly
liable to pay under the policies because it is merely the policyholder of the Personal Accident
Policies.

Section 176 (formerly Sec. 174) of The Insurance Code67 defines casualty insurance as
follows:

SEC. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of other types of insurance such
as fire or marine. It includes, but is not limited to, employer's liability insurance, motor
vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal
accident and health insurance as written by non-life insurance companies, and
other substantially similar kinds of

insurance. (Emphasis supplied.)

Based on Section 176, casualty insurance may cover liability or loss arising from accident or
mishap.1âwphi1 In a liability insurance, the insurer assumes the obligation to pay third
party in whose favor the liability of the insured arises.68 On the other hand, personal
accident insurance refers to insurance against death or injury by accident or accidental
means.69 In an accidental death policy, the accident causing the death is the thing insured
against.70

Notably, the parties did not submit the Personal Accident Policies with the NLRC or the CA.
However, based on the pleadings submitted by the parties, SSSICI admitted that the
crewmembers of MV Mahlia are insured for the amount of P3,240,000.00, payable upon the
accidental death of the crewmembers.71 It further admitted that the insured risk is the loss
of life or bodily injury brought about by the violent external event or accidental
means.72 Based on the foregoing, the insurer itself admits that what is being insured against
is not the liability of the shipowner for death or injuries to passengers but the death of the
seafarers arising from accident.

The liability of SSSICI to the beneficiaries is direct under the insurance contract. 73 Under the
contract, petitioner is the policyholder, with SSSICI as the insurer, the crewmembers as
the cestui que vie or the person whose life is being insured with another as beneficiary of
the proceeds,74 and the latter's heirs as beneficiaries of the policies. Upon petitioner's
payment of the premiums intended as additional compensation to the crewmembers,
SSSICI as insurer undertook to indemnify the crewmembers' beneficiaries from an unknown
or contingent event.75 Thus, when the CA conditioned the extinguishment of petitioner's
liability on SSSICI's payment of the Personal Accident Policies' proceeds, it made a finding
that petitioner is subsidiarily liable for the face value of the policies. To reiterate, however,
there is no basis for such finding; there is no obligation on the part of petitioner to pay the
insurance proceeds because petitioner is, in fact, the obligee or policyholder in the Personal
Accident Policies. Since petitioner is not the party liable for the value of the insurance
proceeds, it follows that the limited liability rule does not apply as well.

One final note. Petitioner's claim that the limited liability rule and its corresponding
exception (i.e., where the vessel is insured) apply here is irrelevant because petitioner was
not found liable under tort or quasi-delict. Moreover, the insurance proceeds contemplated
under the exception in the case of a lost vessel are the insurance over the vessel and
pending freightage for the particular voyage.76 It is not the insurance in favor of the
seafarers, the proceeds of which are intended for their beneficiaries. Thus, if ever petitioner
is liable for the value of the insurance proceeds under tort or quasi-delict, it would be from
the Marine Insurance Policy over the vessel and not from the Personal Accident Policies over
the seafarers.

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated October 4, 2007
and the Resolution dated January 11, 2008 of the Court of Appeals are AFFIRMED WITH
THE FOLLOWING MODIFICATIONS:

(1) The death benefits are limited to the amount granted under the Release of All Rights
and Full Satisfaction of Claim dated December 14, 2007 executed between respondents and
Top Ever Marine Management Company Ltd., Top Ever Marine Management Philippine
Corporation, and Captain Oscar Or beta;

(2) As a solidary co-debtor, petitioner's liability to respondents under the POEA-SEC is also
extinguished by virtue of the Release of All Rights and Full Satisfaction of Claim dated
December 14, 2007; and
(3) The last paragraph of the dispositive portion of the CA Decision dated October 4, 2007
stating: "Nevertheless, upon payment of said proceeds to said widows by respondent
SOUTH SEA SURETY & INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's
liability to all the complainants is deemed extinguished ... " is DELETED.

SO ORDERED.

CHAPTER 7 – VESSELS

General Concepts
Philippines Refining Corporation v. Jarque 61 PHIL 229 (1935)
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-41506 March 25, 1935

PHILIPPINE REFINING CO., INC., plaintiff-appellant,

vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO., defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent
Francisco Jarque, appellee.

Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant.
D.G. McVean and Vicente L. Faelnar for appellee.

MALCOLM, J.:

First of all the reason why the case has been decided by the court in banc needs
explanation. A motion was presented by counsel for the appellant in which it was asked that
the case be heard and determined by the court sitting in banc because the admiralty
jurisdiction of the court was involved, and this motion was granted in regular course. On
further investigation it appears that this was error. The mere mortgage of a ship is a
contract entered into by the parties to it without reference to navigation or perils of the sea,
and does not, therefore, confer admiralty jurisdiction. (Bogart vs. Steamboat John Jay
[1854], 17 How., 399.)

Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc.,
and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza.
These documents were recorded in the record of transfers and incumbrances of vessels for
the port of Cebu and each was therein denominated a "chattel mortgage". Neither of the
first two mortgages had appended an affidavit of good faith. The third mortgage contained
such an affidavit, but this mortgage was not registered in the customs house until May 17,
1932, or within the period of thirty days prior to the commencement of insolvency
proceedings against Francisco Jarque; also, while the last mentioned mortgage was
subscribed by Francisco Jarque and M. N. Brink, there was nothing to disclose in what
capacity the said M. N. Brink signed. A fourth mortgage was executed by Francisco Jarque
and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage
registry of the register of deeds on May 12, 1932, or again within the thirty-day period
before the institution of insolvency proceedings. These proceedings were begun on June 2,
1932, when a petition was filed with the Court of First Instance of Cebu in which it was
prayed that Francisco Jarque be declared an insolvent debtor, which soon thereafter was
granted, with the result that an assignment of all the properties of the insolvent was
executed in favor of Jose Corominas.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the
mortgages, but on the contrary sustained the special defenses of fatal defectiveness of the
mortgages. In so doing we believe that the trial judge acted advisedly.
Vessels are considered personal property under the civil law. (Code of Commerce, article
585.) Similarly under the common law, vessels are personal property although occasionally
referred to as a peculiar kind of personal property. (Reynolds vs. Nielson [1903], 96 Am.
Rep., 1000; Atlantic Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the
term "personal property" includes vessels, they are subject to mortgage agreeably to the
provisions of the Chattel Mortgage Law. (Act No. 1508, section 2.) Indeed, it has heretofore
been accepted without discussion that a mortgage on a vessel is in nature a chattel
mortgage. (McMicking vs. Banco Español-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de
Sane [1930], 54 Phil., 511.) The only difference between a chattel mortgage of a vessel and
a chattel mortgage of other personalty is that it is not now necessary for a chattel mortgage
of a vessel to be noted n the registry of the register of deeds, but it is essential that a
record of documents affecting the title to a vessel be entered in the record of the Collector
of Customs at the port of entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72;
Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on a vessel is generally like other
chattel mortgages as to its requisites and validity. (58 C.J., 92.)

The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to
constitute a good chattel mortgage, includes the requirement of an affidavit of good faith
appended to the mortgage and recorded therewith. The absence of the affidavit vitiates a
mortgage as against creditors and subsequent encumbrancers. (Giberson vs. A. N. Jureidini
Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial
Sheriff of Occidental Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of
a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking,
is unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the record do not
constitute chattel mortgages or at least to gloss over the failure to include the affidavit of
good faith made a requisite for a good chattel mortgage by the Chattel Mortgage Law.
Counsel would further have us disregard article 585 of the Code of Commerce, but no
reason is shown for holding this article not in force. Counsel would further have us revise
doctrines heretofore announced in a series of cases, which it is not desirable to do since
those principles were confirmed after due liberation and constitute a part of the commercial
law of the Philippines. And finally counsel would have us make rulings on points entirely
foreign to the issues of the case. As neither the facts nor the law remains in doubt, the
seven assigned errors will be overruled.

Judgment affirmed, the costs of this instance to be paid by the appellant.

Avanceña, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and Goddard,
JJ., concur.

CHAPTER – 9 PERSONS WHO TAKE PART IN MARITIME COMMERCE

Ship Owners and Ship Agents; Captains and Masters of Vessels; Officers and Crew,
Supercargoes
Chua Yek Hong v. IAC, G.R. No. 74811, September 30, 1988

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 74811 September 30, 1988

CHUA YEK HONG, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR
OLIT, respondents.

Francisco D. Estrada for petitioner.

Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner seeks to set aside the Decision of
respondent Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano
Guno, et al.," promulgated on 3 April 1986, reversing the Trial Court and relieving private
respondents (defendants below) of any liability for damages for loss of cargo.

The basic facts are not disputed:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
private respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier
engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of
Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board
the vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila.
Said cargo, however, did not reach Manila because somewhere between Cape Santiago and
Calatagan, Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental
Mindoro, a Complaint for damages based on breach of contract of carriage against private
respondents (Civil Case No. R-3205).

In their Answer, private respondents averred that even assuming that the alleged cargo was
truly loaded aboard their vessel, their liability had been extinguished by reason of the total
loss of said vessel.
On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which
follows:

WHEREFORE, in view of the foregoing considerations, the court believes and

so holds that the preponderance of evidence militates in favor of the plaintiff
and against the defendants by ordering the latter, jointly and severally, to
pay the plaintiff the sum of P101,227.40 representing the value of the cargo
belonging to the plaintiff which was lost while in the custody of the
defendants; P65,550.00 representing miscellaneous expenses of plaintiff on
said lost cargo; attorney's fees in the amount of P5,000.00, and to pay the
costs of suit. (p. 30, Rollo).

On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of
the Code of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and
held that private respondents' liability, as ship owners, for the loss of the cargo is merely
co-extensive with their interest in the vessel such that a total loss thereof results in its
extinction. The decretal portion of that Decision 1 reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from

is hereby REVERSED, and another one entered dismissing the complaint
against defendants-appellants and absolving them from any and all liabilities
arising from the loss of 1,000 sacks of copra belonging to plaintiff-appellee.
Costs against appellee.
(p. 19, Rollo).

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has
availed of the present recourse.

The basic issue for resolution is whether or not respondent Appellate Court erred in applying
the doctrine of limited liability under Article 587 of the Code of Commerce as expounded
in Yangco vs. Laserna, supra.

Article 587 of the Code of Commerce provides:

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 the equipments and the freight it
may have earned during the voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship
owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision,
therefore, both the ship owner and ship agent are civilly and directly liable for the
indemnities in favor of third persons, which may arise from the conduct of the captain in the
care of goods transported, as well as for the safety of passengers transported Yangco vs.
Laserna, supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]).

However, under the same Article, this direct liability is moderated and limited by the ship
agent's or ship owner's right of abandonment of the vessel and earned freight. This
expresses the universal principle of limited liability under maritime law. The most
fundamental effect of abandonment is the cessation of the responsibility of the ship
agent/owner (Switzerland General Insurance Co., Ltd. vs. Ramirez, L-48264, February 21,
1980, 96 SCRA 297). It has thus been held that by necessary implication, the ship agent's
or ship owner's liability is confined to that which he is entitled as of right to abandon the
vessel with all her equipment and the freight it may have earned during the voyage," and
"to the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship
owner'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. "No vessel, no liability" expresses in a nutshell the
limited liability rule. The total destruction of the vessel extinguishes maritime liens as there
is no longer any res to which it can attach (Govt. Insular Maritime Co. vs. The Insular
Maritime, 45 Phil. 805, 807 [1924]).

As this Court held:

If the ship owner 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 co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction. (Yangco vs.
Laserna, et al., supra).

The rationale therefor has been explained as follows:

The real and hypothecary nature of the liability of the ship owner 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 ship
building 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 ship owner
or agent abandoned the ship, equipment, and freight, his liability was
extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946])

—0—

Without the principle of limited liability, a ship owner and investor in maritime
commerce would run the risk of being ruined by the bad faith or negligence of
his captain, and the apprehension of this would be fatal to the interest of
navigation." Yangco vs. Lasema, supra).

—0—

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. (Phil. Shipping Co. vs.
Vergara, 6 Phil. 284 [1906]).

The limited liability rule, however, is not without exceptions, namely: (1) where the injury
or death to a passenger is due either to the fault of the ship owner, or to the concurring
negligence of the ship owner and the captain (Manila Steamship Co., Inc. vs.
Abdulhaman supra); (2) where the vessel is insured; and (3) in workmen's compensation
claims Abueg vs. San Diego, supra). In this case, there is nothing in the records to show
that the loss of the cargo was due to the fault of the private respondent as shipowners, or
to their concurrent negligence with the captain of the vessel.

What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any
effect on the principle of limited liability for ship owners or ship agents. As was expounded
by this Court:

In arriving at this conclusion, the fact is not ignored that the illfated, S.S.
Negros, as a vessel engaged in interisland trade, is a common carrier, 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. (Yangco vs. Laserila, et
al., supra).

Moreover, Article 1766 of the Civil Code provides:

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.

In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof,
the Code of Commerce and other special laws are applied. Since the Civil Code contains no
provisions regulating liability of ship owners or agents in the event of total loss or
destruction of the vessel, it is the provisions of the Code of Commerce, more particularly
Article 587, that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction (Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited
liability being present, the liability of private respondents for the loss of the cargo of copra
must be deemed to have been extinguished. There is no showing that the vessel was
insured in this case.

WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Philippine American General Insurance v. CA 273 SCRA 262 (1997)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,

vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to
observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the
right of the insurer to be subrogated to the rights of the insured upon payment of the
insurance claim.

On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel
owned and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500
cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu
City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.1 The shipment was insured
with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity),
under Marine Open Policy No. 100367-PAG.

"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the
same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in
the waters of Zamboanga del Norte bringing down her entire cargo with her including the
subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim
with respondent FELMAN for recovery of damages it sustained as a result of the loss of its
softdrink bottles that sank with "MV Asilda." Respondent denied the claim thus prompting
the consignee to file an insurance claim with PHILAMGEN which paid its claim of
P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN
which disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN
sued the shipowner for sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its
cargo were due to the vessel's unseaworthiness as she was put to sea in an unstable
condition. It further alleged that the vessel was improperly manned and that its officers
were grossly negligent in failing to take appropriate measures to proceed to a nearby port
or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense
that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and
that, in any event, FELMAN had abandoned all its rights, interests and ownership over "MV
Asilda" together with her freight and appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of Commerce.2

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the
Court of Appeals set aside the dismissal and remanded the case to the lower court for trial
on the merits. FELMAN filed a petition for certiorari with this Court but it was subsequently
denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that
"MV Asilda" was seaworthy when it left the port of Zamboanga as confirmed by certificates
issued by the Philippine Coast Guard and the shipowner's surveyor attesting to its
seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed
to either a fortuitous event, in which case, no liability should attach unless there was a
stipulation to the contrary, or to the negligence of the captain and his crew, in which case,
Art. 587 of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN
could not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had
breached its implied warranty on the vessel's seaworthiness. Resultantly, the payment
made by PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it
was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it
to bring an action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August
1994 respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for
being top-heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on
deck. In other words, while the vessel possessed the necessary Coast Guard certification
indicating its seaworthiness with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of
PHILAMGEN on the ground that the assured's implied warranty of seaworthiness was not
complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and
interests of the shipper. Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability under the limited liability
rule.

The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it
left the port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of
Commerce should apply; and, (c) whether PHILAMGEN was properly subrogated to the
rights and legal actions which the shipper had against FELMAN, the shipowner.

"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the
captain as well as the chief mate of the vessel confirmed that the weather was fine when
they left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of
1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an
undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for
eggs and about 500 cases of Coca-Cola bottles on deck.4 The ship captain stated that
around four o'clock in the morning of 7 July 1983 he was awakened by the officer on duty to
inform him that the vessel had hit a floating log. At that time he noticed that the weather
had deteriorated with strong southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and would not correct itself despite
the heavy rolling and pitching. He then ordered his crew to shift the cargo from starboard to
portside until the vessel was balanced. At about seven o'clock in the morning, the master of
the vessel stopped the engine because the vessel was listing dangerously to portside. He
ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an
hour afterwhich he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and before the captain
could decide on his next move, some of the cargo on deck were thrown overboard and
seawater entered the engine room and cargo holds of the vessel. At that instance, the
master of the vessel ordered his crew to abandon ship. Shortly thereafter, "MV Asilda"
capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the
hull caused by the vessel's collision with a partially submerged log.5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The
report, which was adopted by the Court of Appeals, reads —

We found in the course of our investigation that a reasonable explanation for

the series of lists experienced by the vessel that eventually led to her
capsizing and sinking, was that the vessel was top-heavy which is to say that
while the vessel may not have been overloaded, yet the distribution or
stowage of the cargo on board was done in such a manner that the vessel
was in top-heavy condition at the time of her departure and which condition
rendered her unstable and unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel was
designed as a fishing vessel . . . and it was not designed to carry a substantial
amount or quantity of cargo on deck. Therefore, we believe strongly that had
her cargo been confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel would not
have been in any danger of capsizing, even given the prevailing weather
conditions at that time of sinking.

But from the moment that the vessel was utilized to load heavy cargo on its
deck, the vessel was rendered unseaworthy for the purpose of carrying the
type of cargo because the weight of the deck cargo so decreased the vessel's
metacentric height as to cause it to become unstable.

Finally, with regard to the allegation that the vessel encountered big waves, it
must be pointed out that ships are precisely designed to be able to navigate
safely even during heavy weather and frequently we hear of ships safely and
successfully weathering encounters with typhoons and although they may
sustain some amount of damage, the sinking of ship during heavy weather is
not a frequent occurrence and is not likely to occur unless they are inherently
unstable and unseaworthy . . . .

We believe, therefore, and so hold that the proximate cause of the sinking of
the M/V "Asilda" was her condition of unseaworthiness arising from her
having been top-heavy when she departed from the Port of Zamboanga. Her
 having capsized and eventually sunk was bound to happen and was therefore
in the category of an inevitable occurrence (emphasis supplied).6

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the
proximate cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship
captain's allegations, evidence shows that approximately 2,500 cases of softdrink bottles
were stowed on deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-
Cola plastic cases were recovered near the vicinity of the sinking. Considering that the
ship's hatches were properly secured, the empty Coca-Cola cases recovered could have
come only from the vessel's deck cargo. It is settled that carrying a deck cargo raises the
presumption of unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this case it was established
that "MV Asilda" was not designed to carry substantial amount of cargo on deck. The
inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric
height 7 thus making it unstable. The strong winds and waves encountered by the vessel are
but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already
unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at
bar.8 Simply put, the ship agent is liable for the negligent acts of the captain in the care of
goods loaded on the vessel. This liability however can be limited through abandonment of
the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held answerable despite the
abandonment, as where the loss or injury was due to the fault of the shipowner and the
captain.9 The international rule is to the effect that the right of abandonment of vessels, as
a legal limitation of a shipowner's liability, does not apply to cases where the injury or
average was occasioned by the shipowner's own fault. 10 It must be stressed at this point
that Art. 587 speaks only of situations where the fault or negligence is committed solely by
the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such
situation will be covered by the provisions of the Civil Code on common carrier. 11

It was already established at the outset that the sinking of "MV Asilda" was due to its
unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-
heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part
of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was
equally negligent. It cannot therefore escape liability through the expedient of filing a notice
of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.

Under Art 1733 of the Civil Code, "(c)ommon 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 . . ." In the event of loss of goods, common carriers are
presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this
presumption.

In relation to the question of subrogation, respondent appellate court found "MV Asilda"
unseaworthy with reference to the cargo and therefore ruled that there was breach of
warranty of seaworthiness that rendered the assured not entitled to the payment of is claim
under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in
effect a "voluntary payment" and no right of subrogation accrued in its favor. In other
words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to
the assurer that the vessel is seaworthy and such warranty is as much a term of the
contract as if expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance
Code provides that "(i)n every marine insurance upon a ship or freight, or freightage, or
upon anything which is the subject of marine insurance, a warranty is implied that the ship
is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the
service, and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy." Thus it becomes the obligation of the cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. He may have no control over the
vessel but he has full control in the selection of the common carrier that will transport his
goods. He also has full discretion in the choice of assurer that will underwrite a particular
venture.

We need not belabor the alleged breach of warranty of seaworthiness by the assured as
painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In
policies where the law will generally imply a warranty of seaworthiness, it can only be
excluded by terms in writing in the policy in the clearest language. 13 And where the policy
stipulates that the seaworthiness of the vessel as between the assured and the assurer is
admitted, the question of seaworthiness cannot be raised by the assurer without showing
concealment or misrepresentation by the assured. 14

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2)
instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine
Open Policy No. 100367-PAG reads "(t)he liberties as per Contract of Affreightment the
presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or
Charter Party and/or Contract of Affreightment as between the Assured and the Company
shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured
and the Assurers is hereby admitted."15

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy
which states "(t)he seaworthiness of the vessel as between the Assured and Underwriters in
hereby admitted . . . ." 16

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or
two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that
the risk of unseaworthiness is assumed by the insurance company. 17 The insertion of such
waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners
cannot control the state of the vessel. Thus it can be said that with such categorical waiver,
PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's
action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the
assurer to the assured operates as an equitable assignment to the assurer of all the
remedies which the assured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of
any privity of contract or upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the ultimate payment of
a debt by one who in justice, equity and good conscience ought to pay. 19 Therefore, the
payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption
of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink
bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to

pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred
Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon
counted from 29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and
2213 of the Civil Code. 20

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., is on leave.

Sweet Lines v. Court of Appeals 121 SCRA 769 (1983)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-46340 April 28, 1983

SWEET LINES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS, FR. JOSE BACATAN,
S.J., MARCIANO CABRAS and ANDREA VELOSO, respondents.

Felixberto Leonardo and Ramon Tuangco for petitioner.

Expedito P. Bugarin for respondents.

RESOLUTION
MELENCIO-HERRERA, J.:

For having by-passed a port of call without previous notice, petitioner shipping company
and the ship captain were sued for damages by four of its passengers, private respondents
herein, before the then Court of First Instance of Cebu, Branch VIII,

Briefly, the facts of record show that private respondents purchased first- class tickets from
petitioner at the latter's office in Cebu City. They were to board petitioner's vessel, M/V
Sweet Grace, bound for Catbalogan, Western Samar. Instead of departing at the scheduled
hour of about midnight on July 8, 1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only
to be towed back to Cebu due to engine trouble, arriving there at about 4:00 P.M. on the
same day. Repairs having been accomplished, the vessel lifted anchor again on July 10,
1972 at around 8:00 A.M.

Instead of docking at Catbalogan, which was the first port of call, the vessel proceeded
direct to Tacloban at around 9:00 P.M. of July 10, 1972. Private respondents had no
recourse but to disembark and board a ferryboat to Catbalogan.

Hence, this suit for damages for breach of contract of carriage which the Trial Court,
affirmed by respondent Appellate Court, awarded as follows:

IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is rendered

ordering the defendant Sweet Lines, Incorporated to pay to the plaintiffs the
following:

l) P175,000.00 as moral damages divided among the plaintiffs as follows:

P30,000.00 for Mrs. Micaela B. Quintos, P26,000.00 for Jesuit Father Jose
Bacatan; P10,000.00 for Mrs. Andrea Veloso and P10,000.00 for plaintiff Mike
Cabras;

2) P30,000.00 as exemplary or corrective damages;

3) Interest at the legal rate of 6% per annum on the moral and exemplary
damages as set forth above from the date of this decision until said damages
are fully paid;

4) P5,000.00 as attorney's fees; and

5) The costs.

Counterclaim dismissed.

The governing provisions are found in the Code of Commerce and read as follows:

ART. 614. A captain who, having agreed to make a voyage, fails to fulfill his
undertaking, without being prevented by fortuitous event or force majeure,
shall indemnify all the losses which his failure may cause, without prejudice to
criminal penalties which may be proper.

and
 ART. 698. In case of interruption of a voyage already begun, the passengers
shall only be obliged to pay the fare in proportion to the distance covered,
without right to recover damages if the interruption is due to fortuitous event
or force majeure, but with a right to indemnity, if the interruption should have
been caused by the captain exclusively. If the interruption should be caused
by the disability of the vessel, and the passenger should agree to wait for her
repairs, he may not be required to pay any increased fare of passage, but his
living expenses during the delay shall be for his own account.

The crucial factor then is the existence of a fortuitous event or force majeure. Without it,
the right to damages and indemnity exists against a captain who fails to fulfill his
undertaking or where the interruption has been caused by the captain exclusively.

As found by both Courts below, there was no fortuitous event or force majeure which
prevented the vessel from fulfilling its undertaking of taking private respondents to
Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso
fortuito that exempts the carrier from responsibility. 1

In the second place, even granting arguendo that the engine failure was a fortuitous event,
it accounted only for the delay in departure. When the vessel finally left the port of Cebu on
July 10, 1972, there was no longer any force majeure that justified by-passing a port of call.
The vessel was completely repaired the following day after it was towed back to Cebu. In
fact, after docking at Tacloban City, it left the next day for Manila to complete its voyage. 2

The reason for by-passing the port of Catbalogan, as admitted by petitioner's General
Manager, was to enable the vessel to catch up with its schedule for the next week. The
record also discloses that there were 50 passengers for Tacloban compared to 20
passengers for Catbalogan,3 so that the Catbalogan phase could be scrapped without too
much loss for the company.

In defense, petitioner cannot rely on the conditions in small bold print at the back of the
ticket reading.

The passenger's acceptance of this ticket shall be considered as an

acceptance of the following conditions:

3. In case the vessel cannot continue or complete the trip for any cause
whatsoever, the carrier reserves the right to bring the passenger to his/her
destination at the expense of the carrier or to cancel the ticket and refund the
passenger the value of his/her ticket;

xxx xxx xxx

11. The sailing schedule of the vessel for which this ticket was issued is
subject to change without previous notice. (Exhibit "l -A")

Even assuming that those conditions are squarely applicable to the case at bar, petitioner
did not comply with the same. It did not cancel the ticket nor did it refund the value of the
tickets to private respondents. Besides, it was not the vessel's sailing schedule that was
involved. Private respondents' complaint is directed not at the delayed departure the next
day but at the by- passing of Catbalogan, their destination. Had petitioner notified them
previously, and offered to bring them to their destination at its expense, or refunded the
value of the tickets purchased, perhaps, this controversy would not have arisen.

Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and
698 of the Code of Commerce heretofore quoted.

The voyage to Catbalogan was "interrupted" by the captain upon instruction of

management. The "interruption" was not due to fortuitous event or for majeure nor to
disability of the vessel. Having been caused by the captain upon instruction of management,
the passengers' right to indemnity is evident. The owner of a vessel and the ship agent shall
be civilly liable for the acts of the captain. 4

Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract
where the defendant acted fraudulently or in bad faith. Both the Trial Court and the
Appellate Court found that there was bad faith on the part of petitioner in that:

(1) Defendants-appellants did not give notice to plaintiffs- appellees as to the

change of schedule of the vessel;

(2) Knowing fully well that it would take no less than fifteen hours to effect
the repairs of the damaged engine, defendants-appellants instead made
announcement of assurance that the vessel would leave within a short period
of time, and when plaintiffs-appellees wanted to leave the port and gave up
the trip, defendants-appellants' employees would come and say, 'we are
leaving, already.'

(3) Defendants-appellants did not offer to refund plaintiffs-appellees' tickets

nor provide them with transportation from Tacloban City to Catbalogan. 5

That finding of bad faith is binding on us, since it is not the function of the Court to analyze
and review evidence on this point all over again, 6 aside from the fact that we find it faithful
to the meaning of bad faith enunciated thus:

Bad faith means a breach of a known duty through some motive or interest or
illwill. Self-enrichment or fraternal interest, and not personal illwill may have
been the motive, but it is malice nevertheless.7

Under the circumstances, however, we find the award of moral damages excessive and
accordingly reduce them to P3,000.00, respectively, for each of the private respondents.

The total award of attorney's fees of P5,000.00 is in order considering that the case has
reached this Tribunal.

Insofar as exemplary damages are concerned, although there was bad faith, we are not
inclined to grant them in addition to moral damages. Exemplary damages cannot be
recovered as a matter of right; the Court decides whether or not they should be
adjudicated.8 The objective to meet its schedule might have been called for, but petitioner
should have taken the necessary steps for the protection of its passengers under its
contract of carriage.
Article 2215(2) of the Civil Code 9 invoked by petitioner is inapplicable herein. The harm
done to private respondents outweighs any benefits they may have derived from being
transported to Tacloban instead of being taken to Catbalogan, their destination and the
vessel's first port of call, pursuant to its normal schedule.

ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby
sentenced to indemnify private respondents in the sum of P3,000.00 each, without interest,
plus P1,250.00, each, by way of att/rney's fees and litigation expenses. Costs against
petitioner.

SO ORDERED.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
9.2 Arrastre Operator
Fireman’s Fund Insurance Co. v. Metro Port Services 182 SCRA 455 (1990)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 83613 February 21, 1990

FIREMAN'S FUND INSURANCE CO., petitioner,

vs.
METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), respondent.

Dollete, Blanco, Ejercito & Associates for petitioner.

Cruz, Durian, Agabin, Atienza, Alday & Tuason for respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision and resolution denying reconsideration of the
Court of Appeals in CA-G.R. CV No. 00673 entitled "Fireman's Fund Insurance Co. v. Maersk
Line, Compañia General de Tabacos de Filipinas and E. Razon, Inc."

The facts are as follows:

Vulcan Industrial and Mining Corporation imported from the United States several
machineries and equipment which were loaded on board the SIS Albert Maersk at the port
of Philadelphia, U.S.A., and transhipped for Manila through the vessel S/S Maersk Tempo.

The cargo which was covered by a clean bill of lading issued by Maersk Line and Compania
General de Tabacos de Filipinas (referred to as the CARRIER) consisted of the following:

xxx xxx xxx

1 piece truck mounted core drill

1 piece trailer mounted core drill

1 (40') container of 321 pieces steel tubings

1 (40') container of 170 pieces steel tubings

1 (40') container of 13 cases, 3 crates, 2 pallets and 26 mining machinery

parts. (Rollo, p. 4)
The shipment arrived at the port of Manila on June 3, 1979 and was turned over complete
and in good order condition to the arrastre operator E. Razon Inc. (now Metro Port Service
Inc. and referred to as the ARRASTRE).

At about 10:20 in the morning of June 8, 1979, a tractor operator, named Danilo Librando
and employed by the ARRASTRE, was ordered to transfer the shipment to the Equipment
Yard at Pier 3. While Librando was maneuvering the tractor (owned and provided by Maersk
Line) to the left, the cargo fell from the chassis and hit one of the container vans of
American President Lines. It was discovered that there were no twist lock at the rear end of
the chassis where the cargo was loaded.

There was heavy damage to the cargo as the parts of the machineries were broken, denied,
cracked and no longer useful for their purposes.

The value of the damage was estimated at P187,500.00 which amount was paid by the
petitioner insurance company to the consignee, Vulcan Industrial and Mining Corporation.

The petitioner, under its subrogation rights, then filed a suit against Maersk Line, Compania
General de Tabacos (as agent) and E. Razon, Inc., for the recovery of the amount it paid
the assured under the covering insurance policy. On October 26, 1980, the trial court
rendered judgment, the decretal portion of which reads as follows:

xxx xxx xxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against

the defendants by ordering the latter to pay, jointly and severally, the plaintiff
the sum of P187,500.00, with legal interest thereon from August 29, 1980
until full payment thereof.

Defendants are also ordered to pay, in solidum, the sum of P10,000.00 as

attorney's fees to the plaintiff, and to pay the costs of this suit.

There shall be no award for exemplary damages in favor of the plaintiff, for
the reason that defendants are probably acting in good faith in resisting the
complaint. (Rollo, pp. 45-46)

All the defendants appealed to the Court of Appeals. Eventually, Maersk Line and Compania
General de Tabacos negotiated with the petitioner for the settlement of the latter's claim
and no longer pursued their appeal.

On the appeal of the ARRASTRE, the Court of Appeals rendered a decision with the following
dispositive portion:

WHEREFORE, foregoing premises considered, the decision of the court a

quo insofar as herein defendant-appellant is concerned is REVERSED It is
hereby ordered that the complaint against herein defendant-appellant be
dismissed. No costs. (Rollo, p. 50)

Reconsideration of the decision was denied in a resolution dated May 23, 1988.

Hence, the present recourse.

The petitioner raises this lone assignment of error:

THE HONORABLE COURT OF APPEALS ERRED IN LIMITING LIABILITY SOLELY

ON CO-DEFENDANT MAERSK LINES, CONTRARY TO THE FINDINGS OF FACTS
OF THE TRIAL COURT A QUO AND OTHER FACTORS SHOWING CLEAR JOINT
LIABILITY OF DEFENDANTS IN SOLIDUM.

There is merit in this petition.

This Court has held in a number of cases that findings of fact of the Court of Appeals are, in
general, conclusive on the Supreme Court when supported by the evidence on record. The
rule is not absolute, however, and allows exceptions, which we find present in the case at
bar. The respondent court's findings of facts are contrary to those of the trial court and
appear to be contradicted by the evidence on record thus calling for our review. (Metro Port
Service, Inc. v. Court of Appeals, 131 SCRA 365 [1984]).

In absolving the ARRASTRE, the respondent Court ruled that although Librando was an
employee of the ARRASTRE, since he was included in its payroll, he was technically and
strictly an employee of Maersk Line in this particular instance when he drove the tractor
admittedly owned by the foreign shipping line. The Court ruled that he received instructions
not from Metro Port but from Maersk Line relative to this job. He was performing a duty that
properly pertained to Maersk Line which, for lack of a tractor operator, had to get or hire
from the ARRASTRE as per their management contract. Nevertheless, Librando was not
remiss in his duty as tractor-driver considering that the proximate and direct cause of the
damage was the absence of twist locks in the rear end of the chassis which Maersk Line
failed to provide. The respondent court thereby placed the entire burden of liability on the
owner of the Chassis which in this case was the foreign shipping company, Maersk Line.

The foregoing conclusion disregarded the pertinent findings of facts made by the lower court
which are supported by the evidence on record, to wit:

1. The accident occurred while the cargoes were in the custody of the arrastre
operator.

2. The tractor operator was an employee of the arrastre operator.

xxx xxx xxx

4. By the management contract inasmuch as the foreign shipping company

has no tractor operator in its employ, the arrastre provided the operator.

xxx xxx xxx

8. It was likewise the responsibility of the tractor operator, an employee of

the arrastre operator to inspect the chassis and tractor before driving the
same, but which obligation the operator failed to do.

9. It was also the responsibility of the supervisor in the employ of the arrastre
operator to see that their men complied with their respective tasks, which
included the examination if the chassis has twist lock. (Rollo, pp. 44-45)
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]). The
relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil.
253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged
with and obligated to deliver the goods in good condition to the consignee.

In general, the nature of the work of an arrastre operator covers the handling of cargoes at
piers and wharves (Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue,
13 SCRA 357 [1965]). This is embodied in the Management Contract drawn between the
Bureau of Customs and E. Razon Inc., as the Arrastre Operator. The latter agreed to bind
itself, to wit:

CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES

1. Responsibility and Liability for Losses and Damages;

Claims. — The CONTRACTOR shall, at its own expense handle all merchandise
in the piers and other designated places and at its own expense perform all
work undertaken by it hereunder diligently and in skillful workmanlike and
efficient manner; That the CONTRACTOR shall be solely responsible as an
independent CONTRACTOR, and hereby agrees to accept liability and to
promptly pay to the s hip company, consignee, consignor or other interested
party or parties for the loss, damage, or non-delivery of cargoes to the extent
of the actual invoice value of each package which in no case shall be more
than Three Thousand Five Hundred Pesos (P3,500.00) for each package
unless the value of the importation is otherwise specified or manifested or
communicated in writing together with the invoice value and supported by a
certified packing list to the CONTRACTOR by the interested party or parties
before the discharge of the goods, as well as all damage that may be suffered
on account of loss, damage, or destruction of any merchandise while in
custody or under the control of the CONTRACTOR in any pier, shed,
warehouse, facility; or other designated place under the supervision of the
BUREAU, but said CONTRACTOR shall not be responsible for the condition of
the contents of any package received nor for the weight, nor for any loss,
injury or damage to the said cargo before or while the goods are being
received or remained on the piers, sheds, warehouse or facility if the loss,
injury or damage is caused by force majeure, or other cause beyond the
CONTRACTORS control or capacity to prevent or remedy; ...

xxx xxx xxx

The CONTRACTOR shall be solely responsible for any and all injury or damage
that may arise on account of the negligence or carelessness of the
CONTRACTOR, its agent or employees in the performance of the undertaking
by it to be performed under the terms of the contract, and the CONTRACTOR
hereby agree to and hold the BUREAU at all times harmless therefrom and
whole or any part thereof. (Original Records, pp. 110-112; Emphasis
supplied)
To carry out its duties, the ARRASTRE is required to provide cargo handling equipment
which includes among others trailers, chassis for containers. In some cases, however, the
shipping line has its own cargo handling equipment.

In this particular instance, the records reveal that Maersk Line provided the chassis and the
tractor which carried the carried the subject shipment. It merely requested the ARRASTRE
to dispatch a tractor operator to drive the tractor inasmuch as the foreign shipping line did
not have any truck operator in its employ. Such arrangement is allowed between the
ARRASTRE and the CARRIER pursuant to the Management Contract. It was clearly one of
the services offered by the ARRASTRE. We agree with the petitioner that it is the ARRASTRE
which had the sole discretion and prerogative to hire and assign Librando to operate the
tractor. It was also the ARRASTRE's sole decision to detail and deploy Librando for the
particular task from among its pool of tractor operators or drivers. It is, therefore,
inacurrate to state that Librando should be considered an employee of Maersk Line on that
specific occasion.

Handling cargo is mainly the s principal work so its driver/operators, "cargadors", or

employees should observe the stand" and indispensable measures necessary to prevent
losses and damage to shipments under its custody. Since the ARRASTRE offered its drivers
for the operation of tractors in the handling of cargo and equipment, then the ARRASTRE
should see to it that the drivers under its employ must exercise due diligence in the
performance of their work. From the testimonies of witnesses presented, we gather that
driver/operator Librando was remiss in his duty. Benildez Cepeda, an arrastre-investigator
of Metro Port admitted that Librando as tractor-operator should first have inspected the
chassis and made sure that the cargo was securely loaded on the chassis. He testified:

xxx xxx xxx

Q My question is in your investigation report including

enclosures, the principal reason was that the chassis has no
rear twist lock?

A Yes, sir.

Q Did you investigate whether the driver Librando inspected the

the truck before he operated the same whether there was rear
twist lock or not?

A I have asked him about that question whether he had

inspected the has any rear twist lock and the answer he did not
inspect, sir.

Q As a operator, do you agree with me that it is the duty also

of Librando to see to it that the truck is in good condition and
fit to travel, is that correct?

A Yes, sir.

Q And as a tractor operator it is his duty to see to it that the

van mounted on top of the tractor was properly is that correct?
 A Yes, sir. (At pp. 18-20, T.S.N., February 17, 1982)

Again Danilo Librando also admitted that it was usually his practice to inspect not only the
tractor but the chassis as well but failed to do so in this particular instance.

xxx xxx xxx

Q You mentioned of the absence of a twist lock. Will you tell us

where is this twist lock supposed to be located?

A At the rear end of the chassis.

Q Before you operated the tractor which carried the mounted

cord drill truck and trailer did you examine if the chasiss had
any twist locks?

A No, sir, because I presumed that it had twist locks and I was
confident that it had twist locks.

Q As a matter of procedure and according to you, you

examined the tractor, do you not make it a practice to examine
whether the chassis had any twist locks?

A I used to do that but in that particular instance I thought it

had already its twist locks. (p. 8, T.S.N., October 5, 1981)

It is true that Maersk Line is also at fault for not providing twist locks on the chassis.
However, we find the testimony of Manuel Heraldez who is the Motor Pool General
Superintendent of Metro Port rather significant. On cross-examination, he stated that:

Q In your experience, Mr. witness, do you know which is ahead

of the placing of the container van or the placing of the twist
lock on the chassis?

A The twist lock is already permanently attached on the

chassis, sir.

Q Earlier, you mentioned that you cannot see the twist lock if
the chassis is loaded, correct?

A Yes, sir.

Q Do you what to impress upon the Honorable Court that, by

mere looking at a loaded chassis, the twist lock cannot be seen
by the naked eye? Because the van contained a hole in which
the twist lock thus entered inside the hold and locked itself. It
is already loaded. So. you cannot no longer see it.

Q But if you closely examine this chassis which has a load of

container van. You can see whether a twist lock is present or
not?
 A Yes, sir. A twist lock is present.

Q In other words, if the driver of this tractor closely examined

this van, he could have detected whether or not a twist lock is
present?

A Yes, sir. (pp. 33-35, T.S.N., March 23, 1982; Emphasis

supplied)

Whether or not the twist lock can be seen by the naked eye when the cargo has been
loaded on the chassis, an efficient and diligent tractor operator must nevertheless check if
the cargo is securely loaded on the chassis.

We, therefore, find Metro Port Service Inc., solidarily liable in the instant case for the
negligence of its employee. With respect to the limited liability of the ARRASTRE, the
records disclose that the value of the importation was relayed to the arrastre operator and
in fact processed by its chief claims examiner based on the documents submitted.

WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby REVERSED

and SET ASIDE and that of the Court of First Instance of Manila, 6th Judicial District, Branch
II is REINSTATED. No costs.

SO ORDERED.

Fernan, C.J. (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

ICTSI v. Prudential 320 SCRA 244 (1999)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 134514 December 8, 1999

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., petitioner,

vs.
PRUDENTIAL GUARANTEE & ASSURANCE CO., INC., respondent.

PANGANIBAN, J.:

When cargo is placed on a vessel at the "shipper's load and count," the arrastre operator is
required only to deliver to the consignee the container van received from the shipper, not to
verify or to compare the contents thereof with those declared by the shipper. A claim for
reimbursement for the loss, damage or misdelivery of goods must be filed within 15 days
from the date the consignee learns of such problem(s).

The Case

For the resolution of the Court is a Petition for Review under Rule 45 of the Rules of Court
assailing the March 10, 1998 Decision and the June 23, 1998 Resolution both promulgated
by the Court of Appeals in CA-GR CV No. 52129 reversing the trial court's dismissal of the
Complaint for the collection of a sum of money filed by Prudential Guarantee & Insurance
Co., Inc. (Prudential) against International Container Terminal Services, Inc. (ICTSI).

The Facts

The challenged Decision sets forth the facts of this case as follows:

On April 25, 1990, mother vessel "Tao He" loaded and received on board in
San Francisco, California, a shipment of five (5) lots of canned foodstuff
complete and in good order and condition for transport to Manila in favor of
Duel Food Enterprises ("consignee" for brevity). China Ocean Shipping
Company issued the corresponding bill of lading therefor.

Consignee insured the shipment with Prudential Guarantee and Assurance,

Inc. against all risks for P1,921,827.00 under Marine Insurance Policy No.
20RN-3011/90.

On May 30, 1990, the shipment arrived at the Port of Manila and discharged
by [the] vessel MS "Wei He" in favor of International Container Terminal
Services, Inc. for safekeeping.

On June 1, 1990, A. D. Reyna Customs Brokerage ("defendant brokerage" for

brevity) withdrew the shipment and delivered the same to [the] consignee.
An inspection thereof revealed that 161 cartons were missing valued at
P85,984.40.

Claim for indemnification of the loss having been denied by [ICTSI] and [the]
brokerage, consignee sought payment from [Prudential] under the marine
cargo policy. Consignee received a compromised sum of P66,730.12 in
settlement thereof. As subrogee, [Prudential] instituted the instant complaint
against said defendants [ICTSI and brokerage].

Traversing the complaint, [ICTSI] counters that it observed extraordinary

diligence over the subject shipment while under its custody; that the loss is
not attributable to its fault or its agent, representative or employee; that
consignee failed to file a formal claim against it in accordance with PPA
Administrative Order No. 10-81; and that the complaint states no cause of
action. By way of crossclaim, it sought reimbursement from defendant
brokerage in the event it is adjudged to pay the loss.

In its Order dated March 3, 1992, the court a quo upon [Prudential's] motion,
declared defendant brokerage in default for failure to file [it's] answer within
the reglementary period. Acting on [ICTSI's] motion, the court a quo, in its
 Order dated May 27, 1992, allowed the former to present its evidence ex-
parte against defendant brokerage relative to the cross claim.

On May 19, 1993, the court a quo rendered a decision dismissing the
complaint against defendant brokerage for lack of evidence.

In its Order of July 12, 1993, the court a quo, upon motion of [ICTSI] and
[Prudential], vacated the decision dated May 19, 1993 and set the case for
hearing to give [ICTSI] an opportunity to cross examine [Prudential's]
witnesses. 1

2
On November 8, 1995, the trial court rendered a Decision dismissing Prudential's
3
Complaint against ICTSI in this wise:

Failure on the part of the consignee to comply with the terms and conditions
of the contract with [ICTSI], [Prudential] is not placed in a better position
than the consignee who cannot claim damages against [ICTSI]. Hence, the
complaint is hereby DISMISSED.

Reconsideration was denied by the Regional Trial Court in its Order dated December 27,
1995. 4

5
Disposing of the appeal, the CA ruled:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE
and, in lieu thereof, judgment is hereby rendered ordering [appellee]
International [C]ontainer Terminal Services, Inc. (ICTSI) to pay appellant the
sum of P66,730.12 with legal interest from May 13, 1991, until fully paid, plus
10% of . . . said claim by way of attorney's fee. 6

Reconsideration of the CA Decision was denied in the herein challenged June 23, 1998
Resolution. 7

Ruling of the Court of Appeals

The appellate court found ICTSI negligent in its duty to exercise due diligence over the
shipment. It concluded that the shortage was due to pilferage of the shipment while the sea
vans were stored at the container yard of ICTSI.

It also ruled that the filing of a claim depended on the issuance of a certificate of loss by
ICTSI based on the liability clause printed on the back of the arrastre and wharfage receipt.
Since ICTSI did not issue such a certificate despite being informed of the shortage, the 15-
day period given to the consignee for filing a formal claim never began. By subrogation,
Prudential, as insurer of the consignee, was entitled to hold the ICTSI liable for the
shortage.

Assignment of Errors

Petitioner claims that the appellate court committed reversible errors (1) in ruling that ICTSI
failed to adduce convincing evidence to rebut the finding of the independent adjuster and
(2) in allowing the Complaint despite the failure of the consignee to file a formal claim
within the period stated on the dorsal side of the arrastre and wharfage receipt. 8

This Court's Ruling

The Petition is meritorious.

First Issue: Proof of Negligence

The legal relationship between an arrastre operator and a consignee is akin to that between
a warehouseman and a depositor. 9 As to both the nature of the functions and the place of
their performance, an arrastre operator's services are clearly not maritime in character. 10

In a claim for loss filed by a consignee, the burden of proof to show compliance with the
obligation to deliver the goods to the appropriate party devolves upon the arrastre
operator. 11 Since the safekeeping of the goods rests within its knowledge, it must prove
that the losses were not due to its negligence or that of its employees. 12

To discharge this burden, petitioner presented five Arrastre and Wharfage Bill/Receipts,
which also doubled as container yard gate passes, covering the whole shipment in question.
The short-landed shipment was covered by the gate pass marked "Exhibit 5." 13 The latter
bore the signature of a representative of the consignee, acknowledging receipt of the
shipment in good order and condition (Exh. "5-e"). Thus, we see no reason to dispute the
finding of the trial court that "the evidence adduced by the parties will show that the
consignee received the container vans . . . in good condition (Exhs. 1-6)." 14

By its signature on the gate pass and by its failure to protest on time, the consignee is
deemed to have acknowledged receipt of the goods in good order and condition.

Lamberto Cortez, petitioner's witness, testified that he personally examined the shipment
and identified the gate pass which covered the delivery of the shipment and which was
countersigned by the consignee's representative. He explained the import of his
examination as follows: 15

A: Before I sign this gate pass, sir, the representative of the

consignee [gives] it to me then I write down the items, the
goods to be delivered so that it will be mounted in the truck of
the consignee. After mounting it, it will go to our office then I
will check the number of the container if it is properly
padlocked, and if it is okay, I will place there okay and I will
sign it to be countersigned by the representative of the
consignee, sir.

Q: In other words, Mr. Witness, you said that this particular

shipment was padlocked?

A: Yes, sir.

xxx xxx xxx

 Q: You also stated that the shipment was okay, will you point
to that particular portion of the gate pass?

A: After the physical check-up, I placed there okay, meaning it

ha[d] no damage, sir.

The assailed Decision ruled that the petitioner was negligent as evidenced by the loss of the
original seal and padlock of the container, which were subsequently replaced with safety
wire while the shipment was still stored at the ICTSI compound. 16

The appellate court cites, as proof of petitioner's negligence, the Survey/Final Report of the
independent adjuster, Tan-Gatue Adjustment Company, Inc. (Exh. "F"). 17 The Report
stated:

The 3,439 cartons comprising [the] balance of the shipment

were found and accepted by consignee's representative in good
order.

In our opinion, shortage sustained by the shipment was due to

pilferage whilst the sea vans containing the shipment were
stored at [the] [c]ontainer [y]ard of the [petitioner], [at] North
Harbor, Manila but we cannot categorically state as to when
and who undertook [it] due to the absence of documentary
evidence.

The customs safety wire as well as the padlock of Sea Van No.
HTMU-803515-6 where the short (missing) cartons discovered
may have been tampered [with]/opened and returned/re-closed
with finesse which [was] unfortunately not noticed during
delivery and prior to opening at consignee's warehouse.

All the sea vans were reportedly full of contents when examined
by the customs examiner for tax evaluation of contents.

The [ship agents] and arrastre contractors['] representative

reportedly refused the invitation of the consignee to witness the
stripping/withdrawal of the same from the sea vans at their
warehouse averring that the shipment per Bill of Lading was
shipped under ["]Shipper's Load and Count" hence,
loss/damage, if any, to the shipment is not their liability.

We thoroughly investigate[d] this particular case at

International Container Terminal Services, Inc., North Harbor,
Manila[,] but up to this time no person(s) and/or group(s) could
be pinpointed liable [for] the shortage of 161 cartons, hence,
the delay [in the] issuance of this report. 18

The adjuster insists that the shipment was complete when the customs examiner opened
the sea vans for tax evaluation. However, the latter's report was not presented. Hence,
there is no basis for comparing the cartons subjected to customs examination and those
which were delivered to the consignee.
More important, the cosigned goods were shipped under "Shipper's Load and Count." This
means that the shipper was solely responsible for the loading of the container, while the
carrier was oblivious to the contents of the
shipment. 19 Protection against pilferage of the shipment was the consignee's lookout. The
arrastre operator was, like any ordinary depositary, duty-bound to take good care of the
goods received from the vessel and to turn the same over to the party entitled to their
possession, subject to such qualifications as may have validly been imposed in the contract
between the parties. 20 The arrastre operator was not required to verify the contents of the
container received and to compare them with those declared by the shipper because, as
earlier stated, the cargo was at the shipper's load and count. The arrastre operator was
expected to deliver to the consignee only the container received from the carrier.

Petitioner claims that the absence of a request for a bad order survey belied the consignee's
assertion that the shipment was filched while in ICTSI's custody, and that such absence did
not stop the 15-day period from running. Normally, a request for a bad order survey is
made in case there is an apparent or presumed loss or damage. The consignee made no
such request despite being provided by the petitioner a form therefor.

The lack of a bad order survey does not toll the prescriptive period for filing a claim for loss,
because the consignee can always file a provisional claim within 15 days from the time it
discovers the loss or damage. Such a claim would place the arrastre operator on notice that
the shipment sustained damage or loss, even if the exact amount thereof could not be
specified at the moment. In this manner, the arrastre operator can immediately verify its
culpability and liability. A provisional claim seasonably filed is sufficient compliance with the
liability clause. 21

From the foregoing discussion, it is clear that the appellate court erred in concluding that
the shortage was due to the negligence of the arrastre operator.

Second Issue:

Period to File a Claim for Loss

Petitioner contends that the appellate court misconstrued the liability clause printed on the
dorsal side of the Arrastre and Wharfage Bill/Receipt. The contentious provision of this
document reads:

"Liability Clause"

The duly authorized representative of herein named

CONSIGNEE, and ICTSI hereby certify to the correctness of the
description of the containerized cargo covered by this CY
GATEPASS, the issuance of which constitutes delivery to and
receipt by Consignee of the containerized cargo as described in
this CY GATEPASS, in good order and condition, unless
otherwise indicated. This CY GATEPASS is subject to all terms
and conditions defined in the Existing Management Contract
between the PPA & ICTSI[;] PPA Administrative Order No. 10-
81, ICTSI shall, however, be liable to the extent of the local
invoice value of each package but not to exceed P3,500
Philippine currency for imported cargoes and P1,000 for
domestic cargoes (consistent with Administrative Order 10-81
 unless revised), unless the value thereof is otherwise specified
or manifested or communicated in writing together with the
invoice value and supported by a certified packing list to ICTSI
by any interested party/ies before the discharge of the cargo
and corresponding port charges ha[ve] been fully paid. This
provision shall only apply upon filing of a formal claim within 15
days from the date of issuance of the Bad Order Certificate or
certificate of loss, damage or non-delivery by ICTSI. 22

Petitioner argues that the 15-day limitation for filing a claim against the arrastre operator
should run from the time of the delivery of the goods to the consignee, and that the latter's
failure to file a claim within said period is sufficient ground to deny the claim for loss.

On the other hand, the appellate court overruled the trial court, because the filing of the
claim was dependent upon the issuance of a certificate of loss, damage or nondelivery.
Since the petitioner did not issue such certificate, the 15-day limit, the CA opined, did not
begin to run against the consignee. Private respondent argues that the clear and
unambiguous language of the liability clause does not support petitioner's construction.

We agree with the petitioner. In order to hold the arrastre operator liable for lost or
damaged goods, the claimant should file with the operator a claim for the value of said
goods "within fifteen (15) days from the date of discharge of the last package from the
carrying vessel . . . ." 23 The filing of the claim for loss within the 15-day period is in the
nature of a prescriptive period for bringing an action and is a condition precedent to holding
the arrastre operator liable. This requirement is a defense made available to the arrastre
operator, who may use or waive it as a matter of personal discretion. 24

The said requirement is not an empty formality. It gives the arrastre contractor a
reasonable opportunity to check the validity of the claim, while the facts are still fresh in the
minds of the persons who took part in the transaction, and while the pertinent documents
are still available. Such period is sufficient for the consignee to file a provisional claim after
the discharge of the goods from the vessel. 25 For this reason, we believe that the 15-day
limit is reasonable.

We should hasten to add that while a literal reading of the liability clause makes the time
limit run from the moment the shipment is discharged from the carrying vessel, this Court
has chosen to interpret this condition liberally in an endeavor to promote fairness, equity
and justness. 26 A long line of cases has held that the 15-day period for filing claims should
be counted from the date the consignee learns of the loss, damage or misdelivery of
goods. 27

In the case at bar, the consignee had all the time to make a formal claim from the day it
discovered the shortage in the shipment, which was June 4, 1990, as shown by the records.
According to the independent adjuster, the stripping or opening of the sea vans containing
the shipped canned goods was made at the consignee's place upon receipt of the shipment.
After discovering the loss, the consignee asked the adjuster to investigate the reason for
the short-landing of the shipment. By the time the claim for loss was filed on October 2,
1990, four months had already elapsed from the date of delivery, June 4, 1990.

Prudential did not explain the delay. It did not even allege or prove that the discovery of the
shortage was made by the consignee only 15-days before October 2, 1990. The latter had
to wait for the independent adjuster's survey report dated September 7, 1990, before filing
the claim with the former. By that time, however, it was clearly too late, as the 15-day
period had expired.

In any event, within 15 days from the time the loss was discovered, the consignee could
have filed a provisional claim, which would have constituted substantial compliance with the
rule. 28 Its failure to do so relieved the arrastre operator of any liability for the nondelivery
of the goods. 29 More specifically, the failure to file a provisional claim bars a subsequent
action in court. 30 The rationale behind the time limit is that, without it, a consignee could
too easily concoct or fabricate claims and deprive the arrastre operator of the best
opportunity to probe immediately their veracity.

WHEREFORE, the Petition is hereby GRANTED. The assailed Decision and Resolution are SET
ASIDE, and the trial court's Decision is REINSTATED. No pronouncement as to costs.

SO ORDERED.

Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

9.3 Pilots
Far Eastern Shipping v. Court of Appeals 297 SCRA 301 (1999)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 130068 October 1, 1998

FAR EASTERN SHIPPING COMPANY, petitioner,

vs.
COURT OF APPEALS and PHILIPPINE PORTS AUTHORITY, respondents.

G.R. No. 130150 October, 1998

MANILA PILOTS ASSOCIATION, petitioner,

vs.
PHILIPPINE PORTS AUTHORITY and FAR EASTERN SHIPPING
COMPANY, respondents.

REGALADO, J.:

These consolidated petitions for review on certiorari seek in unison to annul and set aside
the decision1 of respondent Court of Appeals of November 15, 1996 and its
resolution 2 dated July 31, 1997 in CA-G.R. CV No. 24072, entitled "Philippine Ports
Authority, Plaintiff-Appellee vs. Far Eastern Shipping Company, Senen C. Gavino
and Manila Pilots' Association, Defendants-Appellants," which affirmed with
modification the judgment of the trial court holding the defendants-appellants
therein solidarily liable for damages in favor of herein private respondent.

There is no dispute about the facts as found by the appellate court,

thus —

. . . On June 20, 1980, the M/V PAVLODAR, flying under the flagship
of the USSR, owned and operated by the Far Eastern Shipping
Company (FESC for brevity's sake), arrived at the Port of Manila from
Vancouver, British Columbia at about 7:00 o'clock in the morning. The
vessel was assigned Berth 4 of the Manila International Port, as its
berthing space. Captain Roberto Abellana was tasked by the
Philippine Port Authority to supervise the berthing of the vessel.
Appellant Senen Gavino was assigned by the Appellant Manila Pilots'
Association (MPA for brevity's sake) to conduct docking maneuvers
for the safe berthing of the vessel to Berth No. 4.
 Gavino boarded the vessel at the quarantine anchorage and stationed
himself in the bridge, with the master of the vessel, Victor Kavankov,
beside him. After a briefing of Gavino by Kavankov of the particulars
of the vessel and its cargo, the vessel lifted anchor from the
quarantine anchorage and proceeded to the Manila International Port.
The sea was calm and the wind was ideal for docking maneuvers.

When the vessel reached the landmark (the big church by the Tondo
North Harbor) one-half mile from the pier, Gavino ordered the engine
stopped. When the vessel was already about 2,000 feet from the pier,
Gavino ordered the anchor dropped. Kavankov relayed the orders to
the crew of the vessel on the bow. The left anchor, with two (2)
shackles, were dropped. However, the anchor did not take hold as
expected. The speed of the vessel did not slacken. A commotion
ensued between the crew members. A brief conference ensued
between Kavankov and the crew members. When Gavino inquired
what was all the commotion about, Kavankov assured Gavino that
there was nothing to it.

After Gavino noticed that the anchor did not take hold, he ordered the
engines half-astern. Abellana, who was then on the pier apron,
noticed that the vessel was approaching the pier fast. Kavankov
likewise noticed that the anchor did not take hold. Gavino thereafter
gave the "full-astern" code. Before the right anchor and additional
shackles could be dropped, the bow of the vessel rammed into the
apron of the pier causing considerable damage to the pier. The vessel
sustained damage too, (Exhibit "7-Far Eastern Shipping). Kavankov
filed his sea protest (Exhibit "1-Vessel"). Gavino submitted his report
to the Chief Pilot (Exhibit "1-Pilot") who referred the report to the
Philippine Ports Authority (Exhibit 2-Pilot"). Abellana likewise
submitted his report of the incident (Exhibit "B").

Per contract and supplemental contract of the Philippine Ports

Authority and the contractor for the rehabilitation of the damaged
pier, the same cost the Philippine Ports Authority the amount of
P1,126,132.25 (Exhibits "D" and "E").3

On January 10, 1983, the Philippine Ports Authority (PPA, for brevity), through the
Solicitor General, filed before the Regional Trial Court of Manila, Branch 39, a
complaint for a sum of money against Far Eastern Shipping Co., Capt. Senen C.
Gavino and the Manila Pilots' Association, docketed as Civil Case No. 83-
14958,4 praying that the defendants therein be held jointly and severally liable to
pay the plaintiff actual and exemplary damages plus costs of suit. In a decision
dated August 1, 1985, the trial court ordered the defendants therein jointly and
severally to pay the PPA the amount of P1,053,300.00 representing actual
damages and the costs of suit.5

The defendants appealed to the Court of Appeals and raised the following issues:
(1) Is the pilot of a commercial vessel, under compulsory pilotage, solely liable for
the damage caused by the vessel to the pier, at the port of destination, for his
negligence? and (2) Would the owner of the vessel be liable likewise if the
damage is caused by the concurrent negligence of the master of the vessel and the
pilot under a compulsory pilotage?

As stated at the outset, respondent appellate court affirmed the findings of the
court a quo except that if found no employer-employee relationship existing
between herein private respondents Manila Pilots' Association (MPA, for short)
and Capt. Gavino.6 This being so, it ruled instead that the liability of MPA is
anchored, not on Article 2180 of the Civil Code, but on the provisions of Customs
Administrative Order No. 15-65, 7 and accordingly modified said decision of the
trial court by holding MPA, along with its co-defendants therein, still solidarily
liable to PPA but entitled MPA to reimbursement from Capt. Gavino for such
amount of the adjudged pecuniary liability in excess of the amount equivalent to
seventy-five percent (75%) of its prescribed reserve
fund. 8

Neither Far Eastern Shipping Co. (briefly, FESC) nor MPA was happy with the
decision of the Court of Appeals and both of them elevated their respective plaints
to us via separate petitions for review on certiorari.

In G. R. No. 130068, which was assigned to the Second Division of this Court, FESC
imputed that the Court of Appeals seriously erred:

1. in not holding Senen C. Gavino and the Manila Pilots' Association as

the parties solely responsible for the resulting damages sustained by
the pier deliberately ignoring the established jurisprudence on the
matter;

2. in holding that the master had not exercised the required diligence
demanded from him by the circumstances at the time the incident
happened;

3. in affirming the amount of damages sustained by the respondent

Philippine Ports Authority despite a strong and convincing evidence
that the amount is clearly exorbitant and unreasonable;

4. in not awarding any amount of counterclaim prayed for by the

petitioner in its answer; and

5. in not granting herein petitioner's claim against pilot Senen C.

Gavino and Manila Pilots' Association in the event that it be held
liable. 9

Petitioner asserts that since the MV PAVLODAR was under compulsory pilotage at
the time of the incident, it was the compulsory pilot, Capt. Gavino, who was in
command and had complete control in the navigation and docking of the vessel. It
is the pilot who supersedes the master for the time being in the command and
navigation of a ship and his orders must be obeyed in all respects connected with
her navigation. Consequently, he was solely responsible for the damage caused
upon the pier apron, and not the owners of the vessel. It claims that the master of
the boat did not commit any act of negligence when he failed to countermand or
overrule the orders of the pilot because he did not see any justifiable reason to do
so. In other words, the master cannot be faulted for relying absolutely on the
competence of the compulsory pilot. If the master does not observe that a
compulsory pilot is incompetent or physically incapacitated, the master is justified
in relying on the pilot. 10

Respondent PPA, in its comment, predictably in full agreement with the ruling of
respondent court on the solidary liability of FESC, MPA and Capt. Gavino, stresses
the concurrent negligence of Capt. Gavino, the harbor pilot, and Capt. Viktor
Kabankov, * shipmaster of MV Pavlodar, as the basis of their solidary liability for
damages sustained by PPA. It posits that the vessel was being piloted by Capt.
Gavino with Capt. Kabankov beside him all the while on the bridge of the vessel,
as the former took over the helm of MV Pavlodar when it rammed and damaged
the apron of the pier of Berth No. 4 of the Manila International Port. Their
concurrent negligence was the immediate and proximate cause of the collision
between the vessel and the pier — Capt. Gavino, for his negligence in the conduct
of docking maneuvers for the safe berthing of the vessel; and Capt. Kabankov, for
failing to countermand the orders of the harbor pilot and to take over and steer
the vessel himself in the face of imminent danger, as well as for merely relying on
Capt. Gavino during the berthing procedure. 11

On the other hand, in G.R. No. 130150, originally assigned to the Court's First
Division and later transferred to the Third Division. MPA, now as petitioner in this
case, avers that respondent court's errors consisted in disregarding and
misinterpreting Customs Administrative Order No. 15-65 which limits the liability
of MPA. Said pilots' association asseverates that it should not be held solidarily
liable with Capt. Gavino who, as held by respondent court is only a member, not an
employee, thereof. There being no employer-employee relationship, neither can
MPA be held liable for any vicarious liability for the respective exercise of
profession by its members nor be considered a joint tortfeasor as to be held jointly
and severally liable. 12 It further argues that there was erroneous reliance on
Customs Administrative Order No. 15-65 and the constitution and by-laws of MPA,
instead of the provisions of the Civil Code on damages which, being a substantive
law, is higher in category than the aforesaid constitution and by-laws of a
professional organization or an administrative order which bears no provision
classifying the nature of the liability of MPA for the negligence its member
pilots. 13

As for Capt. Gavino, counsel for MPA states that the former had retired from active
pilotage services since July 28, 1994 and has ceased to be a member of petitioner
pilots' association. He is not joined as a petitioner in this case since his
whereabouts are unknown. 14

FESC's comment thereto relied on the competence of the Court of Appeals in

construing provisions of law or administrative orders as bases for ascertaining the
liability of MPA, and expressed full accord with the appellate court's holding of
solidary liability among itself, MPA and Capt. Gavino. It further avers that the
disputed provisions of Customs Administrative Order No. 15-65 clearly established
MPA's solidary liability. 15

On the other hand, public respondent PPA, likewise through representations by

the Solicitor General, assumes the same supportive stance it took in G.R. No.
130068 in declaring its total accord with the ruling of the Court of Appeals that
MPA is solidarily liable with Capt. Gavino and FESC for damages, and in its
application to the fullest extent of the provisions of Customs Administrative Order
No. 15-65 in relation to MPA's constitution and by-laws which spell out the
conditions of and govern their respective liabilities. These provisions are clear and
unambiguous as regards MPA's liability without need for interpretation or
construction. Although Customs Administrative Order No. 15-65 is a mere
regulation issued by an administrative agency pursuant to delegated legislative
authority to fix details to implement the law, it is legally binding and has the same
statutory force as any valid statute. 16

Upon motion 17 by FESC dated April 24, 1998 in G.R. No. 130150, said case was
consolidated with G.R. No. 130068. 18

Prefatorily, on matters of compliance with procedural requirements, it must be

mentioned that the conduct of the respective counsel for FESC and PPA leaves
much to be desired, to the displeasure and disappointment of this Court.

Sec. 2, Rule 42 of the 1997 Rules of Civil Procedure 19 incorporates the former
Circular No. 28-91 which provided for what has come to be known as the
certification against forum shopping as an additional requisite for petitions filed
with the Supreme Court and the Court of Appeals, aside from the other
requirements contained in pertinent provisions of the Rules of Court therefor, with
the end in view of preventing the filing of multiple complaints involving the same
issues in the Supreme Court, Court of Appeals or different divisions thereof or any
other tribunal or agency.

More particularly, the second paragraph of Section 2, Rule 42 provides:

xxx xxx xxx

The petitioner shall also submit together with the petition a

certification under oath that he has not theretofore commenced any
other action involving the same issues in the Supreme Court, the
Court of Appeals or different divisions thereof, or any other tribunal
or agency; if there is such other action or proceeding, he must state
the status of the same; and if he should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme
Court, the Court of Appeals or different divisions thereof, or any other
tribunal or agency, he undertakes to promptly inform the aforesaid
courts and other tribunal or agency thereof within five (5) days
therefrom. (Emphasis ours.)

For petitions for review filed before the Supreme Court, Section 4(e), Rule
45 specifically requires that such petition shall contain a sworn certification
against forum shopping as provided in the last paragraph of Section 2, Rule
42.

The records show that the law firm of Del Rosario and Del Rosario through its
associate, Atty. Herbert A. Tria, is the counsel of record for FESC in both G.R. No.
130068 and G.R. No. 130150.
G.R. No. 130068, which is assigned to the Court's Second Division, commenced
with the filing by FESC through counsel on August 22, 1997 of a verified motion for
extension of time to file its petition for thirty (30) days from August 28, 1997 or
until September 27, 1997. 20 Said motion contained the following certification
against forum shopping 21 signed by Atty. Herbert A. Tria as affiant:

CERTIFICATION

AGAINST FORUM SHOPPING

I/we hereby certify that I/we have not commenced any other action
or proceeding involving the same issues in the Supreme Court, the
Court of Appeals, or any other tribunal or agency; that to the best of
my own knowledge, no such action or proceeding is pending in the
Supreme Court, the Court of Appeals, or any other tribunal or agency;
that if I/we should thereafter learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the
Court of Appeals, or any other tribunal or agency, I/we undertake to
report that fact within five (5) days therefrom to this Honorable
Court.

This motion having been granted, FESC subsequently filed its petition on
September 26, 1997, this time bearing a "verification and certification
against forum-shopping" executed by one Teodoro P. Lopez on September
24, 1997, 22 to wit:

VERIFICATION AND CERTIFICATION

AGAINST FORUM SHOPPING

in compliance with Section 4(e), Rule 45 in relation

to Section 2, Rule 42 of the Revised Rules of Civil Procedure

I, Teodoro P. Lopez, of legal age, after being duly sworn, depose and
state:

1. That I am the Manager, Claims Department of Filsov Shipping

Company, the local agent of petitioner in this case.

2. That I have caused the preparation of this Petition for Review

on Certiorari.

3. That I have read the same and the allegations therein contained
are true and correct based on the records of this case.

4. That I certify that petitioner has not commenced any other action
or proceeding involving the same issues in the Supreme Court or
Court of Appeals, or any other tribunal or agency, that to the best of
my own knowledge, no such action or proceeding is pending in the
Supreme Court, the Court of Appeals or any other tribunal or agency,
 that if I should thereafter learn that a similar action or proceeding
has been filed or is pending before the Supreme Court, the Court of
Appeals, or any other tribunal or agency, I undertake to report the
fact within five (5) days therefrom to this Honorable Court. (Italics
supplied for emphasis.)

Reviewing the records, we find that the petition filed by MPA in G.R. No. 130150
then pending with the Third Division was duly filed on August 29, 1997 with a
copy thereof furnished on the same date by registered mail to counsel for
FESC. 23 Counsel of record for MPA. Atty. Jesus P. Amparo, in his verification
accompanying said petition dutifully revealed to the Court that —

xxx xxx xxx

3. Petitioner has not commenced any other action or proceeding

involving the same issues in this Honorable Court, the Court of
Appeals or different Divisions thereof, or any other tribunal or
agency, but to the best of his knowledge, there is an action or
proceeding pending in this Honorable Court, entitled Far Eastern
Shipping Co., Petitioner, vs. Philippine Ports Authority and Court of
Appeals with a Motion for Extension of time to file Petition For Review
by Certiorari filed sometime on August 18, 1987. If undersigned
counsel will come to know of any other pending action or claim filed
or pending he undertakes to report such fact within five (5) days to
this Honorable Court.24 (Emphasis supplied.)

Inasmuch as MPA's petition in G.R. No. 130150 was posted by registered mail on
August 29, 1997 and taking judicial notice of the average period of time it takes
local mail to reach its destination, by reasonable estimation it would be fair to
conclude that when FESC filed its petition in G.R. No. 130068 on September 26,
1997, it would already have received a copy of the former and would then have
knowledge of the pendency of the other petition initially filed with the First
Division. It was therefore incumbent upon FESC to inform the Court of that fact
through its certification against forum shopping. For failure to make such
disclosure, it would appear that the aforequoted certification accompanying the
petition in G.R. No. 130068 is defective and could have been a ground for
dismissal thereof.

Even assuming that FESC had not yet received its copy of MPA's petition at the
time it filed its own petition and executed said certification, its signatory did state
"that if I should thereafter learn that a similar action or proceeding has been filed
or is pending before the Supreme Court, the Court of Appeals or any other tribunal
or agency, I undertake to report the fact within five (5) days therefrom to this
Honorable Court." 25 Scouring the records page by page in this case, we find that
no manifestation concordant with such undertaking was then or at any other time
thereafter ever filed by FESC nor was there any attempt to bring such matter to
the attention of the Court. Moreover, it cannot feign non-knowledge of the
existence of such other petition because FESC itself filed the motion for
consolidation in G.R. No. 130150 of these two cases on April 24, 1998.

It is disturbing to note that counsel for FESC, the law firm of Del Rosario and Del
Rosario, displays an unprofessional tendency of taking the Rules for granted, in
this instance exemplified by its pro forma compliance therewith but apparently
without full comprehension of and with less than faithful commitment to its
undertakings to this Court in the interest of just, speedy and orderly
administration of court proceedings.

As between the lawyer and the courts, a lawyer owes candor, fairness and good
faith to the court. 26 He is an officer of the court exercising a privilege which is
indispensable in the administration of justice. 27 Candidness, especially towards
the courts, is essential for the expeditious administration of justice. Courts are
entitled to expect only complete honesty from lawyers appearing and pleading
before them. 28 Candor in all dealings is the very essence of honorable membership
in the legal profession. 29 More specifically, a lawyer is obliged to observe the rules
of procedure and not to misuse them to defeat the ends of justice. 30 It behooves a
lawyer, therefore, to exert every effort and consider it his duty to assist in the
speedy and efficient administration of justice. 31 Being an officer of the court, a
lawyer has a responsibility in the proper administration of justice. Like the court
itself, he is an instrument to advance its ends — the speedy, efficient, impartial,
correct and inexpensive adjudication of cases and the prompt satisfaction of final
judgments. A lawyer should not only help attain these objectives but should
likewise avoid any unethical or improper practices that impede, obstruct or
prevent their realization, charged as he is with the primary task of assisting in the
speedy and efficient administration of justice.32

Sad to say, the members of said law firm sorely failed to observe their duties as
responsible members of the Bar. Their actuations are indicative of their
predisposition to take lightly the avowed duties of officers of the Court to promote
respect for law and for legal processes. 33 We cannot allow this state of things to
pass judicial muster.

In view of the fact that at around the time these petitions were commenced, the
1997 Rules of Civil Procedure had just taken effect, the Court treated infractions of
the new Rules then with relative liberality in evaluating full compliance therewith.
Nevertheless, it would do well to remind all concerned that the penal provisions of
Circular No. 28-91 which remain operative provides, inter alia:

3. Penalties. —

xxx xxx xxx

(c) The submission of a false certification under Par. 2 of the Circular

shall likewise constitute contempt of court, without prejudice to the
filing of criminal action against the guilty party. The lawyer may also
be subjected to disciplinary proceedings.

It must be stressed that the certification against forum shopping ordained under
the Rules is to be executed by the petitioner, and not by counsel. Obviously it is
the petitioner, and not always the counsel whose professional services have been
retained for a particular case, who is in the best position to know whether he or it
actually filed or caused the filing of a petition in that case. Hence, a certification
against forum shopping by counsel is a defective certification. It is clearly
equivalent to non-compliance with the requirement under Section 2, Rule 42 in
relation to Section 4, Rule 45, and constitutes a valid cause for dismissal of the
petition.

Hence, the initial certification appended to the motion for extension of time to file
petition in G.R. No. 130068 executed in behalf of FESC by Atty. Tria is procedurally
deficient. But considering that it was a superfluity at that stage of the proceeding,
it being unnecessary to file such a certification with a mere motion for extension,
we shall disregard such error. Besides, the certification subsequently executed by
Teodoro P. Lopez in behalf of FESC cures that defect to a certain extent, despite
the inaccuracies earlier pointed out. In the same vein, we shall consider the
verification signed in behalf of MPA by its counsel, Atty. Amparo, in G.R. No.
130150 as substantial compliance inasmuch as it served the purpose of the Rules
of informing the Court of the pendency of another action or proceeding involving
the same issues.

It bears stressing that procedural rules are instruments in the speedy and efficient
administration of justice. They should be used to achieve such end and not to
derail it. 34

Counsel for PPA did not make matters any better. Despite the fact that, save for
the Solicitor General at the time, the same legal team of the Office of the Solicitor
General (OSG, for short) composed of Assistant Solicitor General Roman G. Del
Rosario and Solicitor Luis F. Simon, with the addition of Assistant Solicitor General
Pio C. Guerrero very much later in the proceedings, represented PPA throughout
the appellate proceedings in both G.R. No. 130068 and G.R. No. 130150 and was
presumably fully acquainted with the facts and issues of the case, it took the OSG
an inordinately and almost unreasonably long period of time to file its comment,
thus unduly delaying the resolution of these cases. It took several changes of
leadership in the OSG — from Silvestre H. Bello III to Romeo C. dela Cruz and,
finally, Ricardo P. Galvez — before the comment in behalf of PPA was finally filed.

In G.R. No. 130068, it took eight (8) motions for extension of time totaling 210
days, a warning that no further extensions shall be granted, and personal service
on the Solicitor General himself of the resolution requiring the filing of such
comment before the OSG indulged the Court with the long required comment on
July 10, 1998. 35 This, despite the fact that said office was required to file its
comment way back on November 12, 1997. 36 A closer scrutiny of the records
likewise indicates that petitoner FESC was not even furnished a copy of said
comment as required by Section 5, Rule 42. Instead, a copy thereof was
inadvertently furnished to MPA which, from the point of view of G.R. No. 130068,
was a non-party. 37 The OSG fared slightly better in G.R. No. 130150 in that it took
only six (6) extensions, or a total of 180 days, before the comment was finally
filed. 38 And while it properly furnished petitioner MPA with a copy of its comment,
it would have been more desirable and expedient in this case to have furnished its
therein co-respondent FESC with a copy thereof, if only as a matter of professional
courtesy. 39

This undeniably dilatory disinclination of the OSG to seasonably file required

pleadings constitutes deplorable disservice to the tax-paying public and can only
be categorized as censurable inefficiency on the part of the government law office.
This is most certainly professionally unbecoming of the OSG.
Another thing that baffles the Court is why the OSG did not take the inititive of
filing a motion for consolidation in either G.R. No. 130068 or G.R. No. 130150,
considering its familiarity with the background of the case and if only to make its
job easier by having to prepare and file only one comment. It could not have been
unaware of the pendency of one or the other petition because, being counsel for
respondent in both cases, petitioner is required to furnish it with a copy of the
petition under pain of dismissal of the petition for failure otherwise. 40

Besides, in G.R. 130068, it prefaces its discussions thus —

Incidentally, the Manila Pilots' Association (MPA), one of the

defendants-appellants in the case before the respondent Court of
Appeals, has taken a separate appeal from the said decision to this
Honorable Court, which was docketed as G.R. No. 130150 and entitled
"Manila Pilots' Association, Petitioner, versus Philippine Ports
Authority and Far Eastern Shipping Co., Respondents." 41

Similarly, in G.R. No. 130150, it states —

Incidentally, respondent Far Eastern Shipping Co. (FESC) had also

taken an appeal from the said decision to this Honorable Court,
docketed as G.R. No. 130068, entitled "Far Eastern Shipping Co. vs.
Court of Appeals and Philippine Ports Authority." 42

We find here a lackadaisical attitude and complacency on the part of the OSG in
the handling of its cases and an almost reflexive propensity to move for countless
extensions, as if to test the patience of the Court, before favoring it with the
timely submission of required pleadings.

It must be emphasized that the Court can resolve cases only as fast as the
respective parties in a case file the necessary pleadings. The OSG, by needlessly
extending the pendency of these cases through its numerous motions for
extension, came very close to exhausting this Court's forbearance and has
regrettably fallen short of its duties as the People's Tribune.

The OSG is reminded that just like other members of the Bar, the canons under the
Code of Professional Responsibility apply with equal force on lawyers in
government service in the discharge of their official tasks. 43 These ethical duties
are rendered even more exacting as to them because, as government counsel,
they have the added duty to abide by the policy of the State to promote a high
standard of ethics in public service. 44 Furthermore, it is incumbent upon the OSG,
as part of the government bureaucracy, to perform and discharge its duties with
the highest degree of professionalism, intelligence and skill 45 and to extend
prompt, courteous and adequate service to the public. 46

Now, on the merits of the case. After a judicious examination of the records of this
case, the pleadings filed, and the evidence presented by the parties in the two
petitions, we find no cogent reason to reverse and set aside the questioned
decision. While not entirely a case of first impression, we shall discuss the
issues seriatim and, correlatively by way of a judicial once-over, inasmuch as the
matters raised in both petitions beg for validation and updating of well-worn
maritime jurisprudence. Thereby, we shall write finis to the endless finger-
pointing in this shipping mishap which has been stretched beyond the limits of
judicial tolerance.

The Port of Manila is within the Manila Pilotage District which is under compulsory
pilotage pursuant to Section 8, Article III of Philippine Ports Authority
Administrative Order No. 03-85, 47 which provides that:

Sec. 8. Compulsor Pilotage Service. — For entering a harbor and

anchoring thereat, or passing through rivers or straits within a
pilotage district, as well as docking and undocking at any pier/wharf,
or shifting from one berth or another, every vessel engaged in
coastwise and foreign trade shall be under compulsory pilotage. . . .

In case of compulsory pilotage, the respective duties and responsibilities of the

compulsory pilot and the master have been specified by the same regulation in
this wise:

Sec. 11. Control of vessels and liability for damage. — On compulsory

pilotage grounds, the Harbor Pilot providing the service to a vessel
shall be responsible for the damage caused to a vessel or to life and
property at ports due to his negligence or fault. He can only be
absolved from liability if the accident is caused by force majeure or
natural calamities provided he has exercised prudence and extra
diligence to prevent or minimize damage.

The Master shall retain overall command of the vessel even on

pilotage grounds whereby he can countermand or overrule the order
or command of the Harbor Pilot on beard. In such event, any damage
caused to a vessel or to life and property at ports by reason of the
fault or negligence of the Master shall be the responsibility and
liability of the registered owner of the vessel concerned without
prejudice to recourse against said Master.

Such liability of the owner or Master of the vessel or its pilots shall be
determined by competent authority in appropriate proceedings in the
light of the facts and circumstances of each particular case.

Sec. 32. Duties and responsibilities of the Pilot or Pilots' Association.

— The duties and responsibilities of the Harbor Pilot shall be as
follows:

xxx xxx xxx

f) a pilot shall be held responsible for the direction of a vessel from

the time he assumes his work as a pilot thereof until he leaves it
anchored or berthed safely; Provided, however, that his responsibility
shall cease at the moment the Master neglects or refuses to carry out
hisorder.

Customs Administrative Order No. 15-65 issued twenty years earlier likewise
provided in Chapter I thereof for the responsibilities of pilots:
 Par. XXXIX. — A Pilot shall be held responsible for the direction of a
vessel from the time he assumes control thereof until he leaves it
anchored free from shoal: Provided, That his responsibility shall cease
at the moment the master neglects or refuses to carry out his
instructions.

xxx xxx xxx

Par. XLIV. — Pilots shall properly and safely secure or anchor vessels
under their control when requested to do so by the master of such
vessels.

I. G.R. No. 130068

Petitioner FESC faults the respondent court with serious error in not holding MPA
and Capt. Gavino solely responsible for the damages cause to the pier. It avers
that since the vessel was under compulsory pilotage at the time with Capt. Gavino
in command and having exclusive control of the vessel during the docking
maneuvers, then the latter should be responsible for damages caused to the
pier. 48 It likewise holds the appellate court in error for holding that the master of
the ship, Capt. Kabankov, did not exercise the required diligence demanded by the
circumstances. 49

We start our discussion of the successive issues bearing in mind the evidentiary
rule in American jurisprudence that there is a presumption of fault against a
moving vessel that strikes a stationary object such as a dock or navigational aid.
In admiralty, this presumption does more than merely require the ship to go
forward and produce some evidence on the presumptive matter. The moving
vessel must show that it was without fault or that the collision was occasioned by
the fault of the stationary object or was the result of inevitable accident. It has
been held that such vessel must exhaust every reasonable possibility which the
circumstances admit and show that in each, they did all that reasonable care
required. 50 In the absence of sufficient proof in rebuttal, the presumption of fault
attaches to a moving vessel which collides with a fixed object and makes a prima
facie case of fault against the vessel. 51 Logic and experience support this
presumption:

The common sense behind the rule makes the burden a heavy one.
Such accidents simply do not occur in the ordinary course of things
unless the vessel has been mismanaged in some way. It is nor
sufficient for the respondent to produce witnesses who testify that as
soon as the danger became apparent everything possible was done to
avoid an accident. The question remains, How then did the collision
occur? The answer must be either that, in spite of the testimony of
the witnesses, what was done was too little or too late or, if not, then
the vessel was at fault for being in a position in which an unavoidable
collision would occur. 52

The task, therefore, in these cases is to pinpoint who was negligent — the
master of the ship, the harbor pilot or both.
A pilot, in maritime law, is a person duly qualified, and licensed, to conduct a
vessel into or out of ports, or in certain waters. In a broad sense, the term "pilot"
includes both (1) those whose duty it is to guide vessels into or out of ports, or in
particular waters and (2) those entrusted with the navigation of vessels on the
high seas. 53 However, the term "pilot" is more generally understood as a person
taken on board at a particular place for the purpose of conducting a ship through a
river, road or channel, or from a port. 54

Under English and American authorities, generally speaking, the pilot supersedes
the master for the time being in the command and navigation of the ship, and his
orders must be obeyed in all matters connected with her navigation. He becomes
the master pro hac vice and should give all directions as to speed, course,
stopping and reversing anchoring, towing and the like. And when a licensed pilot
is employed in a place where pilotage is compulsory, it is his duty to insist on
having effective control of the vessel, or to decline to act as pilot. Under certain
systems of foreign law, the pilot does not take entire charge of the vessel, but is
deemed merely the adviser of the master, who retains command and control of the
navigation even in localities where pilotage is compulsory. 55

It is quite common for states and localities to provide for compulsory pilotage, and
safety laws have been enacted requiring vessels approaching their ports, with
certain exceptions, to take on board pilots duly licensed under local law. The
purpose of these laws is to create a body of seamen thoroughly acquainted with
the harbor, to pilot vessels seeking to enter or depart, and thus protect life and
property from the dangers of navigation. 56

In line with such established doctrines, Chapter II of Customs Administrative

Order No. 15-65 prescribes the rules for compulsory pilotage in the covered
pilotage districts, among which is the Manila Pilotage District,
viz. —

PARAGRAPH I. — Pilotage for entering a harbor and anchoring

thereat, as well as docking and undocking in any pier or shifting from
one berth to another shall be compulsory, except Government vessels
and vessels of foreign governments entitled to courtesy, and other
vessels engaged solely in river or harbor work, or in a daily ferry
service between ports which shall be exempt from compulsory
pilotage provisions of these regulations: provided, however, that
compulsory pilotage shall not apply in pilotage districts whose
optional pilotage is allowed under these regulations.

Pursuant thereto, Capt. Gavino was assigned to pilot MV Pavlodar into Berth 4 of
the Manila International Port. Upon assuming such office as compulsory pilot,
Capt. Gavino is held to the universally accepted high standards of care and
diligence required of a pilot, whereby he assumes to have skill and knowledge in
respect to navigation in the particular waters over which his license extends
superior to and more to be trusted than that of the master. 57 A pilot 57 should
have a thorough knowledge of general and local regulations and physical
conditions affecting the vessel in his charge and the waters for which he is
licensed, such as a particular harbor or river.
He is not held to the highest possible degree of skill and care, but must have and
exercise the ordinary skill and care demanded by the circumstances, and usually
shown by an expert in his profession. Under extraordinary circumstancesm, a pilot
must exercise extraordinary care. 58

59
In Atlee vs. The Northwesrern Union Packet Company. Mr. Justice Miller spelled
out in great detail the duties of a pilot:

. . . (T)he pilot of a river steamer, like the harbor pilot, is selected for
his personal knowledge of the topography through which he steers
his vessel. In the long course of a thousand miles in one of these
rivers, he must be familiar with the appearance of the shore on each
side of the river as he goes along. Its banks, towns, its landings, its
houses and trees, are all landmarks by which he steers his vessel. The
compass is of little use to him. He must know where the navigable
channel is, in its relation to all these external objects, especially in
the night. He must also be familiar with all dangers that are
permanently located in the course of the river, as sand-bars, snags,
sunken rocks or trees or abandoned vessels orbarges. All this he must
know and remember and avoid. To do this, he must be constantly
informed of the changes in the current of the river, of the sand-bars
newly made,of logs or snags, or other objects newly presented,
against which his vessel might be injured.

xxx xxx xxx

It may be said that this is exacting a very high order of ability in a

pilot. But when we consider the value of the lives and property
committed to their control, for in this they are absolute masters, the
high compensation they receive, the care which Congress has taken
to secure by rigid and frequent examinations and renewal of licenses,
this very class of skill, we do not think we fix the standard too high.

Tested thereby, we affirm respondent court's finding that Capt. Gavino failed to
measure up to such strict standard of care and diligence required of pilots in the
performance of their duties. Witness this testimony of Capt. Gavino:

Court: You have testified before that the reason why the
vessel bumped the pier was because the anchor was not
released immediately or as soon as you have given the
order. Do you remember having srated that?

A Yes, your Honor.

Q And you gave this order to the captain of the vessel?

A Yes, your Honor.

Q By that testimony, you are leading the Court to

understand that if that anchor was released immediately
 at the time you gave the order, the incident would not
have happened. Is that correct?

A Yes, sir, but actually it was only a presumption on my

part because there was a commotion between the
officers who are in charge of the dropping of the anchor
and the captain. I could not understand their language, it
was in Russian, so I presumed the anchor was not
dropped on time.

Q So, you are not sure whether it was really dropped on

time or not?

A I am not sure, your Honor.

xxx xxx xxx

Q You are not even sure what could have caused the
incident. What factor could have caused the incident?

A Well, in this case now, because either the anchor was

not dropped on time or the anchor did not hold, that was
the cause of the incident, your Honor. 60

It is disconcertingly riddled with too much incertitude and manifests a seeming

indifference for the possibly injurious consequences his commands as pilot may
have. Prudence required that he, as pilot, should have made sure that his
directions were promptly and strictly followed. As correctly noted by the trial court
—

Moreover, assuming that he did indeed give the command to drop the
anchor on time, as pilot he should have seen to it that the order was
carried out, and he could have done this in a number of ways, one of
which was to inspect the bow of the vessel where the anchor
mechanism was installed. Of course, Captain Gavino makes reference
to a commotion among the crew members which supposedly caused
the delay in the execution of the command. This account was
reflected in the pilot's report prepared four hours later, but Capt.
Kavankov, while not admitting whether or not such a commotion
occurred, maintained that the command to drop anchor was followed
"immediately and precisely." Hence, the Court cannot give much
weight or consideration to this portion of Gavino's testimony." 61

An act may be negligent if it is done without the competence that a reasonable

person in the position of the actor would recognize as necessary to prevent it from
creating an unreasonable risk of harm to another. 62 Those who undertake any
work calling for special skills are required not only to exercise reasonable care in
what they do but also possess a standard minimum of special knowledge and
ability. 63
Every man who offers his services to another, and is employed, assumes to
exercise in the employment such skills he possesses, with a reasonable degree of
diligence. In all these employments where peculiar skill is requisite, if one offers
his services he is understood as holding himself out to the public as possessing
the degree of skill commonly possessed by others in the same employment, and if
his pretensions are unfounded he commits a species of fraud on every man who
employs him in reliance on his public profession. 64

Furthermore, there is an obligation on all persons to take the care which, under
ordinary circumstances of the case, a reasonable and prudent man would take,
and the omission of that care constitutes negligence. 65 Generally, the degree of
care required is graduated according to the danger a person or property attendant
upon the activity which the actor pursues or the instrumentality which he uses.
The greater the danger the greater the degree of care required. What is ordinary
under extraordinary of conditions is dictated by those conditions; extraordinary
risk demands extraordinary care. Similarly, the more imminent the danger, the
higher the degree of care. 66

We give our imprimatur to the bases for the conclusion of the Court of Appeals
that Capt. Gavino was indeed negligent in the performance of his duties:

xxx xxx xxx

. . . As can be gleaned from the logbook, Gavino ordered the left

anchor and two (2) shackles dropped at 8:30 o'clock in the morning.
He ordered the engines of the vessel stopped at 8:31 o'clock. By
then,Gavino must have realized that the anchor did not hit a hard
object and was not clawed so as to reduce the momentum of the
vessel. In point of fact, the vessel continued travelling towards the
pier at the same speed. Gavino failed to react, At 8:32 o'clock, the
two (2) tugboats began to push the stern part of the vessel from the
port side bur the momentum of the vessel was not contained. Still,
Gavino did not react. He did not even order the other anchor and two
(2) more shackles dropped to arrest the momentum of the vessel.
Neither did he order full-astern. It was only at 8:34 o'clock, or four
(4) minutes, after the anchor was dropped that Gavino reacted. But
his reaction was even (haphazard) because instead of arresting fully
the momentum of the vessel with the help of the tugboats, Gavino
ordered merely "half-astern". It took Gavino another minute to order
a "full-astern". By then, it was too late. The vessel's momentum could
no longer be arrested and, barely a minute thereafter, the bow of the
vessel hit the apron of the pier. Patently, Gavino miscalculated. He
failed to react and undertake adequate measures to arrest fully the
momentum of the vessel after the anchor failed to claw to the seabed.
When he reacted, the same was even (haphazard). Gavino failed to
reckon the bulk of the vessel, its size and its cargo. He erroneously
believed that only one (1) anchor would suffice and even when the
anchor failed to claw into the seabed or against a hard object in the
seabed, Gavino failed to order the other anchor dropped immediately.
His claim that the anchor was dropped when the vessel was only
1,000 feet from the pier is but a belated attempt to extricate himself
from the quagmire of his own insouciance and negligence. In sum,
 then, Appellants' claim that the incident was caused by "force
majeure" is barren of factual basis.

xxx xxx xxx

The harbor pilots are especially trained for this job. In the
Philippines, one may not be a harbor pilot unless he passed the
required examination and training conducted then by the Bureau of
Custom, under Customs Administrative Order No. 15-65, now under
the Philippine Ports Authority under PPA Administrative Order 63-85,
Paragraph XXXIX of the Customs Administrative Order No. 15-65
provides that "the pilot shall be held responsible for the direction of
the vessel from the time he assumes control thereof, until he leaves it
anchored free from shoal: Provided, that his responsibility shall cease
at the.moment the master neglects or refuse(s) to carry out his
instructions." The overall direction regarding the procedure for
docking and undocking the vessel emanates from the harbor pilot. In
the present recourse, Gavino failed to live up to his responsibilities
and exercise reasonable care or that degree of care required by the
exigencies of the occasion. Failure on his part to exercise the degree
of care demanded by the circumstances is negligence (Reese versus
Philadelphia & RR Co. 239 US 363, 60 L ed. 384, 57 Am Jur, 2d page
418). 67

This affirms the findings of the trial court regarding Capt. Gavino's negligence:

This discussion should not however, divert the court from the fact
that negligence in manuevering the vessel must be attributed to Capt.
Senen Gavino. He was an experienced pilot and by this time should
have long familiarized himself with the depth of the port and the
distance he could keep between the vessel and port in order to berth
safely. 68

The negligence on the part of Capt. Gavino is evident; but Capt. Kabancov is no
less responsible for the allision. His unconcerned lethargy as master of the ship in
the face of troublous exigence constitutes negligence.

While it is indubitable that in exercising his functions a pilot is in sole command of

the ship 69 and supersedes the master for the time being in the command and
navigation of a ship and that he becomes master pro hac vice of a vessel piloted by
him, 70 there is overwhelming authority to the effect that the master does not
surrender his vessel to the pilot and the pilot is not the master. The master is still
in command of the vessel notwithstanding the presence of a pilot. There are
occasions when the master may and should interfere and even displace the pilot,
as when the pilot is obviously incompetent or intoxicated and the circumstances
may require the master to displace a compulsory pilot because of incompetency or
physical incapacity. If, however, the master does nor observe that a compulsory
pilot is incompetent or physically incapacitated, the master is justified in relying
on the pilot, but not blindly. 71

The master is not wholly absolved from his duties while a pilot is on board his
vessel, and may advise with or offer suggestions to him. He is still in command of
the vessel, except so far as her navigation is concerned, and must cause the
ordinary work of the vessel to be properly carried on and the usual precaution
taken. Thus, in particular, he is bound to see that there is sufficient watch on deck,
and that the men are attentive to their duties, also that engines are stopped,
towlines cast off, and the anchors clear and ready to go at the pilot's order. 72

A perusal of Capt. Kabankov's testimony makes it apparent that he was remiss in

the discharge of his duties as master of the ship, leaving the entire docking
procedure up to the pilot, instead of maintaining watchful vigilance over this risky
maneuver:

Q Will you please tell us whether you have the right to

intervene in docking of your ship in the harbor?

A No sir, I have no right to intervene in time of docking,

only in case there is imminent danger to the vessel and
to the pier.

Q Did you ever intervene during the time that your ship
was being docked by Capt. Gavino?

A No sir, I did not intervene at the time when the pilot

was docking my ship.

Q Up to the time it was actually docked at the pier, is

that correct?

A No sir, I did not intervene up to the very moment when

the vessel was docked.

xxx xxx xxx

Atty. Del Rosario (to the witness)

Q Mr. Witness, what happened, if any, or was there

anything unusual that happened during the docking?

A Yes sir, our ship touched ihe pier and the pier was
damaged.

Court (to the witness)

Q When you said touched the pier, are you leading the
court to understand that your ship bumped the pier?

A I believe that my vessel only touched the pier but the

impact was very weak.

Q Do you know whether the pier was damaged as a

result of that slight or weak impact?
A Yes sir, after the pier was damaged.

xxx xxx xxx

Q Being most concerned with the safety of your vessel,

in the maneuvering of your vessel to the port, did you
observe anything irregular in the maneuvering by Capt.
Gavino at the time he was trying to cause the vessel to
be docked at the pier?

A You mean the action of Capt. Gavino or his condition?

Court:

Q Not the actuation that conform to the safety maneuver

of the ship to the harbor?

A No sir, it was a usual docking.

Q By that statement of yours, you are leading the court

to understand that there was nothing irregular in the
docking of the ship?

A Yes sir, during the initial period of the docking, there

was nothing unusual that happened.

Q What about in the last portion of the docking of the

ship, was there anything unusual or abnormal that
happened?

A None Your Honor, I believe that Capt. Gavino thought

that the anchor could keep or hold the vessel.

Q You want us to understand, Mr. Witness, that the

dropping of the anchor of the vessel was nor timely?

A I don't know the depth of this port but I think, if the

anchor was dropped earlier and with more shackles,
there could not have been an incident.

Q So you could not precisely tell the court that the

dropping of the anchor was timery because you are not
well aware of the seabed, is that correct?

A Yes sir, that is right.

xxx xxx xxx

Q Alright, Capt. Kavankov, did you come to know later
whether the anchor held its ground so much so that the
vessel could not travel?

A It is difficult for me to say definitely. I believe that the

anchor did not hold the ship.

Q You mean you don't know whether the anchor blades

stuck to the ground to stop the ship from further
moving?

A Yes sir, it is possible.

Q What is possible?

A I think, the 2 shackles were not enough to hold the

vessel.

Q Did you know that the 2 shackles were dropped?

A Yes sir, I knew that.

Q If you knew that the shackles were not enough to hold

the ship, did you not make any protest to the pilot?

A No sir, after the incident, that was my assumption.

Q Did you come to know later whether that presumption

is correct?

A I still don't know the ground in the harbor or the

depths.

Q So from the beginning, you were not competent

whether the 2 shackles were also dropped to hold the
ship?

A No sir, at the beginning, I did not doubt it because I

believe Capt. Gavino to be an experienced pilot and he
should be more aware as to the depths of the harbor and
the ground and I was confident in his actions.

xxx xxx xxx

Solicitor Abad (to the witness)

Q Now, you were standing with the pilot on the bridge of

the vessel before the inicident happened, were you not?

A Yes sir, all the time, I was standing with the pilot.
Q And so whatever the pilot saw, you could also see from
that point of view?

A That is right.

Q Whatever the piler can read from the panel of the

bridge, you also could read, is that correct?

A What is the meaning of panel?

Q All indications necessary for men on the bridge to be

informed of the movements of the ship?

A That is right.

Q And whatever sound the captain . . . Capt. Gavino

would hear from the bridge, you could also hear?

A That is right.

Q Now, you said that when the command to lower the

anchor was given, it was obeyed, is that right?

A This command was executed by the third mate and

boatswain.

Court (to the witness)

Q Mr. Witness, earlier in today's hearing, you said that

you did not intervene with the duties of the pilot and
that, in your opinion, you can only intervene if the ship is
placed in imminent danger, is that correct?

A That is right, I did say that.

Q In your observation before the incident actually

happened, did you observe whether or not the ship,
before the actual incident, the ship was placed in
imminent danger?

A No sir, I did not observe.

Q By that answer, are you leading the court to

understand that because you did not intervene and
because you believed that it was your duty to intervene
when the vessel is placed in imminent danger to which
you did not observe any imminent danger thereof, you
have not intervened in any manner to the command of
the pilot?
A That is right, sir.

xxx xxx xxx

Q Assuminp that you disagreed with the pilot regarding

the step being taken by the pilot in maneuvering the
vessel, whose command will prevail, in case of imminent
danger to the vessel?

A I did nor consider the situation as having an imminent

danger. I believed that the vessel will dock alongside the
pier.

Q You want us to understand that you did not see an

imminent danger to your ship, is that what you mean?

A Yes sir, up to the very last moment, I believed that

there was no imminent danger.

Q Because of that, did you ever intervene in the

command of the pilot?

A Yes sir, I did not intervene because I believed that the

command of the pilot to be correct.

Solicitor Abad (to the witness)

Q As a captain of M/V Pavlodar, you consider docking

maneuvers a serious matter, is it not?

A Yes sir, that is right.

Q Since it affects not only the safety of the port or pier,

but also the safety of the vessel and the cargo, is it not?

A That is right.

Q So that, I assume that you were watching Capt. Gavino

very closely at the time he was making his commands?

A I was close to him, I was hearing his command and

being executed.

Q And that you were also alert for any possible mistakes
he might commit in the maneuvering of the vessel?

A Yes sir, that is right.

Q But at no time during the maneuver did you issue

order contrary to the orders Capt. Gavino made?
A No sir.

Q So that you were in full accord with all of Capt.

Gavino's orders?

A Yes sir.

Q Because, otherwise, you would have issued order that

would supersede his own order?

A In that case, I should t,ke him away from his command

or remove the command from him.

Court (to the witness)

Q You were in full accord with the steps being taken by

Capt. Gavino because you relied on his knowledge, on his
familiarity of the seabed and shoals and other
surroundings or conditions under the sea, is that
correct?

A Yes sir, that is right.

xxx xxx xxx

Solicitor Abad (to the witness)

Q And so after the anchors were ordered dropped and

they did not take hold of the seabed, you were alerted
that there was danger already on hand?

A No sir, there was no imminent danger to the vessel.

Q Do you mean to tell us that even if the anchor was

supposed to take hold of the bottom and it did not, there
was no danger to the ship?

A Yes sir, because the anchor dragged on the ground

later.

Q And after a few moments when the anchor should have

taken hold the seabed bur not done (sic), as you
expected, you already were alerted that there was
danger to the ship, is that correct?

A Yes sir, I was alerted but there was no danger.

Q And you were alerted that somebody was wrong?

A Yes sir, I was alerted.

 Q And this alert vou assumed was the ordinary alertness
that you have for normal docking?

A Yes sir, I mean that it was usual condition of any man

in time of docking to be alert.

Q And that is the same alertness when the anchor did not
hold onto the ground, is that correct?

A Yes sir, me and Capt. Gavino (thought) that the anchor

will hold the ground.

Q Since, as you said that you agreed all the while with
the orders of Capt. Gavino, you also therefore agreed
with him in his failure to take necessary precaution
against the eventuality that the anchor will not hold as
expected?

Atty. Del Rosario:

May I ask that the question . . .

Solicitor Abad:

Never mind, I will reform the question.

xxx xxx xxx

Solicitor Abad (to the witness)

Q Is it not a fact that the vessel bumped the pier?

A That is right, it bumped the pier.

Q For the main reason that the anchor of the vessel did
not hold the ground as expected?

73
A Yes sir, that is my opinion.

Further, on redirect examination, Capt. Kabankov fortified his apathetic

assessment of the situation:

Q Now, after the anchor was dropped, was there any

point in time that you felt that the vessel was in
imminent danger.

A No, at that time, the vessel was not in imminent,

danger, sir. 74
This cavalier appraisal of the event by Capt. Kabankov is disturbingly antipodal to
Capt. Gavino's anxious assessment of the situation:

Q When a pilot is on board a vessel, it is the piler's

command which should be followed at that moment until
the vessel is, or goes to port or reaches port?

A Yes, your Honor, but it does not take away from the
Captain his prerogative to countermand the pilot.

Q In what way?

A In any case, which he thinks the pilot is not

maneuvering correctly, the Captain always has the
prerogative to countermand the pilot's order.

Q But insofar as competence, efficiency and functional

knowledee of the seabed which are vital or decisive in
the safety (sic) bringing of a vessel to the port, he is not
competent?

A Yes, your Honor. That is why they hire a pilot in an

advisory capacity, but still, the safety of the vessel
rest(s) upon the Captain, the Master of the vessel.

Q In this case, there was not a disagreement between

you and the Captain of the vessel in the bringing of the
vessel to port?

A No, your Honor.

Court:

May proceed.

Atty. Catris:

In fact, the Master of the vessel testified here that he

was all along in conformity with the orders you, gave to
him, and, as matter of fact, as he said, he obeyed all your
orders. Can you tell, if in the course of giving such
normal orders for the saf(e) docking of the MV Pavlodar,
do you remember of any instance that the Master of the
vessel did not obey your command for the safety docking
of the MV Pavlodar?

Atty. del Rosario:

Already answered, he already said yes sir.

Court:
 Yes, he has just answered yes sir to the Court that there
was no disagreement insofar as the bringing of the
vessel safely to the port.

Atty. Catris:

But in this instance of docking of the MV Pavlodar, do

you remember of a time during the course of the docking
that the MV Pavlodar was in imminent danger of
bumping the pier?

A When we were about more than one thousand meters

from the pier, I think, the anchor was not holding, so I
immediately ordered to push the bow at a fourth quarter,
at the back of the vessel in order to swing the bow away
from the pier and at the same time, I ordered for a full
astern of the engine. 75

These conflicting reactions can only imply, at the very least, unmindful
disregard or, worse, neglectful relinquishment of duty by the shipmaster,
tantamount to negligence.

The findings of the trial court on this aspect is noteworthy:

For, while the pilot Gavino may indeed have been charged with the
task of docking the vessel in the berthing space, it is undisputed that
the master of the vessel had the corresponding duty to countermand
any of the orders made by the pilot, and even maneuver the vessel
himself, in case of imminent danger to the vessel and the port.

In fact, in his testimony, Capt. Kavankov admitted that all throughour

the man(eu)vering procedures he did not notice anything was going
wrong, and even observed that the order given to drop the anchor
was done at the proper time. He even ventured the opinion that the
accident occurred because the anchor failed to take hold but that this
did not alarm him because.there was still time to drop a second
anchor.

Under normal circumstances, the abovementioned facts would have

caused the master of a vessel to take charge of the situation and see
to the man(eu)vering of the vessel himself. Instead, Capt. Kavankov
chose to rely blindly upon his pilot, who by this time was proven ill-
equipped to cope with the situation.

xxx xxx xxx

It is apparent that Gavino was negligent but Far Eastern's employee

Capt. Kavankov was no lesss responsible for as master of the vessel
he stood by the pilot during the man(eu)vering procedures and was
privy to every move the latter made, as well as the vessel's response
to each of the commands. His choice to rely blindly upon the pilot's
 skills, to the point that despite being appraised of a notice of alert he
continued to relinquish control of the vessel to Gavino, shows
indubitably that he was not performing his duties with the diligence
required of him and therefore may be charged with negligence along
with defend;int Gavino. 76

As correctly affirmed by the Court of Appeals —

We are in full accord with the findings and disquisitions of the Court a
quo.

In the present recourse, Captain Viktor Kavankov had been a mariner

for thirty-two years before the incident. When Gavino was (in) the
command of the vessel, Kavankov was beside Gavino, relaying the
commands or orders of Gavino to the crewmembers-officers of the
vessel concerned. He was thus fully aware of the docking maneuvers
and procedure Gavino undertook to dock the vessel. Irrefragably,
Kavankov was fully aware of the bulk and size of the vessel and its
cargo as well as the weight of the vessel. Kavankov categorically
admitted that, when the anchor and two (2) shackles were dropped
to the sea floor, the claws of the anchor did not hitch on to any hard
object in the seabed. The momentum of the vessel was not arrested.
The use of the two (2) tugboats was insufficient. The momentum of
the vessel, although a little bit arrested, continued (sic) the vessel
going straightforward with its bow towards the port (Exhibit "A-1 ).
There was thus a need for the vessel to move "full-astern" and to
drop the other anchor with another shackle or two (2), for the vessel
to avoid hitting the pier. Kavankov refused to act even as Gavino
failed to act. Even as Gavino gave mere "half-astern" order, Kavankov
supinely stood by. The vessel was already about twenty (20) meters
away from the pier when Gavino gave the "full-astern" order. Even
then, Kavankov did nothing to prevent the vessel from hitting the pier
simply because he relied on the competence and plan of Gavino.
While the "full-astern'' maneuver momentarily arrested the
momentum of the vessel, it was, by then, too late. All along,
Kavankov stood supinely beside Gavino, doing nothing but relay the
commands of Gavino. Inscrutably, then, Kavankov was negligent.

xxx xxx xxx

The stark incompetence of Kavankov is competent evidence to prove

the unseaworthiness of the vessel. It has been held that the
incompetence of the navigator, the master of the vessel or its crew
makes the vessel unseaworthy (Tug Ocean Prince versus United
States of America, 584 F. 2nd, page 1151). Hence, the Appellant FESC
is likewise liable for the damage sustained by the Appellee. 77

We find strong and well-reasoned support in time-tested American maritime

jurisprudence, on which much of our laws and jurisprudence on the matter are
based, for the conclusions of the Court of Appeals adjudging both Capt. Gavino and
Capt. Kabankov negligent.
As early as 1869, the U.S. Supreme Court declared, through Mr. Justice Swayne, in
The Steamship China vs. Walsh, 78 that it is the duty of the master to interfere in
cases of the pilot's intoxication or manifest incapacity, in cases of danger which he
does not foresee, and in all cases of great necessity. The master has the same
power to displace the pilot that he has to remove any subordinate officer of the
vessel, at his discretion.

In 1895, the U.S. Supreme Court, this time through Mr. Justice Brown,
emphatically ruled that:

Nor are rye satisfied with the conduct of the master in leaving the
pilot in sole charge of the vessel. While the pilot doubtless
supersedes the master for the time being in the command and
navigation of the ship, and his orders must be obeyed in all matters
connected with her navigation, the master is not wholly absolved
from his duties while the pilot is on board, and may advise with him,
and even displace him in case he is intoxicated or manifestly
incompetent. He is still in command of the vessel, except so far as her
navigation is concerned, and bound to see that there is a sufficient
watch on deck, and that the men are attentive to their duties.

. . . (N)orwithstanding the pilot has charge, it is the duty of the

master to prevent accident, and not to abandon the vessel entirely to
the pilot; but that there are certain duties he has to discharge
(notwithstanding there is a pilot on board) for the benefit of the
owners. . . . that in well conducted ships the master does not regard
the presence of a duly licensed pilot in compulsory pilot waters as
freeing him from every, obligation to attend to the safety of the
vessel; but that, while the master sees that his officers and crew duly
attend to the pilot's orders, he himself is bound to keep a vigilant eye
on the navigation of the vessel, and, when exceptional circumstances
exist, not only to urge upon the pilot to use every precaution, but to
insist upon such being taken. 79 (Italics for emphasis.)

In Jure vs. United Fruit Co., 80 which, like the present petitions, involved
compulsory pilotage, with a similar scenario where at and prior to the time of
injury, the vessel was in the charge of a pilot with the master on the bridge of the
vessel beside said pilot, the court therein ruled:

The authority of the master of a vessel is not in complete abeyance

while a pilot, who is required by law to be accepted, is in discharge of
his functions. . . . It is the duty of the master to interfere in cases of
the pilot's intoxication or manifest incapacity, in cases of danger
which he does not foresee, and in all cases of great necessity. The
master has the same power to displace the pilot that he has to
remove any subordinate officer of the vessel. He may exercise it, or
not, according to his discretion. There was evidence to support
findings that piaintiff's injury was due to the negligent operation of
the Atenas, and that the master of that vessel was negligent in failing
to take action to avoid endangering a vessel situated as the City of
Canton was and persons or property thereon.
 A phase of the evidence furnished support for the inferences . . . that
he negligently failed to suggest to the pilot the danger which was
disclosed, and means of avoiding such danger; and that the master's
negligence in failing to give timelt admonition to the pilot proximately
contributed to the injury complained of. We are of opinion that the
evidence mentioned tended to prove conduct of the pilot, known to
the master, giving rise to a case of danger or great necessity, calling
for the intervention of the master. A master of a vessel is not without
fault in acquiescing in canduct of a pilot which involves apparent and
avoidable danger, whether such danger is to the vessel upon which
the pilot is, or to another vessel, or persons or property thereon or on
shore. (Emphasis ours.)

Still in another case involving a nearly identical setting, the captain of a vessel
alongside the compulsory pilot was deemed to be negligent, since, in the words of
the court, "he was in a position to exercise his superior authority if he had deemed
the speed excessive on the occasion in question. I think it was clearly negligent of
him not to have recognized the danger to any craft moored at Gravell Dock and
that he should have directed the pilot to reduce his speed as required by the local
governmental regulations. His failure amounted to negligence and renders the
respondent liable." 81 (Emphasis supplied.) Though a compulsory pilot might be
regarded as an independent contractor, he is at all times subject to the ultimate
control of the ship's master. 82

In sum, where a compulsory pilot is in charge of a ship, the master being required
to permit him to navigate it, if the master observes that the pilot is incompetent or
physically incapable, then it is the dury of the master to refuse to permit the pilot
to act. But if no such reasons are present, then the master is justified in relying
upon the pilot, but not blindly. Under the circumstances of this case, if a situation
arose where the master, exercising that reasonable vigilance which the master of
a ship should exercise, observed, or should have observed, that the pilot was so
navigating the vessel that she was going, or was likely to go, into danger, and
there was in the exercise of reasonable care and vigilance an opportunity for the
master to intervene so as to save the ship from danger, the master should have
acted accordingly. 83 The master of a vessel must exercise a degree of vigilance
commensurate with the circumstances. 84

Inasmuch as the matter of negligence is a question of fact, 85 we defer to the

findings of the trial court, especially as this is affirmed by the Court of
Appeals. 86 But even beyond that, our own evaluation is that Capt. Kabankov's
shared liability is due mainly to the fact that he failed to act when the perilous
situation should have spurred him into quick and decisive action as master of the
ship. In the face of imminent or actual danger, he did not have to wait for the
happenstance to occur before countermanding or overruling the pilot. By his own
admission, Capt. Kabankov concurred with Capt. Gavino's decisions, and this is
precisely the reason why he decided not to countermand any of the latter's orders.
Inasmuch as both lower courts found Capt. Gavino negligent, by expressing full
agreement therewith Capt. Kabankov was just as negligent as Capt. Gavino.

In general, a pilot is personally liable for damages caused by his own negligence
or default to the owners of the vessel, and to third parties for damages sustained
in a collision. Such negligence of the pilot in the performance of duty constitutes a
maritime tort. 87 At common law, a shipowner is not liable for injuries inflicted
exclusively by the negligence of a pilot accepted by a vessel compulsorily. 88 The
exemption from liability for such negligence shall apply if the pilot is actually in
charge and solely in fault. Since, a pilot is responsible only for his own personal
negligence, he cannot be held accountable for damages proximately caused by the
default of others, 89 or, if there be anything which concurred with the fault of the
pilot in producing the accident, the vessel master and owners are liable.

Since the colliding vessel is prima facie responsible, the burden of proof is upon
the party claiming benefit of the exemption from liability. It must be shown
affirmatively that the pilot was at fault, and that there was no fault on the part of
the officers or crew, which might have been conducive to the damage. The fact
that the law compelled the master to take the pilot does not exonerate the vessel
from liability. The parties who suffer are entitled to have their remedy against the
vessel that occasioned the damage, and are not under necessity to look to the
pilot from whom redress is not always had for compensation. The owners of the
vessel are responsible to the injured party for the acts of the pilot, and they must
be left to recover the amount as well as they can against him. It cannot be
maintained that the circumstance of having a pilot on board, and acting in
conformity to his directions operate as a discharge of responsibility of the
owners. 90 Except insofar as their liability is limited or exempted by statute, the
vessel or her owner are liable for all damages caused by the negligence or other
wrongs of the owners or those in charge of the vessel. Where the pilot of a vessel
is not a compulsory one in the sense that the owner or master of the vessel are
bound to accept him, but is employed voluntarily, the owners of the vessel are, all
the more, liable for his negligent act. 91

In the United States, the owners of a vessel are not personally liable for the
negligent acts of a compulsory pilot, but by admiralty law, the fault or negligence
of a compulsory pilot is imputable to the vessel and it may be held liable
therefor in rem. Where, however, by the provisions of the statute the pilot is
compulsory only in the sense that his fee must be paid, and is not in compulsory
charge of the vessel, there is no exemption from liability. Even though the pilot is
compulsory, if his negligence was not the sole cause of the injury, but the
negligence of the master or crew contributed thereto, the owners are liable. 92 But
the liability of the ship in rem does not release the pilot from the consequences of
his own negligence. 93 The rationale for this rule is that the master is not entirely
absolved of responsibility with respect to navigation when a compulsory pilot is in
charge. 94

By way of validation and in light of the aforecited guidepost rulings in American

maritime cases, we declare that our rulings during the early years of this century
in City of Manila vs. Gambe, 95 China Navigation Co., Ltd. vs. Vidal, 96 and Yap Tica
& Co. vs. Anderson, et al. 97 have withstood the proverbial test of time and remain
good and relevant case law to this day.

City of Manila stands for the doctrine that the pilot who was in command and
complete control of a vessel, and not the owners, must be held responsible for an
accident which was solely the result of the mistake of the pilot in not giving proper
orders, and which did not result from the failure of the owners to equip the vessel
with the most modern and improved machinery. In China Navigation Co., the pilot
deviated from the ordinary and safe course, without heeding the warnings of the
ship captain. It was this careless deviation that caused the vessel to collide with a
pinnacle rock which, though uncharted, was known to pilots and local navigators.
Obviously, the captain was blameless. It was the negligence of the pilot alone
which was the proximate cause of the collision. The Court could not but then rule
that —

The pilot in the case at bar having deviated from the usual and
ordinary course followed by navigators in passing through the strait
in question, without a substantial reason, was guilty of negligence,
and that negligence having been the proximate cause of the damages,
he is liable for such damages as usually and naturally flow
therefrom. . . .

. . . (T)he defendant should have known of the existence and location

of the rock upon which the vessel struck while under his control and
management. . . . .

Consistent with the pronouncements in these two earlier cases, but on a slightly
different tack, the Court in Yap Tico & Co. exonerated the pilot from liability for the
accident where the orders of the pilot in the handling of the ship were disregarded
by the officers and crew of the ship. According to the Court, a pilot is ". . .
responsible for a full knowledge of the channel and the navigation only so far as
he can accomplish it through the officers and crew of the ship, and I don't see chat
he can be held responsible for damage when the evidence shows, as it does in this
case, that the officers and crew of the ship failed to obey his orders." Nonetheless,
it is possible for a compulsory pilot and the master of the vessel to
be concurrently negligent and thus share the blame for the resulting damage as
joint tortfeasors, 98 but only under the circumstances obtaining in and
demonstrated by the instant petitions.

It may be said, as a general rule, that negligence in order to render a person liable
need not be the sole cause of an injury. It is sufficient that his negligence,
concurring with one or more efficient causes other than piaintiff's, is the
proximate cause of the injury. Accordingly, where several causes combine to
produce injuries, a person is not relieved from liability because he is responsible
for only one of them, it being sufficient that the negligence of the person charged
with injury is an efficient cause without which the injury would not have resulted
to as great an extent, and that such cause is not attributable to the person injured.
It is no defense to one of the concurrent tortfeasors that the injury would not have
resulted from his negligence alone, without the negligence or wrongful acts of the
other concurrent rortfeasor. 99 Where several causes producing an injury are
concurrent and each is an efficient cause without which the injury would not have
happened, the injury may be attributed to all or any of the causes and recovery
may be had against any or all of the responsible persons although under the
circumstances of the case, it may appear that one of them was more culpable, and
that the duty owed by them to the injured person was not the same. No actor's
negligence ceases to be a proximate cause merely because it does not exceed the
negligence of other actors. Each wrongdoer is responsible for the entire result and
is liable as though his acts were the sole cause of the injury. 100

There is no contribution between joint tortfeasors whose liability is solidary since

both of them are liable for the total damage. Where the concurrent or successive
negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what proportion each
contributed to the injury and either of them is responsible for the whole injury.
Where their concurring negligence resulted in injury or damage to a third party,
they become joint tortfeasors and are solidarily liable for the resulting damage
under Article 2194 101 of the Civil Code. 102

As for the amount of damages awarded by the trial court, we find the same to be
reasonable. The testimony of Mr. Pascual Barral, witness for PPA, on cross and
redirect examination, appears to be grounded on practical considerations:

Q So that the cost of the two additional piles as well as

the (two) square meters is already included in this
P1,300,999.77.

A Yes sir, everything. It is (the) final cost already.

Q For the eight piles.

A Including the reduced areas and other reductions.

Q (A)nd the two square meters.

A Yes sir.

Q In other words, this P1,300,999.77 does not represent

only for the six piles that was damaged as well as the
corresponding two piles.

A The area was corresponding, was increased by almost

two in the actual payment. That was why the contract
was decreased, the real amount was P1,124,627.40 and
the final one is P1,300,999.77.

Q Yes, but that P1,300,999.77 included the additional

two new posts.

A It was increased.

Q Why was it increased?

A The original was 48 and the actual was 46.

Q Now, the damage was somewhere in 1980. It took

place in 1980 and you started the repair and
reconstruction in 1982, that took almost two years?

A Yes sir.
 Q May it not happen that by natural factors, the existing
damage in 1980 was aggravated for the 2 year period
that the damage portion was not repaired?

A I don't think so because that area was at once marked

and no vehicles can park, it was closed.

Q Even if or even natural elements cannot affect the

damage?

A Cannot, sir.

xxx xxx xxx

Q You said in the cross-examination that there were six

piles damaged by the accident, but that in the
reconstruction of the pier, PPA drove and constructed 8
piles. Will you explain to us why there was change in the
number of piles from the original number?

A In piers where the piles are withdrawn or pulled out,

you cannot re-drive or drive piles at the same point. You
have to redesign the driving of the piles. We cannot drive
the piles at the same point where the piles are broken or
damaged or pulled out. We have to redesign, and you
will note that in the reconstruction, we redesigned such
that it necessitated 8 plies.

Q Why not, why could you not drive the same number of
piles and on the same spot?

A The original location was already disturbed. We cannot

get required bearing capacity. The area is already
disturbed.

Q Nonetheless, if you drove the original number of piles,

six, on different places, would not that have sustained
the same load?

103
A It will not suffice, sir.

We quote the findings of the lower court with approval.

With regards to the amount of damages that is to be awarded to

plaintiff, the Court finds that the amount of P1,053,300.00 is justified.
Firstly, the doctrine of res ipsa loquitur best expounded upon in the
landmark case of Republic vs. Luzon Stevedoring Corp. (21 SCRA 279)
establishes the presumption that in the ordinary course of events the
ramming of the dock would not have occurred if proper care was
used.
 Secondly, the various estimates and plans justify the cost of the port
construction price. The new structure constructed not only replaced
the damaged one but was built of stronger materials to forestall the
possibility of any similar accidents in the future.

The Court inevitably finds that the plaintiff is entitled to an award of

P1,053,300.00 which represents actual damages caused by the
damage to Berth 4 of the Manila International Port. Co-defendants
Far Eastern Shipping, Capt. Senen Gavino and Manila Pilots
Association are solidariiy liable to pay this amount to plaintiff. 104

The Solicitor General rightly commented that the adjudicated amount of

damages represents the proportional cost of repair and rehabilitation of the
damaged section of the pier. 105

Except insofar as their liability is limited or exempted by statute, the vessel or her
owners are liable for all damages caused by the negligence or other wrongs of the
owners or those in charge of the vessel. As a general rule, the owners or those in
possession and control of a vessel and the vessel are liable for all natural and
proximate damages caused to persons or property by reason of her negligent
management or navigation. 106

FESC's imputation of PPA's failure to provide a safe and reliable berthing place is
obtuse, not only because it appears to be a mere afterthought, being tardily raised
only in this petition, but also because there is no allegation or evidence on record
about Berth No. 4 being unsafe and unreliable, although perhaps it is a modest
pier by international standards. There was, therefore, no error on the part of the
Court of Appeals in dismissing FESC's counterclaim.

II. G.R. No. 130150

This consolidated case treats on whether the Court of Appeals erred in holding
MPA jointly and solidarily liable with its member pilot. Capt. Gavino, in the
absence of employer-employee relationship and in applying Customs
Administrative Order No. 15-65, as basis for the adjudged solidary liability of MPA
and Capt. Gavino.

The pertinent provisions in Chapter I of Customs Administrative Order No. 15-65

are:

PAR. XXVII. — In all pilotage districts where pilotage is compulsory,

there shall be created and maintained by the pilots or pilots'
association, in the manner hereinafter prescribed, a reserve fund
equal to P1,000.00 for each pilot thereof for the purpose of paying
claims for damages to vessels or property caused through acts or
omissions of its members while rendered in compulsory pilotage
service. In Manila, the reserve fund shall be P2,000.00 for each pilot.

PAR. XXVIII. — A pilots' association shall not be liable under these

regulations for damage to any vessel, or other property, resulting
from acts of a member of an association in the actual performance of
 his duty for a greater amount than seventy-five per centum (75%) of
its prescribed reserve fund; it being understood that if the association
is held liable for an amount greater than the amount above-stated,
the excess shall be paid by the personal funds of the member
concerned.

PAR. XXXI. — If a payment is made from the reserve fund of an

association on account of damages caused by a member thereof, and
he shall have been found at fault, such member shall reimburse the
association in the amount so paid as soon as practicable; and for this
purpose, not less than twenty-five per centum of his dividends shall
be retained each month until the full amount has been returned to the
reserve fund.

PAR. XXXIV. — Nothing in these regulations shall relieve any pilots'

association or members thereof, individually or collectively, from civil
responsibility for damages to life or property resulting from the acts
of members in the performance of their duties.

Correlatively, the relevant provisions of PPA Administrative Order No. 03-85,

which timery amended this applicable maritime regulation, state:

Art. IV

Sec. 17. Pilots' Association — The Pilots in a Pilotage District shall

organize themselves into a Pilots' Association or firm, the members of
which shall promulgate their own By-Laws not in conflict with the
rules and regulations promulgated by the Authority. These By-Laws
shall be submitted not later than one (1) month after the organization
of the Pilots' Association for approval by the General Manager of the
Authority. Subsequent amendments thereto shall likewise be
submitted for approval.

Sec. 25. Indemnity Insurance and Reserve Fund —

a) Each Pilots' Association shall collectively

insure its membership at the rate of
P50,000.00 each member to cover in whole
or in part any liability arising from any
accident resulting in damage to vessel(s),
port facilities and other properties and/or
injury to persons or death which any
member may have caused in the course of
his performance of pilotage duties. . . . .

b) The Pilotage Association shall likewise

set up and maintain a reserve fund which
shall answer for any part of the liability
referred to in the immediately preceding
paragraph which is left unsatisfied by the
insurance proceeds, in the following
manner:
 1) Each pilot in the Association
shall contribute from his own
account an amount of
P4,000.00 (P6,000.00 in the
Manila Pilotage District) to the
reserve fund. This fund shall
not be considered part of the
capital of the Association nor
charged as an expense thereof.

2) Seventy-five percent (75 %)

of the reserve fund shall be set
aside for use in the payment of
damages referred to above
incurred in the actual
performance of pilots' duties
and the excess shall be paid
from the personal funds of the
member concerned.

xxx xxx xxx

5) If payment is made from the

reserve fund of an Association
on account of damage caused
by a member thereof who is
found at fault, he shall
reimburse the Association in
the amount so paid as soon as
practicable; and for this
purpose, not less than twenty-
five percentum (25 %) of his
dividend shall be retained each
month until the full amount has
been returned to the reserve
fund. Thereafter, the pilot
involved shall be entitled to his
full dividend.

6) When the reimbursement

has been completed as
prescribed in the preceding
paragraph, the ten percentum
(10%) and the interest
withheld from the shares of the
other pilots in accordance with
paragraph (4) hereof shall be
returned to them.

c) Liability of Pilots' Association — Nothing

in these regulations shall relieve any Pilots'
Association or members thereof, individually
 or collectively, from any civil, administrative
and/or criminal responsibility for damages
to life or property resulting from the
individual acts of its members as well as
those of the Association's employees and
crew in the performance of their duties.

The Court of Appeals, while affirming the trial court's finding of solidary liability on
the part of FESC, MPA and Capt. Gavino, correctly based MPA' s liability not on the
concept of employer-employee relationship between Capt. Gavino and itself, but
on the provisions of Customs Administrative Order No. 15-65:

The Appellant MPA avers that, contrary to the findings and

disquisitions of the Court a quo, the Appellant Gavino was not and has
never been an employee of the MPA but was only a member thereof.
The Court a quo, it is noteworthy, did not state the factual basis on
which it anchored its finding that Gavino was the employee of MPA.
We are in accord with MPA's pose. Case law teaches Us that, for an
employer-employee relationship to exist, the confluence of the
following elements must be established: (1) selection and
engagement of employees; (2) the payment of wages; (3) the power
of dismissal; (4) the employer's power to control the employees with
respect to the means and method by which the work is to be
performed (Ruga versus NLRC, 181 SCRA 266).

xxx xxx xxx

The liability of MPA for damages is not anchored on Article 2180 of

the New Civil Code as erroneously found and declared by the Court a
quo but under the provisions of Customs Administrative Order No. 15-
65, supra, in tandem with the by-laws of the MPA. 107

There being no employer-employee relationship, clearly Article 2180 108 of the Civil
Code is inapplicable since there is no vicarious liability of an employer to speak of.
It is so stated in American law, as follows:

The well established rule is that pilot associations are immune to

vicarious liability for the tort of their members. They are not the
employer of their members and exercise no control over them once
they take the helm of the vessel. They are also not partnerships
because the members do not function as agents for the association or
for each other. Pilots' associations are also not liable for negligently
assuring the competence of their members because as professional
associations they made no guarantee of the professional conduct of
their members to the general public. 109

Where under local statutes and regulations, pilot associations lack the necessary
legal incidents of responsibility, they have been held not liable for damages
caused by the default of a member pilot. 110 Whether or not the members of a
pilots' association are in legal effect a copartnership depends wholly on the
powers and duties of the members in relation to one another under the provisions
of the governing statutes and regulations. The relation of a pilot to his association
is not that of a servant to the master, but of an associate assisting and
participating in a common purpose. Ultimately, the rights and liabilities between a
pilots' association and an individual member depend largely upon the constitution,
articles or by-laws of the association, subject to appropriate government
regulations. 111

No reliance can be placed by MPA on the cited American rulings as to immunity

from liability of a pilots' association in ljght of existing positive regulation under
Philippine law. The Court of Appeals properly applied the clear and unequivocal
provisions of Customs Administrative Order No. 15-65. In doing so, it was just
being consistent with its finding of the non-existence of employer-employee
relationship between MPA and Capt. Gavino which precludes the application of
Article 2180 of the Civil Code.

True. Customs Administrative Order No. 15-65 does not categorically characterize
or label MPA's liability as solidary in nature. Nevertheless, a careful reading and
proper analysis of the correlated provisions lead to the conclusion that MPA is
solidarily liable for the negligence of its member pilots, without prejudice to
subsequent reimbursement from the pilot at fault.

Art. 1207 of the Civil Code provides that there is solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation
requires solidarity. Plainly, Customs Administrative Order No. 15-65, which as an
implementing rule has the force and effect of law, can validly provide for solidary
liability.We note the Solicitor General's comment hereon, to wit:

. . . Customs Administrative Order No. 15-65 may be a mere rule and

regulation issued by an administrative agency pursuant to a
delegated authority to fix "the details" in the execution or
enforcement of a policy set out in the law itself. Nonetheless, said
administrative order, which adds to the procedural or enforcing
provisions of substantive law, is legally binding and receives the
same statutory force upon going into effect. In that sense, it has
equal, not lower, statutory force and effect as a regular statute
passed by the legislature. 112

MPA's prayer for modification of the appellate court's decision under review by
exculpating petitioner MPA "from liability beyond seventy-five percent (75 %) of
Reserve Fund" is unnecessary because the liability of MPA under Par. XXVIII of
Customs Administrative Order No. 15-65 is in fact limited to seventy-five percent
(75 %) of its prescribed reserve fund, any amount of liability beyond that being
for the personal account of the erring pilot and subject to reimbursement in case
of a finding of fault by the member concerned. This is clarified by the Solicitor
General:

Moreover, contrary to petitioner's pretensions, the provisions of

Customs Administrative Order No. 15-65 do not limit the liability of
petitioner as a pilots' association to an absurdly small amount of
seventy-five per centum (75 %) of the member pilots' contribution of
P2,000.00 to the reserve fund. The law speaks of the entire reserve
fund required to be maintained by the pilots' association to answer
(for) whatever liability arising from the tortious act of its members.
 And even if the association is held liable for an amount greater than
the reserve fund, the association may not resist the liability by
claiming to be liable only up to seventy-five per centum (75 %) of the
reserve fund because in such instance it has the right to be
reimbursed by the offending member pilot for the excess. 113

WHEREFORE, in view of all of the foregoing, the consolidated petitions for review
are DENIED and the assailed decision of the Court of Appeals is AFFIRMED in toto.

Counsel for FESC, the law firm of Del Rosario and Del Rosario, specifically its
associate, Atty. Herbert A. Tria, is REPRIMANDED and WARNED that a repetition of
the same or similar acts of heedless disregard of its undertakings under the Rules
shall be dealt with more severely.

The original members of the legal team of the Office of the Solicitor General
assigned to this case, namely, Assistant Solicitor General Roman G. Del Rosario
and Solicitor Luis F. Simon, are ADMONISHED and WARNED that a repetition of the
same or similar acts of unduly delaying proceedings due to delayed filing of
required pleadings shall also be dealt with more stringently.

The Solicitor Genral is DIRECTED to look into the circumstances of this case and to
adopt provident measures to avoid a repetition of this incident and which would
ensure prompt compliance with orders of this Court regarding the timely filing of
requisite pleadings, in the interest of just, speedy and orderly administration of
justice.

Let copies of this decision be spread upon the personal records of the lawyers
named herein in the Office of the Bar Confidant.

SO ORDERED.

Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Panganiban, Martinez,
Quisumbing and Purisima, JJ., concur.

Narvasa, C.J. and Mendoza, J., are on official leave.

 CHAPTER 10 – CHARTER PARTIES (ARTICKES 652-718)

10.2 Different Kinds of Charter Parties

Litonjua Shipping Co. v. NSB 176 SCRA 189 (1989)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

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

LITONJUA SHIPPING COMPANY INC., petitioner

vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.

Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.

Estratonico S. Anano for private respondent.

FELICIANO, J.:

In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks
to annul and set aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB")
in NSB Case No. 1331-77 affirming the decision dated 17 February 1977 of the NSB hearing
officer which adjudged petitioner Litonjua liable to private respondent for violation of the
latter's contract of employment and which ordered petitioner to pay damages.

Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind
Shipping Corporation ('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign
registry owned by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September
1976, while the Dufton Bay was in the port of Cebu and while under charter by Fairwind, the
vessel's master contracted the services of, among others, private respondent Gregorio
Candongo to serve as Third Engineer for a period of twelve (12) months with a monthly
wage of US$500.00. This agreement was executed before the Cebu Area Manning Unit of
the NSB. Thereafter, private respondent boarded the vessel. On 28 December 1976, before
expiration of his contract, private respondent was required to disembark at Port Kelang,
Malaysia, and was returned to the Philippines on 5 January 1977. The cause of the
discharge was described in his Seaman's Book as 'by owner's arrange". 1

Shortly after returning to the Philippines, private respondent filed a complaint before public
respondent NSB, which complaint was docketed as NSB-1331-77, for violation of contract,
against Mullion as the shipping company and petitioner Litonjua as agent of the shipowner
and of the charterer of the vessel.

At the initial hearing, the NSB hearing officer held a conference with the parties, at which
conference petitioner Litonjua was represented by one of its supercargos, Edmond Cruz.
Edmond Cruz asked, in writing, that the hearing be postponed for a month upon the ground
that the employee of Litonjua in charge of the case was out of town. The hearing officer
denied this request and then declared petitioner Litonjua in default. At the hearing, private
respondent testified that when he was recruited by the Captain of the Dufton Bay, the latter
was accompanied to the NSB Cebu Area Manning Unit by two (2) supercargos sent by
petitioner Litonjua to Cebu, and that the two (2) supercargos Edmond Cruz and Renato
Litonjua assisted private respondent in the procurement of his National Investigation and
Security Agency (NISA) clearance. Messrs. Cruz and Litonjua were also present during
private respondent's interview by Captain Ho King Yiu of the Dufton Bay.

2
On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, the
dispositive portion of which read:

Wherefore, premises considered, judgment is hereby rendered ordering the

respondents R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co.,
Inc., jointly and solidarily to pay the complainant the sum of four thousand
six hundred fifty seven dollars and sixty three cents ($4,657.63) or its
equivalent in the Phil. currency within 10 days from receipt of the copy of this
Decision the payment of which to be coursed through the then NSB.

The above conclusion was rationalized in the following terms:

From the evidence on record it clearly appears that there was no sufficient or
valid cause for the respondents to terminate the services of complainant prior
to 17 September 1977, which is the expiry date of the contract. For this
reason the respondents have violated the conditions of the contract of
employment which is a sufficient justification for this Board to render award in
favor of the complainant of the unpaid salaries due the latter as damages
corresponding to the unexpired portion of the contract including the accrued
leave pay computed on the basis of five [51 days pay for every month of
service based at $500.00 monthly salary. Complainant's wages account
further show that he has an undrawn wage amounting to US$13.19 to be paid
by the respondents Philippine agency together with his accrued leave pay. 3

Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the
motion was denied. Petitioner next filed an "Appeal and/or Motion for Reconsideration of the
Default Judgment dated 9 August 1977" with the central office of the NSB. NSB then
suspended its hearing officer's decision and lifted the order of default against petitioner
Litonjua, thereby allowing the latter to adduce evidence in its own behalf The NSB hearing
officer, on 26 April 1978, made the following findings:

While it appears that in the preparation of the employment papers of the

complainant, what was indicated therein was R.D. Mullion Co. (HK) Ltd.
referring to Exhibit "B" (Standard Format of a Service Agreement) and Exhibit
"C" (Affidavit of Undertaking), as thecompany whom Captain Ho King Yiu, the
Master of the vessel Dufton Bay, was representing to be the shipowner, the
fact remains that at the time of the recruitment of the complainant, as duly
verified by the National Seamen Board, Cebu Area Manning Unit, the Litonjua
Shipping Company was the authorized agent of the vessel's charterer, the
Fairwind Shipping Corporation, and that in the recruitment process, the
Litonjua Shipping Company through its supercargos in the persons of Edmund
Cruz and Renato Litonjua, had knowledge thereof and in fact assisted in the
 interviews conducted by the Master of the crew applicants as admitted by
Renato Litonjua including the acts of facilitating the crew's NISA clearances as
testified to by complainant. Moreover, the participation of the Litonjua
Shipping Corporation in the recruitment of complainant, together with the
other crewmembers, in Cebu in September 1976 can be traced to the
contents of the letter of April 5, 1976 by the Fairwind Shipping Limited, thru
its Director David H.L. Wu addressed to the National Seamen Board, copy of
which is on file with Contracts and Licensing Division, quote:

This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local
crewing Managing Office to attend on our Crew requirements as well as
attend to our ship's requirements when in Philippine ports.

We further authorized Litonjua Shipping Co., Inc. to act as local

representative who can sue and be sued, and to bind and sign contracts for
our behalf. 4

The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.

Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public
respondent NSB rendered a decision 5 which affirmed its hearing offices decision of 17
February 1977 and which read in part as follows:

It is clear that respondent Litonjua Shipping Co., Inc. is the authorized

Philippine agent of Fairwind Shipping Corporation, charterer of the vessel
'Dufton Bay, wherein complainant, served as 3rd Engineer from 17 September
until disembarkation on December 28, 1976. It is also clear from the
complainant's wages account bearing the heading 'Fairwind Shipping
Corporation', signed by the Master of the vessel that the Philippine agency
referred to herein directed to pay the said withdrawn wages of $13.19 is no
other than Litonjua Shipping Company, Inc.

From this observation, it can be reasonably inferred that the master of the
vessel acted for and in behalf of Fairwind Shipping Corporation who had the
obligation to pay the salary of the complainant. It necessarily follows that
Fairwind Shipping Corporation is the employer of said complainant. Moreover,
it had been established by complainant that Litonjua Shipping Company, Inc.,
had knowledge of and participated, through its employee, in the recruitment
of herein complainant.

xxx xxx xxx

In view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the
Philippines, which provides that, 'The state shall afford protection to
labor . . .' as well as the provisions of Art. 4 thereof, that 'all doubts in the
implementation and interpretation of the provisions of the Code, including its
implementing rules and regulations, shall be resolved in favor of labor', it is
our conclusion, that the decision dated February 17, 1977, is based on
evidence formally offered and presented during the hearing and that there
was no grave abuse of discretion committed by the hearing officer in finding
respondent Litonjua Shipping Company, Inc., liable to complainant.
(Emphasis supplied)
In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public
respondent NSB declaring the charterer Fairwind as employer of private respondent, and for
whose liability petitioner was made responsible, as constituting a grave abuse of discretion
amounting to lack of jurisdiction. The principal if not the sole issue to be resolved here is
whether or not the charterer Fairwind was properly regarded as the employer of private
respondent Candongo.

Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit:

1) As a general rule, admiralty law as embodied in the Philippine Code of

Commerce fastens liability for payment of the crew's wages upon the ship
owner, and not the charterer; and

2) The evidence of record is grossly inadequate to shift such liability from the
shipowner to the petitioner.6

Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of
private respondent; and that liability for damages cannot be imposed upon petitioner which
was a mere agent of the charterer. It is insisted that private respondent's contract of
employment and affidavit of undertaking clearly showed that the party with whom he had
contracted was none other than Mullion, the shipowner, represented by the ship's
master. 7 Petitioner also argues that its supercargos merely assisted Captain Ho King Yiu of
the Dufton Bay in being private respondent as Third Engineer. Petitioner also points to the
circumstance that the discharge and the repatriation of private respondent was specified in
his Seaman's Book as having been "by owner's arrange." Petitioner Litonjua thus argues
that being the agent of the charterer and not of the shipowner, it accordingly should not
have been held liable on the contract of employment of private respondent.

We are not persuaded by petitioner's argument. We believe that there are two (2) grounds
upon which petitioner Litonjua may be held liable to the private respondent on the contract
of employment.

The first basis is the charter party which existed between Mullion, the shipowner, and
Fairwind, the charterer. In modern maritime law and usage, there are three (3)
distinguishable types of charter parties: (a) the "bareboat" or "demise" charter; (b) the
"time" charter; and (c) the "voyage" or "trip" charter. A bareboat or demise charter is a
demise of a vessel, much as a lease of an unfurnished house is a demise of real property.
The shipowner turns over possession of his vessel to the charterer, who then undertakes to
provide a crew and victuals and supplies and fuel for her during the term of the charter. The
shipowner is not normally required by the terms of a demise charter to provide a crew, and
so the charterer gets the "bare boat", i.e., without a crew. 8 Sometimes, of course, the
demise charter might provide that the shipowner is to furnish a master and crew to man the
vessel under the charterer's direction, such that the master and crew provided by the
shipowner become the agents and servants or employees of the charterer, and the
charterer (and not the owner) through the agency of the master, has possession and control
of the vessel during the charter period. A time charter, upon the other hand, like a demise
charter, is a contract for the use of a vessel for a specified period of time or for the duration
of one or more specified voyages. In this case, however, the owner of a time-chartered
vessel (unlike the owner of a vessel under a demise or bare-boat charter), retains
possession and control through the master and crew who remain his employees. What the
time charterer acquires is the right to utilize the carrying capacity and facilities of the vessel
and to designate her destinations during the term of the charter. A voyage charter, or trip
charter, is simply a contract of affreightment, that is, a contract for the carriage of goods,
from one or more ports of loading to one or more ports of unloading, on one or on a series
of voyages. In a voyage charter, master and crew remain in the employ of the owner of the
vessel. 9

It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro
hac vice of the vessel, the charterer assuming in large measure the customary rights and
liabilities of the shipowner in relation to third persons who have dealt with him or with the
vessel. 10 In such case, the Master of the vessel is the agent of the charterer and not of the
shipowner.11 The charterer or owner pro hac vice, and not the general owner of the vessel,
is held liable for the expenses of the voyage including the wages of the seamen. 12

It is important to note that petitioner Litonjua did not place into the record of this case a
copy of the charter party covering the M/V Dufton Bay. We must assume that petitioner
Litonjua was aware of the nature of a bareboat or demise charter and that if petitioner did
not see fit to include in the record a copy of the charter party, which had been entered into
by its principal, it was because the charter party and the provisions thereof were not
supportive of the position adopted by petitioner Litonjua in the present case, a position
diametrically opposed to the legal consequence of a bareboat charter.13 Treating Fairwind as
owner pro hac vice, petitioner Litonjua having failed to show that it was not such, we
believe and so hold that petitioner Litonjua, as Philippine agent of the charterer, may be
held liable on the contract of employment between the ship captain and the private
respondent.

There is a second and ethically more compelling basis for holding petitioner Litonjua liable
on the contract of employment of private respondent. The charterer of the vessel, Fairwind,
clearly benefitted from the employment of private respondent as Third Engineer of
the Dufton Bay, along with the ten (10) other Filipino crewmembers recruited by Captain Ho
in Cebu at the same occasion. 14 If private respondent had not agreed to serve as such Third
Engineer, the ship would not have been able to proceed with its voyage. The equitable
consequence of this benefit to the charterer is, moreover, reinforced by convergence of
other circumstances of which the Court must take account. There is the circumstance that
only the charterer, through the petitioner, was present in the Philippines. Secondly, the
scope of authority or the responsibility of petitioner Litonjua was not clearly delimited.
Petitioner as noted, took the position that its commission was limited to taking care of
vessels owned by Fairwind. But the documentary authorization read into the record of this
case does not make that clear at all. The words "our ships" may well be read to
refer both to vessels registered in the name of Fairwind and vessels owned by others but
chartered by Fairwind. Indeed the commercial, operating requirements of a vessel for crew
members and for supplies and provisions have no relationship to the technical
characterization of the vessel as owned by or as merely chartered by Fairwind. In any case,
it is not clear from the authorization given by Fairwind to petitioner Litonjua that vessels
chartered by Fairwind (and owned by some other companies) were not to be taken care of
by petitioner Litonjua should such vessels put into a Philippine port. The statement of
account which the Dufton Bay's Master had signed and which pertained to the salary of
private respondent had referred to a Philippine agency which would take care of disbursing
or paying such account. 'there is no question that Philippine agency was the Philippine agent
of the charterer Fairwind. Moreover, there is also no question that petitioner Litonjua did
assist the Master of the vessel in locating and recruiting private respondent as Third
Engineer of the vessel as well as ten (10) other Filipino seamen as crew members. In so
doing, petitioner Litonjua certainly in effect represented that it was taking care of the
crewing and other requirements of a vessel chartered by its principal, Fairwind. 15
Last, but certainly not least, there is the circumstance that extreme hardship would result
for the private respondent if petitioner Litonjua, as Philippine agent of the charterer, is not
held liable to private respondent upon the contract of employment. Clearly, the private
respondent, and the other Filipino crew members of the vessel, would be defenseless
against a breach of their respective contracts. While wages of crew members constitute a
maritime lien upon the vessel, private respondent is in no position to enforce that lien. If
only because the vessel, being one of foreign registry and not ordinarily doing business in
the Philippines or making regular calls on Philippine ports cannot be effectively held to
answer for such claims in a Philippine forum. Upon the other hand, it seems quite clear that
petitioner Litonjua, should it be held liable to private respondent for the latter's claims,
would be better placed to secure reimbursement from its principal Fairwind. In turn,
Fairwind would be in an indefinitely better position (than private respondent) to seek and
obtain recourse from Mullion, the foreign shipowner, should Fairwind feel entitled to
reimbursement of the amounts paid to private respondent through petitioner Litonjua.

We conclude that private respondent was properly regarded as an employee of the charterer
Fairwind and that petitioner Litonjua may be held to answer to private respondent for the
latter's claims as the agent in the Philippines of Fairwind. We think this result, which public
respondent reached, far from constituting a grave abuse of discretion, is compelled by
equitable principles and by the demands of substantial justice. To hold otherwise would be
to leave private respondent (and others who may find themselves in his position) without
any effective recourse for the unjust dismissal and for the breach of his contract of
employment.

WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National
Seamen Board dated 31 May 1979 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

10.3 Effect of Charter on Character of Carrier

Planters Products v. CA, supra

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN
KABUSHIKI KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier

into a private one as to negate the civil law presumption of negligence in case of loss or
damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation

(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer
which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum"
owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska,
U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading
No. KP-1 signed by the master of the vessel and issued on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-
party starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda
Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th,
20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably
inspected by the charterer's representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate

from National Cargo Bureau inspector or substitute appointed by charterers
 for his account certifying the vessel's readiness to receive cargo spaces. The
vessel's hold to be properly swept, cleaned and dried at the vessel's expense
and the vessel to be presented clean for use in bulk to the satisfaction of the
inspector before daytime commences. (emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision
of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3)
layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly
sealed throughout the entire voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into
its steelbodied dump trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the charter-partly (which
provided for an F.I.O.S. clause).6 The hatches remained open throughout the duration of the
discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it
was transported to the consignee's warehouse located some fifty (50) meters from the
wharf. Midway to the warehouse, the trucks were made to pass through a weighing scale
where they were individually weighed for the purpose of ascertaining the net weight of the
cargo. The port area was windy, certain portions of the route to the warehouse were sandy
and the weather was variable, raining occasionally while the discharge was in progress. 8 The
petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening
at the front where the dump trucks entered and unloaded the fertilizer on the warehouse
floor. Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain
spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except
July 12th, 14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents
Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by
taking draft readings of the vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the
cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo
delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
commerce, having been polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the
cost of the alleged shortage in the goods shipped and the diminution in value of that portion
said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed
an action for damages with the Court of First Instance of Manila. The defendant carrier
argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party.
The court a quo however sustained the claim of the plaintiff against the defendant carrier
for the value of the goods lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is

presumed negligent in case of loss or damage of the goods it contracts to
transport, all that a shipper has to do in a suit to recover for loss or damage
is to show receipt by the carrier of the goods and to delivery by it of less than
what it received. After that, the burden of proving that the loss or damage
was due to any of the causes which exempt him from liability is shipted to the
carrier, common or private he may be. Even if the provisions of the charter-
party aforequoted are deemed valid, and the defendants considered private
carriers, it was still incumbent upon them to prove that the shortage or
contamination sustained by the cargo is attributable to the fault or negligence
on the part of the shipper or consignee in the loading, stowing, trimming and
discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the
defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier
from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968
case of Home Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court
ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a
private carrier and not a common carrier by reason of the time charterer-party. Accordingly,
the Civil Code provisions on common carriers which set forth a presumption of negligence
do not find application in the case at bar. Thus —

. . . In the absence of such presumption, it was incumbent upon the plaintiff-

appellee to adduce sufficient evidence to prove the negligence of the
defendant carrier as alleged in its complaint. It is an old and well settled rule
that if the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner the facts upon which he bases
his claim, the defendant is under no obligation to prove his exception or
defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing
Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the
basis of its cause of action, i.e. the alleged negligence of defendant carrier. It
appears that the plaintiff was under the impression that it did not have to
establish defendant's negligence. Be that as it may, contrary to the trial
court's finding, the record of the instant case discloses ample evidence
showing that defendant carrier was not negligent in performing its obligation .
. . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the
Court of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the
present controversy because the issue raised therein is the validity of a stipulation in the
charter-party delimiting the liability of the shipowner for loss or damage to goods cause by
want of due deligence on its part or that of its manager to make the vessel seaworthy in all
respects, and not whether the presumption of negligence provided under the Civil Code
applies only to common carriers and not to private carriers. 19 Petitioner further argues that
since the possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should made liable for the negligence of the
captain and crew. In fine, PPI faults the appellate court in not applying the presumption of
negligence against respondent carrier, and instead shifting the onus probandi on the shipper
to show want of due deligence on the part of the carrier, when he was not even at hand to
witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private
carrier by reason of a charter-party; in the negative, whether the shipowner in the instant
case was able to prove that he had exercised that degree of diligence required of him under
the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This
being so, we find it fitting to first define important terms which are relevant to our
discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part

thereof, is let by the owner to another person for a specified time or use; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a part of her to
a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in
part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat
charter, by the terms of which the whole vessel is let to the charterer with a transfer to him
of its entire command and possession and consequent control over its navigation, including
the master and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period of time, or
voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-
party provides for the hire of vessel only, either for a determinate period of time or for a
single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages
of the master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves
out as ready to engage in carrying goods or transporting passengers or both for
compensation as a public employment and not as a casual occupation. The distinction
between a "common or public carrier" and a "private or special carrier" lies in the character
of the business, such that if the undertaking is a single transaction, not a part of the general
business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature
of their business, should observe extraordinary diligence in the vigilance over the goods
they carry.25 In the case of private carriers, however, the exercise of ordinary diligence in
the carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration
of the goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such
presumption applies to private carriers, for whosoever alleges damage to or deterioration of
the goods carried has the onus of proving that the cause was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were
under the employ of the shipowner and therefore continued to be under its direct
supervision and control. Hardly then can we charge the charterer, a stranger to the crew
and to the ship, with the duty of caring for his cargo when the charterer did not have any
control of the means in doing so. This is evident in the present case considering that the
steering of the ship, the manning of the decks, the determination of the course of the
voyage and other technical incidents of maritime navigation were all consigned to the
officers and crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter is
limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when
the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party
is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the
charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party exempting the shipowners from
liability for loss due to the negligence of its agent, and not the effects of a special charter on
common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for safety in the transportation
of passengers and /or carriage of goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-
law 30 —

As a matter of principle, it is difficult to find a valid distinction between cases

in which a ship is used to convey the goods of one and of several persons.
Where the ship herself is let to a charterer, so that he takes over the charge
and control of her, the case is different; the shipowner is not then a carrier.
But where her services only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or many. The master and
the crew are in each case his servants, the freighter in each case is usually
without any representative on board the ship; the same opportunities for
fraud or collusion occur; and the same difficulty in discovering the truth as to
what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the
shipper or consignee should first prove the fact of shipment and its consequent loss or
damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its
liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April
1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo,
Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were
cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's
holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel
covers made it impossible for a person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside the
hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of
the consignee boarded, and in the presence of a representative of the shipowner, the
foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under
the watchful eyes of the shipmates who were overseeing the whole operation on rotation
basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the
carrier in the care of the cargo. This was confirmed by respondent appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligations. Particularly, the following testimonies
of plaintiff-appellee's own witnesses clearly show absence of negligence by
the defendant carrier; that the hull of the vessel at the time of the discharge
of the cargo was sealed and nobody could open the same except in the
presence of the owner of the cargo and the representatives of the vessel
(TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel
and it was overlaid with tarpaulins, three layers of tarpaulins and therefore
their contents were protected from the weather (TSN, 5 April 1978, p. 24);
and, that to open these hatches, the seals would have to be broken, all the
seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).

The period during which private respondent was to observe the degree of diligence required
of it as a public carrier began from the time the cargo was unconditionally placed in its
charge after the vessel's holds were duly inspected and passed scrutiny by the shipper, up
to and until the vessel reached its destination and its hull was reexamined by the consignee,
but prior to unloading. This is clear from the limitation clause agreed upon by the parties in
the Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S.,
meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by
the charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable
for damage to the cargo resulting from improper stowage only when the stowing is done by
stevedores employed by him, and therefore under his control and supervision, not when the
same is done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the
loss, destruction or deterioration of the goods if caused by the charterer of the goods or
defects in the packaging or in the containers. The Code of Commerce also provides that all
losses and deterioration which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account
and risk of the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from
the preceding causes if it is proved, as against him, that they arose through his negligence
or by reason of his having failed to take the precautions which usage has established among
careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting
mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature
inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further
added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to
spillage during such operation amounting to one percent (1%) against the bill of lading is
deemed "normal" or "tolerable." The primary cause of these spillages is the clamped shell
which does not seal very tightly. Also, the wind tends to blow away some of the materials
during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an

extremely high temperature in its place of storage, or when it comes in contact with water.
When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But
the salvaged portion which is in liquid form still remains potent and usable although no
longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various
pieces of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water
to seep into the vessel's holds during the voyage since the hull of the vessel was in good
condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum"
in all respects seaworthy to carry the cargo she was chartered for. If there was loss or
contamination of the cargo, it was more likely to have occurred while the same was being
transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who
supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as
contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the
cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded
her cargo. It rained from time to time at the harbor area while the cargo was being
discharged according to the supply officer of PPI, who also testified that it was windy at the
waterfront and along the shoreline where the dump trucks passed enroute to the
consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather
condition prevalent during its unloading, as was the case at bar. This is a risk the shipper or
the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved the
inherent character of the goods which makes it highly vulnerable to deterioration; as well as
the inadequacy of its packaging which further contributed to the loss. On the other hand, no
proof was adduced by the petitioner showing that the carrier was remise in the exercise of
due diligence in order to minimize the loss or damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals,
which reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then
Court of the First Instance, now Regional Trial Court, of Manila should be, as it is
hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

Davide, Jr. and Quiason, JJ., concur.

Cruz, J., took no part.

Griño-Aquino, J., is on leave.

Caltex v. Sulpicio Lines 315 SCRA 709 (1999)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 131166 September 30, 1999

CALTEX (PHILIPPINES), INC., petitioner,

vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S.
GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO,
ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR
SHIPPING CORPORATION, TERESITA G. CAÑEZAL, AND SOTERA E.
CAÑEZAL, respondents.

PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum
products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it
would collide with MV Doña Paz, killing almost all the passengers and crew members of both
ships, and thus resulting in one of the country's worst maritime disasters.

The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner
jointly liable with the operator of MT Vector for damages when the latter collided with
Sulpicio Lines, Inc.'s passenger ship MV Doña Paz.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex. 2 MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on
board gasoline and other oil products owned by Caltex by virtue of a charter contract
between
them. 3

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the port
of Tacloban headed for Manila with a complement of 59 crew members including the master
and his officers, and passengers totaling 1,493 as indicated in the Coast Guard
Clearance. 4 The MV Doña Paz is a passenger and cargo vessel owned and operated by
Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/
Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within
the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers
of MV Doña Paz died, while the two survivors from MT Vector claimed that they were
sleeping at the time of the incident.1âwphi1.nêt

The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the
burning waters by vessels that responded to distress calls. 5 Among those who perished
were public school teacher Sebastian Cañezal (47 years old) and his daughter Corazon
Cañezal (11 years old), both unmanifested passengers but proved to be on board the
vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation
found that the MT Vector, its registered operator Francisco Soriano, and its owner and
actual operator Vector Shipping Corporation, were at fault and responsible for its collision
with MV Doña Paz. 6

On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's wife
and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint
for "Damages Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc.
(hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano,
Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex
chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector was
improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result,
it rammed against MV Doña Paz in the open sea setting MT Vector's highly flammable cargo
ablaze.
On September 15, 1992, the trial court rendered decision dismissing, the third party
complaint against petitioner. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

1. For the death of Sebastian E. Cañezal and his 11-year old daughter
Corazon G. Cañezal, including loss of future earnings of said Sebastian, moral
and exemplary damages, attorney's fees, in the total amount of P
1,241,287.44 and finally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED for want of

substantiation and with costs against the 3rd party plaintiff.

IT IS SO ORDERED.

DONE IN MANILA, this 15th day of September 1992.

ARSEN
IO M.
GONO
NG

7
Judge

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the
Court of Appeal modified the trial court's ruling and included petitioner Caltex as one of the
those liable for damages. Thus:

WHEREFORE, in view of all the foregoing, the judgment rendered by the

Regional Trial Court is hereby MODIFIED as follows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of

Sebastian E. Cañezal and Corazon Cañezal:

1. Compensatory damages for the death of Sebastian E. Cañezal and Corazon

Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E.

Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS

(P300,000.00);

4. Attorney's fees in the concept of actual damages in the amount of FIFTY

THOUSAND PESOS (P50,000.00);
 5. Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held
equally liable under the third party complaint to reimburse/indemnify
defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorney's
fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the collision)
and the other half by Caltex (Phils.), Inc. (being the charterer that negligently
caused the shipping of combustible cargo aboard an unseaworthy vessel).

SO ORDERED.

JORGE
S.
IMPERI
AL

Associate
Justce

WE CONCUR:

RAMON U. MABUTAS, JR. PORTIA ALIÑO HERMACHUELOS

8
Associate Justice Associate Justice.

Hence, this petition.

We find the petition meritorious.

First: The charterer has no liability for damages under

Philippine Maritime laws.

The respective rights and duties of a shipper and the carrier depends not on whether the
carrier is public or private, but on whether the contract of carriage is a bill of lading or
equivalent shipping documents on the one hand, or a charter party or similar contract on
the other. 9

Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter. 10

A charter party is a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; a contract of affreightment is one
by which the owner of a ship or other vessel lets the whole or part of her to a merchant or
other person for the conveyance of goods, on a particular voyage, in consideration of the
payment of freight. 11

A contract of affreightment may be either time charter, wherein the leased vessel is leased
to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for
a single voyage. In both cases, the charter-party provides for the hire of the vessel only,
either for a determinate period of time or for a single or consecutive voyage, the ship owner
to supply the ship's store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship. 12

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with
his own people and becomes, in effect, the owner for the voyage or service stipulated,
subject to liability for damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of
the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the
owner. The charterer is free from liability to third persons in respect of the ship. 13

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3)
voyage charter. Does a charter party agreement turn the common carrier into a private
one? We need to answer this question in order to shed light on the responsibilities of the
parties.

In this case, the charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel
as a common carrier.

14
In Planters Products, Inc. vs. Court of Appeals, we said:

It is therefore imperative that a public carrier shall remain as such,

notwithstanding the charter of the whole portion of a vessel of one or more
persons, provided the charter is limited to the ship only, as in the case of a
time-charter or the voyage charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a ship-owner in a time or voyage
charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.

15
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:

Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment . . .

A common carrier is a person or corporation whose regular business is to carry passengers

or property for all persons who may choose to employ and to remunerate him. 16 MT Vector
fits the definition of a common carrier under Article 1732 of the Civil Code. In Guzman
vs. Court of Appeals, 17 we ruled:

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

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers for
passengers or goods or both, by land, water, or air for compensation, offering
their services to the public.
 The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such services on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making
such distinctions.

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such backhauling was done
on a periodic, occasional rather than regular or scheduled manner, and even
though respondent's principal occupation was not the carriage of goods for
others. There is no dispute that private respondent charged his customers a
fee for hauling their goods; that the fee frequently fell below commercial
freight rates is not relevant here.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the
voyage to exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common carrier to
maintain in seaworthy condition the vessel involved in its contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code. 18

The provisions owed their conception to the nature of the business of common carriers. This
business is impressed with a special public duty. The public must of necessity rely on the
care and skill of common carriers in the vigilance over the goods and safety of the
passengers, especially because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow more
hazardous. 19 For these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly
warrant its seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:

1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license
renewed;

2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;

3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.

Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these
deficiencies.

1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;

2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to
navigate only in bays and rivers when the subject collision occurred in the open sea;

3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;

4. The vessel did not have a Third Mate, a radio operator and lookout; and

20
5. The vessel had a defective main engine.

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the
Civil Code, which provide:

Art. 20. — Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.

Art. 2176. — Whoever by act or omission causes damage to another, there

being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.

And what is negligence?

The Civil Code provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Article 1171 and
2201 paragraph 2, shall apply.
 If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.

In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others.
It may be the failure to observe that degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do something which ordinarily regulate the
conduct of human affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common
carrier simply for being engaged in "public service." 22 The Civil Code demands diligence
which is required by the nature of the obligation and that which corresponds with the
circumstances of the persons, the time and the place. Hence, considering the nature of the
obligation between Caltex and MT Vector, liability as found by the Court of Appeals is
without basis.1âwphi1.nêt

The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness, 23 shippers of goods, when transacting with common
carriers, are not expected to inquire into the vessel's seaworthiness, genuineness of its
licenses and compliance with all maritime laws. To demand more from shippers and hold
them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as
the protection of the public in general is concerned. By the same token, we cannot expect
passengers to inquire every time they board a common carrier, whether the carrier
possesses the necessary papers or that all the carrier's employees are qualified. Such a
practice would be an absurdity in a business where time is always of the essence.
Considering the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal requisites in its operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other
shipper in shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year.

Atty. Poblador: Mr. Witness, I direct your attention to this portion here
containing the entries here under "VESSEL'S DOCUMENTS

1. Certificate of Inspection No. 1290-85, issued December 21,

1986, and Expires December 7, 1987", Mr. Witness, what steps
did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT
Vector?

Apolinario Ng: At the time when I extended the Contract, I did

nothing because the tanker has a valid C.I. which will expire on
December 7, 1987 but on the last week of November, I called
the attention of Mr. Abalos to ensure that the C.I. be renewed
and Mr. Abalos, in turn, assured me they will renew the same.
 Q: What happened after that?

A: On the first week of December, I again made a follow-up

from Mr. Abalos, and said they were going to send me a copy
as soon as possible, sir. 24

xxx xxx xxx

Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr.

Abalos on the first place, because of our long business relation,
we trust Mr. Abalos and the fact that the vessel was able to sail
indicates that the documents are in order. . . . 25

On cross examination —

Atty. Sarenas: This being the case, and this being an admission
by you, this Certificate of Inspection has expired on December
7. Did it occur to you not to let the vessel sail on that day
because of the very approaching date of expiration?

Apolinar Ng: No sir, because as I said before, the operation

Manager assured us that they were able to secure a renewal of
the Certificate of Inspection and that they will in time submit us
a
copy. 26

Finally, on Mr. Ng's redirect examination:

Atty. Poblador: Mr. Witness, were you aware of the pending

expiry of the Certificate of Inspection in the coastwise license
on December 7, 1987. What was your assurance for the record
that this document was renewed by the MT Vector?

Atty. Sarenas: . . .

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is a long time

business partner; secondly, those three years; they were
allowed to sail by the Coast Guard. That are some that make
me believe that they in fact were able to secure the necessary
renewal.

Q: If the Coast Guard clears a vessel to sail, what would that

mean?

Atty. Sarenas: Objection.

 Court: He already answered that in the cross examination to
the effect that if it was allowed, referring to MV Vector, to sail,
where it is loaded and that it was scheduled for a destination by
the Coast Guard, it means that it has Certificate of Inspection
extended as assured to this witness by Restituto Abalos. That in
no case MV Vector will be allowed to sail if the Certificate of
inspection is, indeed, not to be extended. That was his repeated
explanation to the cross-examination. So, there is no need to
clarify the same in the re-direct examination. 27

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about
two years before the tragic incident occurred in 1987. Past services rendered showed no
reason for Caltex to observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
things considered, we find no legal basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit
our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling
insofar as Vector is concerned.

WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the
Court of Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court
AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay
the heirs of Sebastian E. Cañezal and Corazon Cañezal damages as set forth therein. Third-
party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable
to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys' fees
and costs the latter is adjudged to pay plaintiffs-appellees in the case.1âwphi1.nêt

No costs in this instance.

SO ORDERED.

Davide, Jr., C.J., Kapunan and Ynares-Santiago, JJ., concur.

Puno, J., no part due to close relation with a party.

 CHAPTER 13 – COLLISIONS

Williams v. Yatco 27 PHILS 68 (1914)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-8325 March 10, 1914

C. B. WILLIAMS, plaintiff-appellant,
vs.
TEODORO R. YANGCO, defendant-appellant.

William A. Kincaid and Thomas L. Hartigan for plaintiff.

Haussermann, Cohn, & Fisher fro defendant.

CARSON, J.:

The steamer Subic, owned by the defendant, collided with the lunch Euclid owned by the
plaintiff, in the Bay of Manila at an early hour on the morning of January 9, 1911, and
the Euclid sank five minutes thereafter. This action was brought to recover the value of the
Euclid.

The court below held from the evidence submitted that the Euclid was worth at a fair
valuation P10,000; that both vessels were responsible for the collision; and that the loss
should be divided equally between the respective owners, P5,000 to be paid the plaintiff by
the defendant, and P5,000 to be borne by the plaintiff himself. From this judgment both
defendant and plaintiff appealed.

After a careful review of all the evidence of record we are all agreed with the trial judge in
his holding that the responsible officers on both vessels were negligent in the performance
of their duties at the time when the accident occurred, and that both vessels were to blame
for the collision. We do not deem it necessary to review the conflicting testimony of the
witnesses called by both parties, the trial also having inserted in his opinion a careful and
critical summary and analysis of the testimony submitted to him, which, to our minds, fully
and satisfactorily disposes of the evidence are set forth in the following language
(translated):
 In view of the negligence of which the patron Millonario (of defendant's vessel) has
been guilty as well as that imputable to the patron of the launch Euclid, both
contributed in a decided manner and beyond all doubt to the occurrence of the
accident and the consequent damages resulting therefrom in the loss of the launch
Euclid.

With a little diligence which either of the two patrons might have practiced under the
circumstances existing at the time of the collision, if both had not been so distracted
and so negligent in the fulfillment of their respective duties, the disaster could have
been easily avoided, since the sea was free of obstacles and the night one which
permitted the patron Millonario to distinguish the hull of the launch twenty minutes
before the latter entered upon his path . . .

There is proven, therefore, the negligence of which the patron of the Euclid has been
guilty.

If the negligence by which the patron of the launch Euclid has contributed to the
cause of the accident and to the resulting damages is patent, none the less so is the
negligence of the patron of the steamer Subic, Hilarion Millonario by name, as may
be seen from his own testimony which is here copied for the better appreciation
thereof.

It will be seen that the trial judge was of opinion that the vessels were jointly liable for the
loss resulting from the sinking of the launch. But actions for damages resulting from
maritime collisions are governed in this jurisdiction by the provisions of section 3, title 4,
Book III of the Code of Commerce, and among these provisions we find the following:

ART. 827. If both vessels may be blamed for the collision, each one shall be liable for
its own damages, and both shall be jointly responsible for the loss and damages
suffered by their cargoes.

In disposing of this case the trial judge apparently had in mind that portion of the section
which treats of the joint liability of both vessels for loss or damages suffered by their
cargoes. In the case at bar, however, the only loss incurred was that of the
launch Euclid itself, which went to the bottom soon after the collision. Manifestly, under the
plain terms of the statute, since the evidence of record clearly discloses, as found by the
trail judge, that "both vessels may be blamed for the collision," each one must be held may
be blamed for it own damages, and the owner of neither one can recover from the other in
an action for damages to his vessel.

Counsel for the plaintiff, basing his contention upon the theory of the facts as contended for
by him, insisted that under he doctrine of "the last clear chance," the defendant should be
held liable because, as he insists, even if the officers on board the plaintiff's launch were
negligence in failing to exhibit proper lights and in failing to take the proper steps to keep
out of the path of the defendant's vessel, nevertheless the officers on defendant's vessel, by
the exercise of due precautions might have avoided the collision by a very simple
manuever. But it is sufficient answer to this contention to point out that the rule of liability
in this jurisdiction for maritime accidents such as that now under consideration is clearly,
definitely, and unequivocally laid down in the above-cited article 827 of the Code of
Commerce; and under that rule, the evidence disclosing that both vessels were
blameworthy, the owners of either can successfully maintain an action against the other for
the loss or injury of his vessel.
In cases of a disaster arising from the mutual negligence of two parties, the party who has a
last clear opportunity of avoiding the accident, notwithstanding the negligence of his
opponent, is considered wholly responsible for it under the common-law rule of liability as
applied in the courts of common law of the United States. But this rule (which is not
recognized in the courts of admiralty in the United States, wherein the loss is divided in
cases of mutual and concurring negligence, as also where the error of one vessel has
exposed her to danger of collision which was consummated by he further rule, that where
the previous application by the further rule, that where the previous act of negligence of
one vessel has created a position of danger, the other vessel is not necessarily liable for the
mere failure to recognize the perilous situation; and it is only when in fact it does discover it
in time to avoid the casualty by the use of ordinary care, that it becomes liable for the
failure to make use of this last clear opportunity to avoid the accident. (See cases cited in
Notes, 7 Cyc., pp. 311, 312, 313.) So, under the English rule which conforms very nearly to
the common-law rule as applied in the American courts, it has been held that the fault of
the first vessel in failing to exhibit proper lights or to take the proper side of the channel will
relieve from liability one who negligently runs into such vessels before he sees it; although
it will not be a defense to one who, having timely warning of the danger of collision, fails to
use proper care to avoid it. (Pollock on Torts, 374.) In the case at bar, the most that can be
said in support of plaintiff's contention is that there was negligence on the part of the
officers on defendant's vessel in failing to recognize the perilous situation created by the
negligence of those in charge of plaintiff's launch, and that had they recognized it in time,
they might have avoided the accident. But since it does not appear from the evidence that
they did, in fact, discover the perilous situation of the launch in time to avoid the accident
by the exercise of ordinary care, it is very clear that under the above set out limitation to
the rule, the plaintiff cannot escape the legal consequences of the contributory negligence of
his launch, even were we to hold that the doctrine is applicable in the jurisdiction, upon
which point we expressly reserve our decision at this time.

The judgment of the court below in favor of the plaintiff and against the defendant should
be reserved, and the plaintiff's complaint should be dismissed without day, without costs to
either party in this instance. So ordered.

Arellano, C.J., Moreland, Trent and Araullo, JJ., concur.

Smith and Bell Co. v. CA 197 SCRA 201 (1991)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-56294 May 20, 1991

SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE
INSURANCE CO., INC., petitioners,
vs.
THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents.

Bito, Misa & Lozada for petitioners.

Rodriguez, Relova & Associates for private respondent.
FELICIANO, J.:

In the early morning of 3 May 1970—at exactly 0350 hours, on the approaches to the port
of Manila near Caballo Island, a collision took place between the M/V "Don Carlos," an inter-
island vessel owned and operated by private respondent Carlos A. Go Thong and Company
("Go Thong"), and the M/S "Yotai Maru," a merchant vessel of Japanese registry. The "Don
Carlos" was then sailing south bound leaving the port of Manila for Cebu, while the "Yotai
Maru" was approaching the port of Manila, coming in from Kobe, Japan. The bow of the
"Don Carlos" rammed the portside (left side) of the "Yotai Maru" inflicting a three (3) cm.
gaping hole on her portside near Hatch No. 3, through which seawater rushed in and
flooded that hatch and her bottom tanks, damaging all the cargo stowed therein.

The consignees of the damaged cargo got paid by their insurance companies. The insurance
companies in turn, having been subrogated to the interests of the consignees of the
damaged cargo, commenced actions against private respondent Go Thong for damages
sustained by the various shipments in the then Court of First Instance of Manila.

Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case
No. 82567, was commenced on 13 March 1971 by petitioner Smith Bell and Company
(Philippines), Inc. and Sumitomo Marine and Fire Insurance Company Ltd., against private
respondent Go Thong, in Branch 3, which was presided over by Judge Bernardo P.
Fernandez. The second case, Civil Case No. 82556, was filed on 15 March 1971 by
petitioners Smith Bell and Company (Philippines), Inc. and Tokyo Marine and Fire Insurance
Company, Inc. against private respondent Go Thong in Branch 4, which was presided over
by then Judge, later Associate Justice of this Court, Serafin R. Cuevas.

Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the
same issues and evidence relating to the collision between the "Don Carlos" and the "Yotai
Maru" the parties in both cases having agreed that the evidence on the collision presented
in one case would be simply adopted in the other. In both cases, the Manila Court of First
Instance held that the officers and crew of the "Don Carlos" had been negligent that such
negligence was the proximate cause of the collision and accordingly held respondent Go
Thong liable for damages to the plaintiff insurance companies. Judge Fernandez awarded
the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney's fees;
while Judge Cuevas awarded the plaintiff insurance companies on two (2) claims US $
68,640.00 or its equivalent in Philippine currency plus attorney's fees of P30,000.00, and
P19,163.02 plus P5,000.00 as attorney's fees, respectively.

The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go
Thong to the Court of Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-
R. The decision of Judge Cuevas in Civil Case No. 82556 was also appealed by Go Thong to
the Court of Appeals, the appeal being docketed as C.A.-G.R. No. 61206-R. Substantially
identical assignments of errors were made by Go Thong in the two (2) appealed cases
before the Court of Appeals.

In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision
on 8 August 1978 affirming the Decision of Judge Fernandez. Private respondent Go Thong
moved for reconsideration, without success. Go Thong then went to the Supreme Court on
Petition for Review, the Petition being docketed as G.R. No. L-48839 ("Carlos A. Go Thong
and Company v. Smith Bell and Company [Philippines], Inc., et al."). In its Resolution dated
6 December 1978, this Court, having considered "the allegations, issues and arguments
adduced in the Petition for Review on Certiorari, of the Decision of the Court of Appeals as
well as respondent's comment", denied the Petition for lack of merit. Go Thong filed a
Motion for Reconsideration; the Motion was denied by this Court on 24 January 1979.

In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November
1980 (or almost two [2] years after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-
R, had been affirmed by the Supreme Court on Petition for Review) through Sison, P.V., J.,
reversed the Cuevas Decision and held the officers of the "Yotai Maru" at fault in the
collision with the "Don Carlos," and dismissed the insurance companies' complaint. Herein
petitioners asked for reconsideration, to no avail.

The insurance companies are now before us on Petition for Review on Certiorari, assailing
the Decision of Sison, P.V., J., in C.A.-G.R. No. 61206-R. Petitioners' principal contentions
are:

a. that the Sison Decision had disregarded the rule of res judicata;

b. that Sison P.V., J., was in serious and reversible error in accepting Go Thong's
defense that the question of fault on the part of the "Yotai Maru" had been settled by
the compromise agreement between the owner of the "Yotai Maru" and Go Thong as
owner of the "Don Carlos;" and

c. that Sison, P. V. J., was in serious and reversible error in holding that the "Yotai
Maru" had been negligent and at fault in the collision with the "Don Carlos."

The first contention of petitioners is that Sison, P. V. J. in rendering his questioned Decision,
failed to apply the rule of res judicata. Petitioners maintain that the Resolution of the
Supreme Court dated 6 December 1978 in G.R. No. 48839 which dismissed Go Thong's
Petition for Review of the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had
effectively settled the question of liability on the part of the "Don Carlos." Under the
doctrine of res judicata, petitioners contend, Sison, P. V. J. should have followed the Reyes,
L.B., J. Decision since the latter had been affirmed by the Supreme Court and had become
final and executory long before the Sison Decision was rendered.

Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in
rendering its minute Resolution in G.R. No. L- 48839, had merely dismissed Go Thong's
Petition for Review of the Reyes, L.B., J. Decision for lack of merit but had not affirmed in
toto that Decision. Private respondent, in other words, purports to distinguish between
denial of a Petition for Review for lack of merit and affirmance of the Court of Appeals'
Decision. Thus, Go Thong concludes, this Court did not hold that the "Don Carlos" had been
negligent in the collision.

Private respondent's argument must be rejected. That this Court denied Go Thong's Petition
for Review in a minute Resolution did not in any way diminish the legal significance of the
denial so decreed by this Court. The Supreme Court is not compelled to adopt a definite and
stringent rule on how its judgment shall be framed.1 It has long been settled that this Court
has discretion to decide whether a "minute resolution" should be used in lieu of a full-blown
decision in any particular case and that a minute Resolution of dismissal of a Petition for
Review on certiorari constitutes an adjudication on the merits of the controversy or subject
matter of the Petition.2 It has been stressed by the Court that the grant of due course to a
Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is
no need to fully explain the Court's denial. For one thing, the facts and law are already
mentioned in the Court of Appeals' opinion."3 A minute Resolution denying a Petition for
Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees
with or adopts the findings and conclusions of the Court of Appeals, in other words, that the
Decision sought to be reviewed and set aside is correct.4

Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in
the instant case whether in respect of the Decision of Reyes, L.B., J. or in respect of the
Resolution of the Supreme Court in G.R. No. L-48839, for the reason that there was no
identity of parties and no identity of cause of action between C.A.-G.R. No. 61206-R and
C.A.-G.R. No. 61320-R.

The parties in C.A.-G.R. No. 61320-R Where the decision of Judge Fernandez was affirmed,
involved Smith Bell and Company (Philippines), Inc., and Sumitomo Marine and Fire
Insurance Co., Ltd. while the petitioners in the instant case (plaintiffs below) are Smith Bell
and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other words,
there was a common petitioner in the two (2) cases, although the co-petitioner in one was
an insurance company different from the insurance company co-petitioner in the other case.
It should be noted, moreover, that the co-petitioner in both cases was an insurance
company arid that both petitioners in the two (2) cases represented the same interest, i.e.,
the cargo owner's interest as against the hull interest or the interest of the shipowner. More
importantly, both cases had been brought against the same defendant, private respondent
Go Thong, the owner of the vessel "Don Carlos." In sum, C.A.-G.R. No. 61320R and C.A-
G.R. No. 61206-R exhibited substantial identity of parties.

It is conceded by petitioners that the subject matters of the two (2) suits were not identical,
in the sense that the cargo which had been damaged in the one case and for which
indemnity was sought, was not the very same cargo which had been damaged in the other
case indemnity for which was also sought. The cause of action was, however, the same in
the two (2) cases, i.e., the same right of the cargo owners to the safety and integrity of
their cargo had been violated by the same casualty, the ramming of the "Yotai Maru" by the
"Don Carlos." The judgments in both cases were final judgments on the merits rendered by
the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of
which has not been questioned.

Under the circumstances, we believe that the absence of identity of subject matter, there
being substantial identity of parties and identity of cause of action, will not preclude the
application of res judicata.5

In Tingson v. Court of Appeals,6 the Court distinguished one from the other the two (2)
concepts embraced in the principle of res judicata, i.e., "bar by former judgment" and
"conclusiveness of judgment:"

There is no question that where as between the first case Where the judgment is
rendered and the second case where such judgment is invoked, there is identity of
parties, subject-matter and cause of action, the judgment on the merits in the first
case constitutes an absolute bar to the subsequent action not only as to every
matter which was offered and received to sustain or defeat the claim or demand, but
 also as to any other admissible matter which might have been offered for that
purpose and to all matters that could have been adjudged in that case. This is
designated as "bar by former judgment."

But where the second action between the same parties is upon a different claim or
demand, the judgment in the prior action operates as an estoppel only as to those
matters in issue or points controverted, upon the determination of which the finding
or judgment was rendered. In fine, the previous judgment is conclusive in the
second case, only as those matters actually and directly controverted and
determined and not as to matters merely involved therein. This is the rule
on 'conclusiveness of judgment' embodied in subdivision (c) of Section 49 of Rule 39
of the Revised Rules of' Court.7 (Citations omitted) (Emphases supplied)

In Lopez v. Reyes,8 the Court elaborated further the distinction between bar by former
judgment which bars the prosecution of a second action upon the same claim, demand or
cause of action, and conclusiveness of judgment which bars the relitigation of particular
facts or issues in another litigation between the same parties on a different claim or cause
of action:

The doctrine of res judicata has two aspects. The first is the effect of a judgment as
a bar to the prosecution of a second action upon the same claim, demand or cause of
action. The second aspect is that it precludes the relitigation of a particular fact or
issues in another action between the same parties on a different claim or cause of
action.

The general rule precluding the relitigation of material facts or questions which were
in issue and adjudicated in former action are commonly applied to all matters
essentially connected with the subject matter of the litigation. Thus, it extends
to questions "necessarily involved in an issue, and necessarily adjudicated, or
necessarily implied in the final judgment, although no specific finding may have been
made in reference thereto, and although such matters were directly referred to in the
pleadings and were not actually or formally presented. Under this rule, if the record
of the former trial shows that the judgment could not have been rendered without
deciding the particular matter it will be considered as having settled that matter as
to all future actions between the parties, and if a judgment necessarily presupposes
certain premises, they are as conclusive as the judgment itself. Reasons for the rule
are that a judgment is an adjudication on all the matters which are essential to
support it, and that every proposition assumed or decided by the court leading up to
the final conclusion and upon which such conclusion is based is as effectually passed
upon as the ultimate question which is finally solved.9 (Citations omitted) (Emphases
supplied)

In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been
negligent, or so negligent as to have proximately caused the collision between them, was an
issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R.
No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the "Don
Carlos" to have been negligent rather than the "Yotai Maru" and, as already noted, that
Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December
1978. The Reyes Decision thus became final and executory approximately two (2) years
before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying
the rule of conclusiveness of judgment, the question of which vessel had been negligent in
the collision between the two (2) vessels, had long been settled by this Court and could no
longer be relitigated in C.A.-G.R. No. 61206- R. Private respondent Go Thong was certainly
bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error When it disregarded the Decision of this Court
affirming the Reyes Decision.10

Private respondent Go Thong also argues that a compromise agreement entered into
between Sanyo Shipping Company as owner of the "Yotai Maru" and Go Thong as owner of
the "Don Carlos," under which the former paid P268,000.00 to the latter, effectively settled
that the "Yotai Maru" had been at fault. This argument is wanting in both factual basis and
legal substance. True it is that by virtue of the compromise agreement, the owner of the
"Yotai Maru" paid a sum of money to the owner of the "Don Carlos." Nowhere, however, in
the compromise agreement did the owner of the "Yotai Maru " admit or concede that the
"Yotai Maru" had been at fault in the collision. The familiar rule is that "an offer of
compromise is not an admission that anything is due, and is not admissible in evidence
against the person making the offer."11 A compromise is an agreement between two (2) or
more persons who, in order to forestall or put an end to a law suit, adjust their differences
by mutual consent, an adjustment which everyone of them prefers to the hope of gaining
more, balanced by the danger of losing more.12 An offer to compromise does not, in legal
contemplation, involve an admission on the part of a defendant that he is legally liable, nor
on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the
compromise is arrived at precisely with a view to avoiding further controversy and saving
the expenses of litigation.13 It is of the very nature of an offer of compromise that it is made
tentatively, hypothetically and in contemplation of mutual concessions.14 The above rule on
compromises is anchored on public policy of the most insistent and basic kind; that the
incidence of litigation should be reduced and its duration shortened to the maximum extent
feasible.

The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of
litigations but also administrative proceedings before the Board of Marine Inquiry ("BMI").
The collision was the subject matter of an investigation by the BMI in BMI Case No. 228. On
12 July 1971, the BMI through Commodore Leovegildo L. Gantioki, found both vessels to
have been negligent in the collision.

Both parties moved for reconsideration of the BMI's decision. The Motions for
Reconsideration were resolved by the Philippine Coast Guard ("PCG") nine (9) years later, in
an order dated 19 May 1980 issued by PCG Commandant, Commodore Simeon M.
Alejandro. The dispositive portion of the PCG decision read as follows:

Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and
amended absolving the officers of "YOTAI MARU" from responsibility for the collision.
This Headquarters finds no reason to modify the penalties imposed upon the officers
of Don Carlos. (Annex "C", Reply, September 5, 1981).15

Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order
dated September 1980.

Go Thong sought to appeal to the then Ministry of National Defense from the orders of the
PCG by filing with the PCG on 6 January 1981 a motion for a 30-day extension from 7
January 1981 within which to submit its record on appeal. On 4 February 1981, Go Thong
filed a second urgent motion for another extension of thirty (30) days from 7 February
1981. On 12 March 1981, Go Thong filed a motion for a final extension of time and filed its
record on appeal on 17 March 1981. The PCG noted that Go Thong's record on appeal was
filed late, that is, seven (7) days after the last extension granted by the PCG had expired.
Nevertheless, on 1 July 1981 (after the Petition for Review on Certiorari in the case at bar
had been filed with this Court), the Ministry of Defense rendered a decision reversing and
setting aside the 19 May 1980 decision of the PCG

The owners of the "Yotai Maru" then filed with the Office of the President a Motion for
Reconsideration of the Defense Ministry's decision. The Office of the President rendered a
decision dated 17 April 1986 denying the Motion for Reconsideration. The decision of the
Office of the President correctly recognized that Go Thong had failed to appeal in a
seasonable manner:

MV "DON CARLOS" filed her Notice of Appeal on January 5, 1981. However, the
records also show beyond peradventure of doubt that the PCG Commandant's
decision of May 19, 1980, had already become final and executory When MV "DON
CARLOS" filed her Record on Appeal on March 17, 1981, and When the motion for
third extension was filed after the expiry date.

Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant
Marine Rules and Regulations, decisions of the PCG Commandant shall be final
unless, within thirty (30) days after receipt of a copy thereof, an appeal to the
Minister of National Defense is filed and perfected by the filing of a notice of appeal
and a record on appeal. Such administrative regulation has the force and effect of
law, and the failure of MV "DON CARLOS" to comply therewith rendered the PCG
Commandant's decision on May 19, 1980, as final and executory, (Antique Sawmills,
Inc. vs. Zayco, 17 SCRA 316; Deslata vs. Executive Secretary, 19 SCRA 487;
Macailing vs. Andrada, 31 SCRA 126.) (Annex "A", Go Thong's Manifestation and
Motion for Early Resolution, November 24, 1986).16 (Emphases supplied)

Nonetheless, acting under the misapprehension that certain "supervening" events had taken
place, the Office of the President held that the Minister of National Defense could validly
modify or alter the PCG Commandant's decision:

However, the records likewise show that, on November 26, 1980, the Court of
Appeals rendered a decision in CA-G.R. No. 61206-R (Smith Bell & Co., Inc., et al.
vs. Carlos A. Go Thong & Co.) holding that the proximate cause of the collision
between MV "DON CARLOS" AND MS "YOTAI MARU" was the negligence, failure and
error of judgment of the officers of MS "YOTAI MARU". Earlier, or on February 27,
1976, the Court of First Instance of Cebu rendered a decision in Civil Case No. R-
11973 (Carlos A. Go Thong vs. San-yo Marine Co.) holding that MS "YOTAI MARU"
was solely responsible for the collision, which decision was upheld by the Court of
Appeals.

The foregoing judicial pronouncements rendered after the finality of the PCG
Commandant's decision of May 19, 1980, were supervening causes or reasons that
rendered the PCG Commandant's decision as no longer enforceable and entitled
MV "DON CARLOS" to request the Minister of National Defense to modify or alter the
questioned decision to harmonize the same with justice and tile facts. (De la Costa
vs. Cleofas, 67 Phil. 686; City of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs.
Canizares, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA 244). Under such precise
circumstances, the Minister of National Defense may validly modify or alter the PCG
commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550, Revised
Administrative Code; Province of Pangasinan vs. Secretary of Public Works and
 Communications, 30 SCRA 134; Estrelia vs. Orendain, 37 SCRA 640). 17 (Emphasis
supplied)

The multiple misapprehensions under which the Office of the President labored, were the
following:

It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision
that is the subject of review in the Petition at bar and therefore not final. At the same time,
the Office of the President either ignored or was unaware of the Reyes, L.B., J., Decision in
C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for the collision, and of the fact
that that Decision had been affirmed by the Supreme Court and had long ago become final
and executory. A third misapprehension of the Office of the President related to a decision in
a Cebu Court of First Instance litigation which had been settled by the compromise
agreement between the Sanyo Marine Company and Go Thong. The Office of the President
mistakenly believed that the Cebu Court of First Instance had rendered a decision holding
the "Yotai Maru" solely responsible for the collision, When in truth the Cebu court had
rendered a judgment of dismissal on the basis of the compromise agreement. The Cebu
decision was not, of course, appealed to the Court of Appeals.

It thus appears that the decision of the Office of the President upholding the belated
reversal by the Ministry of National Defense of the PCG'S decision holding the "Don
Carlos" solely liable for the collision, is so deeply flawed as not to warrant any further
examination. Upon the other hand, the basic decision of the PCG holding the "Don Carlos"
solely negligent in the collision remains in effect.

II

In their Petition for Review, petitioners assail the finding and conclusion of the Sison
Decision, that the "Yotai Maru" was negligent and at fault in the collision, rather than the
"Don Carlos." In view of the conclusions reached in Part I above, it may not be strictly
necessary to deal with the issue of the correctness of the Sison Decision in this respect. The
Court considers, nonetheless, that in view of the conflicting conclusions reached by Reyes,
L.B., J., on the one hand, and Sison, P.V., J., on the other, and since in affirming the Reyes
Decision, the Court did not engage in a detailed written examination of the question of
which vessel had been negligent, and in view of the importance of the issues of admiralty
law involved, the Court should undertake a careful review of the record of the case at bar
and discuss those issues in extenso.

The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the
evidence concerning the collision. It is worth underscoring that the findings of fact of Judge
Fernandez in Civil Case No. 82567 (which was affirmed by the Court of Appeals in the Reyes
Decision and by this Court in G.R. No. L-48839) are just about identical with the findings of
Judge Cuevas. Examining the facts as found by Judge Cuevas, the Court believes that there
are three (3) principal factors which are constitutive of negligence on the part of the "Don
Carlos," which negligence was the proximate cause of the collision.

The first of these factors was the failure of the "Don Carlos" to comply with the
requirements of Rule 18 (a) of the International Rules of the Road ("Rules")," which
provides as follows

(a) When two power-driven vessels are meeting end on, or nearly end on, so as to
involve risk of collision, each shall alter her course to starboard, so that each may
 pass on the port side of the other. This Rule only applies to cases where vessels are
meeting end on or nearly end on, in such a manner as to involve risk of collision, and
does not apply to two vessels which must, if both keep on their respective course,
pass clear of each other. The only cases to which it does apply are when each of two
vessels is end on, or nearly end on, to the other; in other words, to cases in which,
by day, each vessel sees the masts of the other in a line or nearly in a line with her
own; and by night to cases in which each vessel is in such a position as to see both
the sidelights of the other. It does not apply, by day, to cases in which a vessel sees
another ahead crossing her own course; or, by night, to cases where the red light of
one vessel is opposed to the red light of the other or where the green light of one
vessel is opposed to the green light of the other or where a red light without a green
light or a green light without a red light is seen ahead, or Where both green and red
lights are seen anywhere but ahead. (Emphasis supplied)

The evidence on this factor was summarized by Judge Cuevas in the following manner:

Plaintiff's and defendant's evidence seem to agree that each vessel made a visual
sighting of each other ten minute before the collision which occurred at 0350.
German's version of the incident that followed, was that "Don Carlos" was
proceeding directly to [a] meeting [on an] "end-on or nearly end-on situation" (Exh.
S, page 8). He also testified that "Yotai Maru's' headlights were "nearly in line at
0340 A.M." (t.s.n., June 6, 1974) clearly indicating that both vessels were sailing on
exactly opposite paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the
International Rules of the Road provides as follows:

xxx xxx xxx

And yet German altered "Don Carlos" course by five degrees to the left at 0343 hours
instead of to the right (t.s.n. June 6, 1974, pages 4445) which maneuver was the error that
caused the collision in question. Why German did so is likewise explained by the evidence
on record. "Don Carlos" was overtaking another vessel, the "Don Francisco", and was then
at the starboard (right side) of the aforesaid vessel at 3:40 a.m. It was in the process of
overtaking "Don Francisco" that "Don Carlos' was finally brought into a situation where he
was meeting end-on or nearly end-on "Yotai Maru, thus involving risk of collision. Hence,
German in his testimony before the Board of Marine inquiry stated:

Atty. Chung:

You said in answer to the cross-examination that you took a change of course to the
left. Why did you not take a course to the right instead?

German:

I did not take any course to the right because the other vessel was in my mind at the
starboard side following me. Besides, I don't want to get risk of the Caballo Island
(Exh. 2, pages 209 and 210).19 (Emphasis supplied)

For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the
"Yotai Maru" found herself on an "end-on" or a "nearly end-on" situation vis-a-vis the "Don
Carlos, " and as the distance between them was rapidly shrinking, the "Yotai Maru" turned
starboard (to its right) and at the same time gave the required signal consisting of one
short horn blast. The "Don Carlos" turned to portside (to its left), instead of turning to
starboard as demanded by Rule 18 (a). The "Don Carlos" also violated Rule 28 (c) for it
failed to give the required signal of two (2) short horn blasts meaning "I am altering my
course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the
master of the "Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and
stopped her engines; at about 3:46 a.m. the "Yotai Maru" went "full astern engine."20 The
collision occurred at exactly 3:50 a.m.

The second circumstance constitutive of negligence on the part of the "Don Carlos" was its
failure to have on board that night a "proper look-out" as required by Rule I (B) Under Rule
29 of the same set of Rules, all consequences arising from the failure of the "Don Carlos" to
keep a "proper look-out" must be borne by the "Don Carlos." Judge Cuevas' summary of the
evidence said:

The evidence on record likewise discloses very convincingly that "Don Carlos" did not
have "look-out" whose sole and only duty is only to act as Such. . . .21

A "proper look-out" is one who has been trained as such and who is given no other duty
save to act as a look-out and who is stationed where he can see and hear best and maintain
good communication with the officer in charge of the vessel, and who must, of course, be
vigilant. Judge Cuevas wrote:

The "look-out" should have no other duty to perform. (Chamberlain v. Ward, 21,
N.O.W. 62, U.S. 548, 571). He has only one duty, that which its name implies—to
keep "look-out". So a deckhand who has other duties, is not a proper "look-
out" (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is not a
sufficient "look-out" (Larcen B. Myrtle, 44 Fed. 779)—Griffin on Collision, pages 277-
278). Neither the captain nor the [helmsman] in the pilothouse can be considered to
be a "look-out" within the meaning of the maritime law. Nor should he be stationed
in the bridge. He should be as near as practicable to the surface of the water so as to
be able to see low-lying lights (Griffin on Collision, page 273).

On the strength of the foregoing authorities, which do not appear to be disputed

even by the defendant, it is hardly probable that neither German or Leo Enriquez
may qualify as "look-out" in the real sense of the word.22 (Emphasis supplied)

In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of
collision with the "Yotai Maru" coming in from the opposite direction, was at least in part
due to the failure of the "Don Carlos" to maintain a proper look-out.

The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact
that Second Mate Benito German was, immediately before and during the collision, in
command of the "Don Carlos." Judge Cuevas summed up the evidence on this point in the
following manner:

The evidence on record clearly discloses that "Don Carlos" was, at the time of the
collision and immediately prior thereto, under the command of Benito German, a
second mate although its captain, Captain Rivera, was very much in the said vessel
at the time. The defendant's evidence appears bereft of any explanation as to why
second mate German was at the helm of the aforesaid vessel when Captain Rivera
did not appear to be under any disability at the time. In this connection, Article [633]
of the Code of Commerce provides:
 Art. [633] — The second mate shall take command of the vessel in case of
the inability or disqualification of the captain and sailing mate, assuming, in
such case, their powers and liability.

The fact that second mate German was allowed to be in command of "Don Carlos"
and not the chief or the sailing mate in the absence of Captain Rivera, gives rise to
no other conclusion except that said vessel [had] no chief mate. Otherwise, the
defense evidence should have at least explained why it was German, only a second
mate, who was at the helm of the vessel "Don Carlos" at the time of the fatal
collision.

But that is not all. Worst still, aside from German's being only a second mate, is his
apparent lack of sufficient knowledge of the basic and generally established rules of
navigation. For instance, he appeared unaware of the necessity of employing
a "look- out" (t.s.n. June 6, 1974, page 27) which is manifest even in his testimony
before the Board of Marine Inquiry on the same subject (Exh. 2, page 209). There is,
therefore, every reasonable ground to believe that his inability to grasp actual
situation and the implication brought about by inadequacy of experience and
technical know-how was mainly responsible and decidedly accounted for the collision
of the vessels involved in this case.. . .23 (Emphasis supplied)

Second Mate German simply did not have the level of experience, judgment and skill
essential for recognizing and coping with the risk of collision as it presented itself that early
morning when the "Don Carlos," running at maximum speed and having just overtaken the
"Don Francisco" then approximately one mile behind to the starboard side of the "Don
Carlos," found itself head-on or nearly head on vis-a-vis the "Yotai Maru. " It is essential to
point out that this situation was created by the "Don Carlos" itself.

The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which
contradicted the findings of fact made by Judge Cuevas. What Sison, P.V., J. actually did
was to disregard all the facts found by Judge Cuevas, and discussed above and,
astonishingly, found a duty on the "Yotai Maru" alone to avoid collision with and to give way
to the "Don Carlos ". Sison, P.V., J., wrote:

At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh]
and Chonabayashi had ample time to adopt effective precautionary measures to
steer away from the Philippine vessel, particularly because both [Katoh] and
Chonabayashi also deposed that at the time they had first eyesight of the "Don
Carlos" there was still "no danger at all" of a collision.1âwphi1 Having sighted
the "Don Carlos" at a comparatively safe distance—"no danger at all" of a collision—
the Japanese ship should have observed with the highest diligence the course and
movements of the Philippine interisland vessel as to enable the former to adopt such
precautions as will necessarily present a collision, or give way, and in case of a
collision, the former is prima facie at fault. In G. Urrutia & Co. vs. Baco River
Plantation Co., 26 Phil. 632, the Supreme Court held:

Nautical rules require that where a steamship and sailing vessel are
approaching each other from opposite directions, or on intersecting lines, the
steamship, from the moment the sailing vessel is seen, shall watch with the
highest diligence her course and movements so as to enable it to adopt
such timely means of precaution as will necessarily prevent the two boats
from coming in contact.' (Underscoring in the original)
 At 3:44 p.m., or 4 minutes after first sighting the "Don Carlos", or 6 minutes before
contact time, Chonabayashi revealed that the "Yotai Maru" gave a one-blast whistle
to inform the Philippine vessel that the Japanese ship was turning to starboard or to
the right and that there was no blast or a proper signal from the "Don Carlos" (pp.
67-68. Deposition of Chonabayashi, List of Exhibits). The absence of a reply signal
from the "Don Carlos" placed the "Yotai Maru" in a situation of doubt as to the
course the "Don Carlos" would take. Such being the case, it was the duty of the
Japanese officers "to stop, reverse or come to a standstill until the course of
the "Don Carlos" has been determined and the risk of a collision removed (The
Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum, etc. vs. Cebu Stevedoring,
etc., 5 C.A.R. 2d 853, 861-862).. . . .24 (Emphasis supplied)

The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an
exclusive obligation upon one of the vessels, the "Yotai Maru, " to avoid the collision, the
Court of Appeals not only chose to overlook all the above facts constitutive of negligence on
the part of the "Don Carlos;" it also in effect used the very negligence on the part of the
"Don Carlos" to absolve it from responsibility and to shift that responsibility exclusively onto
the "Yotai Maru" the vessel which had observed carefully the mandate of Rule 18 (a).
Moreover, G. Urrutia and Company v. Baco River Plantation Company25 invoked by the Court
of Appeals seems simply inappropriate and inapplicable. For the collision in the Urrutia case
was between a sailing vessel, on the one hand, and a power-driven vessel, on the other;
the Rules, of course, imposed a special duty on the power-driven vessel to watch the
movements of a sailing vessel, the latter being necessarily much slower and much less
maneuverable than the power-driven one. In the case at bar, both the "Don Carlos" and the
"Yotai Maru" were power-driven and both were equipped with radar; the maximum speed of
the "Yotai Maru" was thirteen (13) knots while that of the "Don Carlos" was eleven (11)
knots. Moreover, as already noted, the "Yotai Maru" precisely took last minute measures to
avert collision as it saw the "Don Carlos" turning to portside: the "Yotai Maru" turned "hard
starboard" and stopped its engines and then put its engines "full astern."

Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with
Judge Fernandez and Nocon, J.,26 that the "Don Carlos" had been negligent and that its
negligence was the sole proximate cause of the collision and of the resulting damages.

FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in
C.A.-G.R. No. 61206-R is hereby REVERSED and SET ASIDE. The decision of the trial court
dated 22 September 1975 is hereby REINSTATED and AFFIRMED in its entirety. Costs
against private respondent.

SO ORDERED.

Fernan C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Gancayco, Padilla,
Bidin, Sarmiento, Griño-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

National Developmental Corporation v. CA, supra

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents-appellees.

No. L-49469 August 19, 1988

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents- appellees.

Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L-
46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs.
Maritime Company of the Philippines and National Development Company defendant-
appellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court of
First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National

Development Company and Maritime Company of the Philippines, to pay
jointly and severally, to the plaintiff Development Insurance and Surety
Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE
HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with
the legal interest thereon from the filing of plaintiffs complaint on April 22,
1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of
damages as and for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the

defendant National Development Company, judgment is hereby rendered,
ordering the National Development Company to pay the cross-claimant
Maritime Company of the Philippines the total amount that the Maritime
Company of the Philippines may voluntarily or by compliance to a writ of
execution pay to the plaintiff pursuant to the judgment rendered in this case.

With costs against the defendant Maritime Company of the Philippines.

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum

agreement entered into between defendants NDC and MCP on September 13,
1962, defendant NDC as the first preferred mortgagee of three ocean going
 vessels including one with the name 'Dona Nati' appointed defendant MCP as
its agent to manage and operate said vessel for and in its behalf and account
(Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel "Dona Nati" at San Francisco, California, a total of
1,200 bales of American raw cotton consigned to the order of Manila Banking
Corporation, Manila and the People's Bank and Trust Company acting for and
in behalf of the Pan Asiatic Commercial Company, Inc., who represents
Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on
the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-
1). En route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m.
on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima
Maru' as a result of which 550 bales of aforesaid cargo of American raw
cotton were lost and/or destroyed, of which 535 bales as damaged were
landed and sold on the authority of the General Average Surveyor for Yen
6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The
damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff
as insurer, paid to the Riverside Mills Corporation as holder of the negotiable
bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A,
A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment
of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking
Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00
which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed
bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the
total amount of P364,915.86 to the consignees or their successors-in-interest,
for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to
recover said amount from the defendants-NDC and MCP as owner and ship
agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then
Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus
attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the
action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal,
pp. 7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27,
1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the
resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p.
32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal,
pp. 22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal,
pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken
off from the record for its failure to answer DISC's written interrogatories and to comply
with the trial court's order dated August 14, 1965 allowing the inspection or photographing
of the memorandum of agreement it executed with MCP. Said order of October 16, 1965
likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed
a motion to set aside the order of October 16, 1965, but the trial court denied it in its order
dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial
court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity
to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the
filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00.
Likewise, in said decision, the trial court granted MCP's crossclaim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February
17, 1970 after its motion to set aside the decision was denied by the trial court in its order
dated February 13,1970.

On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the
decision of the trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p.
103). On August 27,1979, these consolidated cases were given due course (Rollo, p. 108)
and submitted for decision on February 29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE
AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE
CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF
CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE
YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL
JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR

REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE,
AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-
Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING
THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF
ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY
EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS
BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE

RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE
COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF
BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT,
NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU
WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP
AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL
DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE
WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE
COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR

DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE
CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER
BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH
1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING
NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL

DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND
SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE
COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD
OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS
COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE
COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss
or destruction of goods due to collision of vessels outside Philippine waters, and the extent
of liability as well as the rules of prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act
should apply to the case at bar and not the Civil Code or the Code of Commerce. Under
Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from
the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship." Thus, NDC insists that based on the findings
of the trial court which were adopted by the Court of Appeals, both pilots of the colliding
vessels were at fault and negligent, NDC would have been relieved of liability under the
Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied
and both NDC and MCP were ordered to reimburse the insurance company for the amount
the latter paid to the consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC
(1 50 SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of
the country to which the goods are to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus,
the rule was specifically laid down that for cargoes transported from Japan to the
Philippines, the liability of the carrier is governed primarily by the Civil Code and in all
matters not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the
Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the
Civil Code.

In the case at bar, it has been established that the goods in question are transported from
San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due
to a collision which was found to have been caused by the negligence or fault of both
captains of the colliding vessels. Under the above ruling, it is evident that the laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in foreign
waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and
for reasons of public policy are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them according to all
circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other
than those mentioned is Article 1734 thereof, the common carrier shall be presumed to
have been at fault or to have acted negigently, unless it proves that it has observed the
extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil
Code, so that no reversible error can be found in respondent courses application to the case
at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively
with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is
imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the
losses and damages incurred after an expert appraisal. But more in point to the instant case
is Article 827 of the same Code, which provides that if the collision is imputable to both
vessels, each one shall suffer its own damages and both shall be solidarily responsible for
the losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to
839, the shipowner or carrier, is not exempt from liability for damages arising from collision
due to the fault or negligence of the captain. Primary liability is imposed on the shipowner
or carrier in recognition of the universally accepted doctrine that the shipmaster or captain
is merely the representative of the owner who has the actual or constructive control over
the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12
Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should
apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage
of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of
collision, said Act in no uncertain terms, restricts its application "to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I
thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any
existing provision of the Code of Commerce which is now in force, or as limiting its
application." By such incorporation, it is obvious that said law not only recognizes the
existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance
and Surety Corporation, has no cause of action against it because the latter did not prove
that its alleged subrogers have either the ownership or special property right or beneficial
interest in the cargo in question; neither was it proved that the bills of lading were
transferred or assigned to the alleged subrogers; thus, they could not possibly have
transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime
Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of
the duly endorsed bills of lading covering the shipments in question and an examination of
the invoices in particular, shows that the actual consignees of the said goods are the
aforementioned companies. Moreover, no less than MCP itself issued a certification attesting
to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total
amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is
evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from
defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the
manager and operator of the vessel Dona Nati not a ship agent. As the general managing
agent, according to MCP, it can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of
September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term
broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even
conferred all the powers of the owner of the vessel, including the power to contract in the
name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under
the circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the
damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil.
281 [1906]); that in case of collision, both the owner and the agent are civilly responsible
for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia &
Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v.
Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of
the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the
Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under
the Civil Code but more specially as regards contractual obligations in Article 586 of the
Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero)
should be declared jointly and severally liable, since the obligation which is the subject of
the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz,
Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he
may not be the owner of the vessel, is liable to the shippers and owners of the cargo
transported by it, for losses and damages occasioned to such cargo, without prejudice,
however, to his rights against the owner of the ship, to the extent of the value of the vessel,
its equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00
per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also
the MCP argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills
of lading and corroborated no less by invoices offered as evidence ' during the trial. Besides,
common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al.,
(51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury
or loss was caused by its own negligence." Negligence of the captains of the colliding vessel
being the cause of the collision, and the cargoes not being jettisoned to save some of the
cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not
applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need
not be discussed lengthily as said claim is not only at variance with NDC's posture, but also
contrary to the factual findings of the trial court affirmed no less by the Court of Appeals,
that both pilots were at fault for not changing their excessive speed despite the thick fog
obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading
issued allow trans-shipment of the cargo, which simply means that the date of arrival of the
ship Dona Nati on April 18,1964 was merely tentative to give allowances for such
contingencies that said vessel might not arrive on schedule at Manila and therefore, would
necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In
fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18,
1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the
cargoes in question been saved, they could have arrived in Manila on the above-mentioned
dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is,
long before the lapse of one (1) year from the date the lost or damaged cargo "should have
been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea
Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed
decision of the respondent Appellate Court is AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairperson), Padilla, and Sarmiento, JJ., concur.

Mecenas v. CA, supra

Republic of the Philippines

SUPREME COURT
Manila
 THIRD DIVISION

G.R. No. 88052 December 14, 1989

JOSE P. MECENAS, ROMEO P. MECENAS, LILIA P. MECENAS, ORLANDO P. MECENAS,

VIOLETA M. ACERVO, LUZVIMINDA P. MECENAS; and OFELIA M. JAVIER, petitioners,
vs.
HON. COURT OF APPEALS, CAPT. ROGER SANTISTEBAN and NEGROS NAVIGATION
CO., INC., respondents.

Benito P. Favie and Jose Dario Magno for petitioners.

Hernandez, Velicaria, Vibar & Santiago for private respondents.

FELICIANO, J.:

At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a barge-type oil
tanker of Philippine registry, with a gross tonnage of 1,241,68 tons, owned by the Philippine
National Oil Company (PNOC) and operated by the PNOC Shipping and Transport
Corporation (PNOC Shipping), having unloaded its cargo of petroleum products, left Amlan,
Negros Occidental, and headed towards Bataan. At about 1:00 o'clock in the afternoon of
that same day, the M/V "Don Juan," an interisland vessel, also of Philippine registry, of
2,391.31 tons gross weight, owned and operated by the Negros Navigation Co., Inc.
(Negros Navigation) left Manila bound for Bacolod with seven hundred fifty (750)
passengers listed in its manifest, and a complete set of officers and crew members.

On the evening of that same day, 22 April 1980, at about 10:30 o'clock, the "Tacloban City"
and the "Don Juan" collided at the Talbas Strait near Maestra de Ocampo Island in the
vicinity of the island of Mindoro. When the collision occurred, the sea was calm, the weather
fair and visibility good. As a result of this collision, the M/V "Don Juan" sank and hundreds
of its passengers perished. Among the ill-fated passengers were the parents of petitioners,
the spouses Perfecto Mecenas and Sofia Mecenas, whose bodies were never found despite
intensive search by petitioners.

On 29 December 1980, petitioners filed a complaint in the then Court- of First Instance of
Quezon City, docketed as Civil Case No. Q-31525, against private respondents Negros
Navigation and Capt. Roger Santisteban, the captain of the "Don Juan" without, however,
impleading either PNOC or PNOC Shipping. In their complaint, petitioners alleged that they
were the seven (7) surviving legitimate children of Perfecto Mecenas and Sofia Mecenas and
that the latter spouses perished in the collision which had resulted from the negligence of
Negros Navigation and Capt. Santisteban. Petitioners prayed for actual damages of not less
than P100,000.00 as well as moral and exemplary damages in such amount as the Court
may deem reasonable to award to them.

Another complaint, docketed as Civil Case No. Q-33932, was filed in the same court by Lilia
Ciocon claiming damages against Negros Navigation, PNOC and PNOC Shipping for the
death of her husband Manuel Ciocon, another of the luckless passengers of the "Don Juan."
Manuel Ciocon's body, too, was never found.
The two (2) cases were consolidated and heard jointly by the Regional Trial Court of Quezon
City, Branch 82. On 17 July 1986, after trial, the trial court rendered a decision, the
dispositive of which read as follows:

WHEREFORE, the Court hereby renders judgment ordering:

a) The defendant Negros Navigation Co., Inc. and Capt. Roger Santisteban
jointly and severally liable to pay plaintiffs in Civil Case No Q-31525, the sum
of P400,000.00 for the death of plaintiffs' parents, Perfecto A. Mecenas and
Sofia P. Mecenas; to pay said plaintiff's the sum of P15.000,00 as and for
attorney's fees; plus costs of the suit.

b) Each of the defendants Negros Navigation Co Inc. and Philippine National

Oil Company/PNOC Shipping and Transportation Company, to pay the plaintiff
in Civil Case No. Q-33932, the sum of P100,000.00 for the death of Manuel
Ciocon, to pay said plaintiff jointly and severally, the sum of P1 5,000.00 as
and for attorney's fees, plus costs of the suit. 1

Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court's
decision to the Court of Appeals. Later, PNOC and PNOC Shipping withdrew their appeal
citing a compromise agreement reached by them with Negros Navigation; the Court of
Appeals granted the motion by a resolution dated 5 September 1988, subject to the
reservation made by Lilia Ciocon that she could not be bound by the compromise agreement
and would enforce the award granted her by the trial court.

In time, the Court of Appeals rendered a decision dated 26 January 1989 which decreed the
following:

WHEREFORE, in view of the foregoing, the decision of the court a quo is hereby affirmed as
modified with respect to Civil Case No. 31525, wherein defendant appellant Negros
Navigation Co. Inc. and Capt. Roger Santisteban are held jointly and severally liable to pay
the plaintiffs the amount of P100,000. 00 as actual and compensatory damages and
P15,000.00 as attorney's fees and the cost of the suit. 2

The issue to be resolved in this Petition for Review is whether or not the Court of Appeals
had erred in reducing the amount of the damages awarded by the trial court to the
petitioners from P400,000.00 to P100,000.00.

We note that the trial court had granted petitioners the sum of P400,000,00 "for the death
of [their parents]" plus P15,000.00 as attorney's fees, while the Court of Appeals awarded
them P100,000.00 "as actual and compensatory damages" and P15,000.00 as attorney's
fees. To determine whether such reduction of the damages awarded was proper, we must
first determine whether petitioners were entitled to an award of damages other than actual
or compensatory damages, that is, whether they were entitled to award of moral and
exemplary damages.

We begin by noting that both the trial court and the Court of Appeals considered the action
(Civil Case No. Q-31525) brought by the sons and daughters of the deceased Mecenas
spouses against Negros Navigation as based on quasi-delict. We believed that action is more
appropriately regarded as grounded on contract, the contract of carriage between the
Mecenas spouses as regular passengers who paid for their boat tickets and Negros
Navigation; the surviving children while not themselves passengers are in effect suing the
carrier in representation of their deceased parents. 3 Thus, the suit (Civil Case No. Q-33932)
filed by the widow Lilia Ciocon was correctly treated by the trial and appellate courts as
based on contract (vis-a-vis Negros Navigation) and as well on quasi-delict (vis-a-vis PNOC
and PNOC Shipping). In an action based upon a breach of the contract of carriage, the
carrier under our civil law is liable for the death of passengers arising from the negligence or
willful act of the carrier's employees although such employees may have acted beyond the
scope of their authority or even in violation of the instructions of the carrier, 4 which liability
may include liability for moral damages. 5 It follows that petitioners would be entitled to
moral damages so long as the collision with the "Tacloban City" and the sinking of the "Don
Juan" were caused or attended by negligence on the part of private respondents.

In respect of the petitioners' claim for exemplary damages, it is only necessary to refer to
Article 2232 of the Civil Code:

Article 2332. In contracts and quasi-contracts, the court may exemplary

damages if the defendant acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner. 6

Thus, whether petitioners are entitled to exemplary damages as claimed must depend upon
whether or not private respondents acted recklessly, that is, with gross negligence.

We turn, therefore, to a consideration of whether or not Negros Navigation and Capt.

Santisteban were grossly negligent during the events which culminated in the collision with
"Tacloban City" and the sinking of the "Don Juan" and the resulting heavy loss of lives.

The then Commandant of the Philippine Coast Guard, Commodore B.C. Ochoco, in a
decision dated 2 March 1981, held that the "Tacloban City" was "primarily and solely [sic] at
fault and responsible for the collision." 7 Initially, the Minister of National Defense upheld the
decision of Commodore Ochoco. 8 On Motion for Reconsideration, however, the Minister of
National Defense reversed himself and held that both vessels had been at fault:

It is therefore evident from a close and thorough review of the evidence

that fault is imputable to both vessels for the collision. Accordingly, the
decision dated March 12, 1982, subject of the Motion for Reconsideration filed
by counsel of M/T Tacloban City, is hereby reversed. However, the
administrative penalties imposed oil both vessels and their respective crew
concerned are hereby affirmed. 9

The trial court, after a review of the evidence submitted during the trial, arrived at the same
conclusion that the Minister of National Defense had reached that both the "Tacloban City"
and the "Don Juan" were at fault in the collision. The trial court summarized the testimony
and evidence of PNOC and PNOC Shipping as well as of Negros Navigation in the following
terms:

Defendant PNOC's version of the incident:

M/V Don Juan was first sighted at about 5 or 6 miles from Tacloban City
(TSN, January 21, 1985, p. 13); it was on the starboard (right) side of
Tacloban City. This was a visual contact; not picked up by radar (p. 15, Ibid).
Tacloban City was travelling 310 degrees with a speed of 6 knots, estimated
speed of Don Juan of 16 knots (TSN, May 9, pp. 5-6). As Don Juan
approached, Tacloban City gave a leeway of 1 0 degrees to the left. 'The
purpose was to enable Tacloban to see the direction of Don Juan (p. 19, Ibid).
Don Juan switched to green light, signifying that it will pass Tacloban City's
right side; it will be a starboard to starboard passing (p. 21, Ibid) Tacloban
City's purpose in giving a leeway of 10 degrees at this point, is to give Don
Juan more space for her passage (p. 22, Ibid). This was increased by
Tacloban City to an additional 15 degrees towards the left (p. 22, Ibid). The
way was clear and Don Juan has not changed its course (TSN, May 9,1985, p.
39).

When Tacloban City altered its course the second time, from 300 degrees to
285 degrees, Don Juan was about 4.5 miles away (TSN, May 9,1985, p. 7).

Despite executing a hardport maneuver, the collision nonetheless occurred.

Don Juan rammed the Tacloban City near the starboard bow (p. 7, Ibid)."

NENACO's [Negros Navigation] version.

Don Juan first sighted Tacloban City 4 miles away, as shown by radar (p. 13,
May 24, 1983). Tacloban City showed its red and green lights twice; it
proceeded to, and will cross, the path of Don Juan. Tacloban was on the left
side of Don Juan (TSN, April 20,1983, p. 4).

Upon seeing Tacloban's red and green lights, Don Juan executed hard
starboard (TSN, p. 4, Ibid.) This maneuver is in conformity with the rule that
'when both vessels are head on or nearly head on, each vessel must turn to
the right in order to avoid each other. (p. 5, Ibid). Nonetheless, Tacloban
appeared to be heading towards Don Juan (p. 6, Ibid),

When Don Juan executed hard starboard, Tacloban was about 1,500 feet
away (TSN, May 24,1983, p. 6). Don Juan, after execution of hard starboard,
will move forward 200 meters before the vessel will respond to such
maneuver (p. 7, Ibid). The speed of Don Juan at that time was 17 knits;
Tacloban City 6.3 knots. t "Between 9 to 15 seconds from execution of hard
starboard, collision occurred (p. 8, Ibid). (pp. 3-4 Decision). 10

The trial court concluded:

M/ V Don Juan and Tacloban City became aware of each other's presence in
the area by visual contact at a distance of something like 6 miles from each
other. They were fully aware that if they continued on their course, they will
meet head on. Don Juan - steered to the right; Tacloban City continued its
course to the left. There can be no excuse for them not to realize that, with
such maneuvers, they will collide. They executed maneuvers inadequate, and
too late, to avoid collision.

The Court is of the considered view that the defendants are equally negligent
and are liable for damages. (p. 4, decision). 11

12
The Court of Appeals, for its part, reached the same conclusion.
There is, therefore, no question that the "Don Juan" was at least as negligent as the M/T
"Tacloban City" in the events leading up to the collision and the sinking of the "Don Juan."
The remaining question is whether the negligence on the part of the "Don Juan" reached
that level of recklessness or gross negligence that our Civil Code requires for the imposition
of exemplary damages. Our own review of the record in the case at bar requires us to
answer this in the affirmative.

In the first place, the report of the Philippine Coast Guard Commandant (Exhibit "l 0"), while
holding the "Tacloban City" as "primarily and solely [sic] at fault and responsible for the
collision," did itself set out that there had been fault or negligence on the part of Capt.
Santisteban and his officers and crew before the collision and immediately after contact of
the two (2) vessels. The decision of Commodore Ochoco said:

xxxxxxxxx

M/S Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong
before and up to the time of collision. Moreover, after the collision, he failed
to institute appropriate measures to delay the sinking MS Don Juan and to
supervise properly the execution of his order of abandonship. As regards the
officer on watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed
or did not call or inform Capt. Santisteban of the imminent danger of collision
and of the actual collision itself Also, he failed to assist his master to prevent
the fast sinking of the ship. The record also indicates that Auxiliary Chief Mate
Antonio Labordo displayed laxity in maintaining order among the passengers
after the collision.

13
x x x x x x x x x.

We believe that the behaviour of the captain of the "Don Juan" in tills instance-playing
mahjong "before and up to the time of collision constitutes behaviour that is simply
unacceptable on the part of the master of a vessel to whose hands the lives and welfare of
at least seven hundred fifty (750) passengers had been entrusted. Whether or not Capt.
Santisteban was "off-duty" or "on-duty" at or around the time of actual collision is quite
immaterial; there is, both realistically speaking and in contemplation of law, no such thing
as "off-duty" hours for the master of a vessel at sea that is a common carrier upon whom
the law imposes the duty of extraordinary diligence-

[t]he duty 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. 14

The record does not show that was the first or only time that Capt. Santisteban had
entertained himself during a voyage by playing mahjong with his officers and passengers;
Negros Navigation in permitting, or in failing to discover and correct such behaviour, must
be deemed grossly negligent.

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the
collision, "to institute appropriate measures to delay the sinking of M/V Don Juan." This
appears to us to be a euphemism for failure to maintain the sea-worthiness or the water-
tight integrity of the "Don Juan." The record shows that the "Don Juan" sank within ten (10)
to fifteen (15) minutes after initial contact with the "Tacloban City. 15 While the failure of
Capt. Santisteban to supervise his officers and crew in the process of abandoning the ship
and his failure to avail of measures to prevent the too rapid sinking of his vessel after
collision, did not cause the collision by themselves, such failures doubtless contributed
materially to the consequent loss of life and, moreover, were indicative of the kind and level
of diligence exercised by Capt. Santisteban in respect of his vessel and his officers and men
prior to actual contact between the two (2) vessels. The officer-on-watch in the "Don Juan"
admitted that he had failed to inform Capt. Santisteban not only of the "imminent danger of
collision" but even of "the actual collision itself "

There is also evidence that the "Don Juan" was carrying more passengers than she had
been certified as allowed to carry. The Certificate of Inspection 16 dated 27 August 1979,
issued by the Philippine Coast Guard Commander at Iloilo City, the Don Juan's home port,
states:

Passengers allowed : 810

Total Persons Allowed : 864

The report of the Philippine Coast Guard (Exhibit "10") stated that the "Don Juan" had been
"officially cleared with 878 passengers on board when she sailed from the port of Manila on
April 22, 1980 at about 1:00 p.m." This head-count of the passengers "did not include the
126 crew members, children below three (3) years old and two (2) half-paying passengers"
which had been counted as one adult passenger. 17 Thus, the total number of persons on
board the "Don Juan" on that ill-starred night of 22 April 1 980 was 1,004, or 140 persons
more than the maximum lumber that could be safely carried by the "Don Juan," per its own
Certificate of Inspection. 18 We note in addition, that only 750 passengers had been listed in
its manifest for its final voyage; in other words, at least 128 passengers on board had not
even been entered into the "Don Juan's" manifest. The "Don Juan's" Certificate of Inspection
showed that she carried life boat and life raft accommodations for only 864 persons, the
maximum number of persons she was permitted to carry; in other words, she did not carry
enough boats and life rafts for all the persons actually on board that tragic night of 22 April
1980.

We hold that under these circumstances, a presumption of gross negligence on the part of
the vessel (her officers and crew) and of its ship-owner arises; this presumption was never
rebutted by Negros Navigation.

The grossness of the negligence of the "Don Juan" is underscored when one considers the
foregoing circumstances in the context of the following facts: Firstly, the "Don Juan" was
more than twice as fast as the "Tacloban City." The "Don Juan's" top speed was 17 knots;
while that of the "Tacloban City" was 6.3. knots. 19 Secondly, the "Don Juan" carried the full
complement of officers and crew members specified for a passenger vessel of her class.
Thirdly, the "Don Juan" was equipped with radar which was functioning that night. Fourthly,
the "Don Juan's" officer on-watch had sighted the "Tacloban City" on his radar screen while
the latter was still four (4) nautical miles away. Visual confirmation of radar contact was
established by the "Don Juan" while the "Tacloban City" was still 2.7 miles away. 20 In the
total set of circumstances which existed in the instant case, the "Don Juan," had it taken
seriously its duty of extraordinary diligence, could have easily avoided the collision with the
"Tacloban City," Indeed, the "Don Juan" might well have avoided the collision even if it had
exercised ordinary diligence merely.

It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the
Road which requires two (2) power- driven vessels meeting end on or nearly end on each to
alter her course to starboard (right) so that each vessel may pass on the port side (left) of
the other.21 The "Tacloban City," when the two (2) vessels were only three-tenths (0.3) of a
mile apart, turned (for the second time) 150 to port side while the "Don Juan" veered hard
to starboard. This circumstance, while it may have made the collision immediately
inevitable, cannot, however, be viewed in isolation from the rest of the factual
circumstances obtaining before and up to the collision. In any case, Rule 18 like all other
International Rules of the Road, are not to be obeyed and construed without regard to all
the circumstances surrounding a particular encounter between two (2) vessels. 22 In
ordinary circumstances, a vessel discharges her duty to another by a faithful and literal
observance of the Rules of Navigation, 23 and she cannot be held at fault for so doing even
though a different course would have prevented the collision. This rule, however, is not to
be applied where it is apparent, as in the instant case, that her captain was guilty of
negligence or of a want of seamanship in not perceiving the necessity for, or in so acting as
to create such necessity for, a departure from the rule and acting accordingly. 24 In other
words, "route observance" of the International Rules of the Road will not relieve a vessel
from responsibility if the collision could have been avoided by proper care and skill on her
part or even by a departure from the rules. 25

In the petition at bar, the "Don Juan" having sighted the "Tacloban City" when it was still a
long way off was negligent in failing to take early preventive action and in allowing the two
(2) vessels to come to such close quarters as to render the collision inevitable when there
was no necessity for passing so near to the "Tacloban City" as to create that hazard or
inevitability, for the "Don Juan" could choose its own distance. 26, It is noteworthy that the
"Tacloban City," upon turning hard to port shortly before the moment of collision, signalled
its intention to do so by giving two (2) short blasts with horn. 26A The "Don Juan " gave no
answering horn blast to signal its own intention and proceeded to turn hatd to starboard. 26B

We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross
negligence in connection with the collision of the "Don Juan" and "Tacloban City" and the
sinking of the "Don Juan" leading to the death of hundreds of passengers. We find no
necessity for passing upon the degree of negligence or culpability properly attributable to
PNOC and PNOC Shipping or the master of the "Tacloban City," since they were never
impleaded here.

It will be recalled that the trial court had rendered a lump sum of P400,000.00 to petitioners
for the death of their parents in the "Don Juan" tragedy. Clearly, the trial court should have
included a breakdown of the lump sum award into its component parts: compensatory
damages, moral damages and exemplary damages. On appeal, the Court of Appeals could
have and should have itself broken down the lump sum award of the trial court into its
constituent parts; perhaps, it did, in its own mind. In any case, the Court of Appeals
apparently relying upon Manchester Development Corporation V. Court of
Appeals 27 reduced the P400,000.00 lump sum award into a P100,000.00 for actual and
compensatory damages only.

We believe that the Court of Appeals erred in doing so, It is true that the petitioners'
complaint before the trial court had in the body indicated that the petitioner-plaintiffs
believed that moral damages in the amount of at least P1,400,000.00 were properly due to
them (not P12,000,000.00 as the Court of Appeals erroneously stated) as well as exemplary
damages in the sum of P100,000.00 and that in the prayer of their complaint, they did not
specify the amount of moral and exemplary damages sought from the trial court. We do not
believe, however, that the Manchester doctrine, which has been modified and clarified in
subsequent decision by the Court in Sun Insurance Office, Ltd. (SIOL), et al. v. Asuncion, et
al. 28 can be applied in the instant case so as to work a striking out of that portion of the
trial court's award which could be deemed nationally to constitute an award of moral and
exemplary damages. Manchester was promulgated by the Court on 7 May 1987. Circular
No. 7 of this Court, which embodied the doctrine in Manchester, is dated 24 March 1988.
Upon the other hand, the complaint in the case at bar was filed on 29 December 1980, that
is, long before either Manchester or Circular No. 7 of 24 March 1988 emerged. The decision
of the trial court was itself promulgated on 17 July 1986, again, before Manchester and
Circular No. 7 were promulgated. We do not believe that Manchester should have been
applied retroactively to this case where a decision on the merits had already been rendered
by the trial court, even though such decision was then under appeal and had not yet
reached finality. There is no indication at all that petitioners here sought simply to evade
payment of the court's filing fees or to mislead the court in the assessment of the filing fees.
In any event, we apply Manchester as clarified and amplified by Sun Insurance Office Ltd.
(SIOL), by holding that the petitioners shall pay the additional filing fee that is properly
payable given the award specified below, and that such additional filing fee shall constitute
a lien upon the judgment.

We consider, finally, the amount of damages-compensatory, moral and exemplary-properly

imposable upon private respondents in this case. The original award of the trial court of
P400,000.00 could well have been disaggregated by the trial court and the Court of Appeals
in the following manner:

1. actual or compensatory damages proved in the course of trial consisting of

actual expenses

incurred by petitioners

in their search for their

parents' bodies- -P126,000.00

2. actual or compensatory

damages in case of

wrongful death

29
(P30,000.00 x 2) -P60,000.00

(3) moral damages -P107,000.00

(4) exemplary damages -P107,000.00

Total -P400,000.00

Considering that petitioners, legitimate children of the deceased spouses Mecenas, are
seven (7) in number and that they lost both father and mothe in one fell blow of fate, and
considering the pain and anxiety they doubtless experienced while searching for their
parents among the survivors and the corpses recovered from the sea or washed ashore, we
believe that an additional amount of P200,000.00 for moral damages, making a total of
P307,000.00 for moral damages, making a total of P307,000.00 as moral damages, would
be quite reasonable.

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour
that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behaviour. In requiring compliance with the standard which is in fact that of
the highest possible degree of diligence, from common carriers and in creating a
presumption of negligence against them, the law seels to compel them to control their
employees, to tame their reckless instincts and to force them to take adequate care of
human beings and their property. The Court will take judicial notive of the dreadful
regularity with which grievous maritime disasters occur in our waters with massive loss of
life. The bulk of our population is too poor to afford domestic air transportation. So it is that
notwithstanding the frequent sinking of passenger vessels in our waters, crowds of people
continue to travel by sea. This Court is prepared to use the instruments given to it by the
law for securing the ends of law and public policy. One of those instruments is the
institution of exemplary damages; one of those ends, of special importance in an
archipelagic state like the Philippines, is the safe and reliable carriage of people and goods
by sea. Considering the foregoing, we believe that an additional award in the amount of
P200,000.00 as exmplary damages, is quite modest.

The Court is aware that petitioners here merely asked for the restoration of the P
400.000.00 award of the trial court. We underscore once more, however, the firmly settled
doctrine that this Court may consider and resolved all issues which must be decided in order
to render substantial justice to the parties, including issues not explicity raised by the party
affected. In the case at bar, as in Kapalaran Bus Line v. Coronado, et al., 30 both the
demands of sustantial justice and the imperious requirements of public policy compel us to
the conclusion that the trial court's implicit award of moral and exemplary damages was
erronoeusly deledted and must be restored and augmented and brought more nearely to
the level required by public policy and substantial justice.

WHEREFORE, the Petition for Review on certiorari is hereby GRANTED and the Decision of
the Court of Appeals insofar as it redurce the amount of damages awarded to petitioners to
P100,000.00 is hereby REVERSED and SET ASIDE. The award granted by the trial court is
hereby RESTORED and AUGMENTED as follows:

(a) P 126,000.00 for actual damages;

(b) P 60,000.00 as compensatory damages for wrongful death;

(c) P 307,000.00 as moral damages;

(d) P 307,000.00 as exemplary damages making a total of P 800,000.00; and

(e) P 15,000.00 as attorney's fees.

Petitioners shall pay the additional filing fees properly due and payable in view of the award
here made, which fees shall be computed by the Clerks of Court of the trial court, and shall
constitute a lien upon the judgment here awarded. Cost against private respondents.

SO ORDERED.
Fernan,C.J., Gutierrez, Jr., Bibin and Cortes, JJ., concur.

Aboitiz Shipping v. General Accident Fire and Life Insurance Corporation 217 SCRA 359
(1993)

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.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

Philippine American General Insurance Co. v. CA 273 SCRA 262 (1997)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,

vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to
observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the
right of the insurer to be subrogated to the rights of the insured upon payment of the
insurance claim.

On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel
owned and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500
cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu
City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.1 The shipment was insured
with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity),
under Marine Open Policy No. 100367-PAG.

"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the
same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in
the waters of Zamboanga del Norte bringing down her entire cargo with her including the
subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim
with respondent FELMAN for recovery of damages it sustained as a result of the loss of its
softdrink bottles that sank with "MV Asilda." Respondent denied the claim thus prompting
the consignee to file an insurance claim with PHILAMGEN which paid its claim of
P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN
which disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN
sued the shipowner for sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its
cargo were due to the vessel's unseaworthiness as she was put to sea in an unstable
condition. It further alleged that the vessel was improperly manned and that its officers
were grossly negligent in failing to take appropriate measures to proceed to a nearby port
or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense
that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and
that, in any event, FELMAN had abandoned all its rights, interests and ownership over "MV
Asilda" together with her freight and appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of Commerce.2

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the
Court of Appeals set aside the dismissal and remanded the case to the lower court for trial
on the merits. FELMAN filed a petition for certiorari with this Court but it was subsequently
denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that
"MV Asilda" was seaworthy when it left the port of Zamboanga as confirmed by certificates
issued by the Philippine Coast Guard and the shipowner's surveyor attesting to its
seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed
to either a fortuitous event, in which case, no liability should attach unless there was a
stipulation to the contrary, or to the negligence of the captain and his crew, in which case,
Art. 587 of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN
could not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had
breached its implied warranty on the vessel's seaworthiness. Resultantly, the payment
made by PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it
was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it
to bring an action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August
1994 respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for
being top-heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on
deck. In other words, while the vessel possessed the necessary Coast Guard certification
indicating its seaworthiness with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of
PHILAMGEN on the ground that the assured's implied warranty of seaworthiness was not
complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and
interests of the shipper. Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability under the limited liability
rule.

The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it
left the port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of
Commerce should apply; and, (c) whether PHILAMGEN was properly subrogated to the
rights and legal actions which the shipper had against FELMAN, the shipowner.

"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the
captain as well as the chief mate of the vessel confirmed that the weather was fine when
they left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of
1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an
undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for
eggs and about 500 cases of Coca-Cola bottles on deck.4 The ship captain stated that
around four o'clock in the morning of 7 July 1983 he was awakened by the officer on duty to
inform him that the vessel had hit a floating log. At that time he noticed that the weather
had deteriorated with strong southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and would not correct itself despite
the heavy rolling and pitching. He then ordered his crew to shift the cargo from starboard to
portside until the vessel was balanced. At about seven o'clock in the morning, the master of
the vessel stopped the engine because the vessel was listing dangerously to portside. He
ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an
hour afterwhich he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and before the captain
could decide on his next move, some of the cargo on deck were thrown overboard and
seawater entered the engine room and cargo holds of the vessel. At that instance, the
master of the vessel ordered his crew to abandon ship. Shortly thereafter, "MV Asilda"
capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the
hull caused by the vessel's collision with a partially submerged log.5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The
report, which was adopted by the Court of Appeals, reads —

We found in the course of our investigation that a reasonable explanation for

the series of lists experienced by the vessel that eventually led to her
capsizing and sinking, was that the vessel was top-heavy which is to say that
while the vessel may not have been overloaded, yet the distribution or
stowage of the cargo on board was done in such a manner that the vessel
was in top-heavy condition at the time of her departure and which condition
rendered her unstable and unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel was
designed as a fishing vessel . . . and it was not designed to carry a substantial
amount or quantity of cargo on deck. Therefore, we believe strongly that had
her cargo been confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel would not
have been in any danger of capsizing, even given the prevailing weather
conditions at that time of sinking.

But from the moment that the vessel was utilized to load heavy cargo on its
deck, the vessel was rendered unseaworthy for the purpose of carrying the
type of cargo because the weight of the deck cargo so decreased the vessel's
metacentric height as to cause it to become unstable.

Finally, with regard to the allegation that the vessel encountered big waves, it
must be pointed out that ships are precisely designed to be able to navigate
safely even during heavy weather and frequently we hear of ships safely and
successfully weathering encounters with typhoons and although they may
sustain some amount of damage, the sinking of ship during heavy weather is
not a frequent occurrence and is not likely to occur unless they are inherently
unstable and unseaworthy . . . .

We believe, therefore, and so hold that the proximate cause of the sinking of
the M/V "Asilda" was her condition of unseaworthiness arising from her
having been top-heavy when she departed from the Port of Zamboanga. Her
 having capsized and eventually sunk was bound to happen and was therefore
in the category of an inevitable occurrence (emphasis supplied).6

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the
proximate cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship
captain's allegations, evidence shows that approximately 2,500 cases of softdrink bottles
were stowed on deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-
Cola plastic cases were recovered near the vicinity of the sinking. Considering that the
ship's hatches were properly secured, the empty Coca-Cola cases recovered could have
come only from the vessel's deck cargo. It is settled that carrying a deck cargo raises the
presumption of unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this case it was established
that "MV Asilda" was not designed to carry substantial amount of cargo on deck. The
inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric
height 7 thus making it unstable. The strong winds and waves encountered by the vessel are
but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already
unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at
bar.8 Simply put, the ship agent is liable for the negligent acts of the captain in the care of
goods loaded on the vessel. This liability however can be limited through abandonment of
the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held answerable despite the
abandonment, as where the loss or injury was due to the fault of the shipowner and the
captain.9 The international rule is to the effect that the right of abandonment of vessels, as
a legal limitation of a shipowner's liability, does not apply to cases where the injury or
average was occasioned by the shipowner's own fault. 10 It must be stressed at this point
that Art. 587 speaks only of situations where the fault or negligence is committed solely by
the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such
situation will be covered by the provisions of the Civil Code on common carrier. 11

It was already established at the outset that the sinking of "MV Asilda" was due to its
unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-
heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part
of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was
equally negligent. It cannot therefore escape liability through the expedient of filing a notice
of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.

Under Art 1733 of the Civil Code, "(c)ommon 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 . . ." In the event of loss of goods, common carriers are
presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this
presumption.

In relation to the question of subrogation, respondent appellate court found "MV Asilda"
unseaworthy with reference to the cargo and therefore ruled that there was breach of
warranty of seaworthiness that rendered the assured not entitled to the payment of is claim
under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in
effect a "voluntary payment" and no right of subrogation accrued in its favor. In other
words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to
the assurer that the vessel is seaworthy and such warranty is as much a term of the
contract as if expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance
Code provides that "(i)n every marine insurance upon a ship or freight, or freightage, or
upon anything which is the subject of marine insurance, a warranty is implied that the ship
is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the
service, and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy." Thus it becomes the obligation of the cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. He may have no control over the
vessel but he has full control in the selection of the common carrier that will transport his
goods. He also has full discretion in the choice of assurer that will underwrite a particular
venture.

We need not belabor the alleged breach of warranty of seaworthiness by the assured as
painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In
policies where the law will generally imply a warranty of seaworthiness, it can only be
excluded by terms in writing in the policy in the clearest language. 13 And where the policy
stipulates that the seaworthiness of the vessel as between the assured and the assurer is
admitted, the question of seaworthiness cannot be raised by the assurer without showing
concealment or misrepresentation by the assured. 14

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2)
instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine
Open Policy No. 100367-PAG reads "(t)he liberties as per Contract of Affreightment the
presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or
Charter Party and/or Contract of Affreightment as between the Assured and the Company
shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured
and the Assurers is hereby admitted."15

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy
which states "(t)he seaworthiness of the vessel as between the Assured and Underwriters in
hereby admitted . . . ." 16

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or
two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that
the risk of unseaworthiness is assumed by the insurance company. 17 The insertion of such
waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners
cannot control the state of the vessel. Thus it can be said that with such categorical waiver,
PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's
action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the
assurer to the assured operates as an equitable assignment to the assurer of all the
remedies which the assured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of
any privity of contract or upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the ultimate payment of
a debt by one who in justice, equity and good conscience ought to pay. 19 Therefore, the
payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption
of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink
bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to

pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred
Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon
counted from 29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and
2213 of the Civil Code. 20

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., is on leave.

 CHAPTER 15 – SALVAGE

Erlanger v. Swedish East Asiatic 34 PHIL 178 (1916)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-10051 March 9, 1916

ERLANGER & GALINGER, plaintiffs-appellants,

vs.
THE SWEDISH EAST ASIATIC CO., (LTD.) ET AL., defendants. THE "OELWERKE
TEUTONIA" and NEW ZEALAND INSURANCE CO. (LTD.), appellants.

Gilbert, Haussermann, Cohn and Fisher for plaintiff-appellant.

Rohde and Wright and Lawrence, Ross and Block for defendant-appellants.

PER CURIAM:

The facts in this case are as follows:

First. The steamship Nippon loaded principally with copra and with some other general
merchandise sailed from Manila on May 7, 1913, bound for Singapore. Second. The
steamship Nippon went aground on Scarborough Reef about 4.30 in the afternoon of May 8,
1913. Third. Scarborough Reef is about 120 to 130 miles from the nearest point on the
Island of Luzon. Fourth. On May 9, 1913, the chief officer, Weston, and nine members of
the crew left the Nippon and succeeded in reaching the coast of Luzon at Santa Cruz,
Zambales, on the morning of May 12, 1913. Fifth. On May 12, 1913, the chief officer sent a
telegram to Helm, the Director of the Bureau of Navigation, at Manila, which was as follows:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.

 Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew
— boats gone. 12.15 p. m.

(Sgd.) WESTON.

Sixth. On the same day (May 12) at 1.30 p. m., the Government of the Philippine Islands
ordered the coast guard cutter Mindoro with life-saving appliances to the scene of the wreck
of the Nippon . Seventh. On the same day (May 12) at 3 p. m. the
steamship Manchuria sailed from Manila for Hongkong and was requested to pass by
Scarborough Reef. Eighth. The Manchuria arrived at Scarborough Reef some time before the
arrival of the Mindoro on May 13, 1913, and took on board the captain and the remainder of
the crew. Ninth. The Manchuria was still near Scarborough Reef when the Mindoro arrived.
The captain of the Manchuria informed the captain of the Mindoro that the captain and crew
of the Nippon were on board the Manchuria and were proceeding to Hongkong. Tenth. The
captain of the Mindoro offered to render assistance to the captain and crew of the Nippon ,
which assistance was declined The Mindoro proceeded to the Nippon and removed the
balance of the baggage of the officers and crew, which was found upon the deck. Eleventh.
The Mindoro proceeded to Santa Cruz, Zambales, where the chief officer, Weston, and the
nine members of the crew were taken on board and brought to Manila, arriving there on
May 14, 1913. Twelfth. On May 13, 1913, Dixon, captain of the Manchuria sent the following
message:

S. S. `MANCHURIA', May 13, 1913.

All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel
stranded May 9. She is full of water fore and aft and is badly ashore. Ship
abandoned. Proceed Hongkong.

(Sgd.) "DIXON.

The captain of the Nippon saw the above message before it was sent. Thirteenth. On May
14, 1913, the plaintiff applied to the Director of Navigation for a charter of a coast guard
cutter, for the purpose of proceeding to "the stranded and abandoned steamer Nippon ."
Fourteenth. The coast guard cutter Mindoro was chartered to the plaintiffs and started on its
return to the S. S. Nippon on May 14, 1913. Fifteenth. The plaintiffs took possession of
the Nippon on or about May 17, 1913, and continued in possession until about the 1st of
July, when the last of the cargo was shipped to Manila. Sixteenth. The Nippon was floated
and towed to Olongapo, where temporary repairs were made, and then brought to Manila.
Seventeenth. The Manchuria arrived at Hongkong on the evening of May 14, 1913. When
the captain and crew left the Nippon and went on board of Manchuria, they took with them
the chronometer, the ship's register, the ship's articles, the ship's log, and as much of the
crew's baggage as a small boat could carry. The balance of the baggage of the crew was
packed and left on the deck of the Nippon and was later removed to the Mindoro, without
protest on the part of the captain of the Nippon , as above indicated. Eighteenth. The cargo
was brought to the port of Manila and the following values were fixed:

Copra (approximately 1317 tons) P142,657.05

valued at, less cost of sale by
Collector of Customs

General cargo — sold at 5,939.68

customhouse

Agar-agar 5,635.00

Camphor 1,850.00

Curios 150.00

Total 156,231.73

Nineteenth. The ship was valued at P250.000. The plaintiffs' claim against the ship was
settled for L15,000 or about P145,800.

The plaintiffs brought the present action (August 5, 1913; amended complaint, September
23, 1913) against the insurance companies and underwriters, who represented the cargo
salved from the Nippon, to have the amount of salvage, to which the plaintiffs were entitled,
determined.

The case came on for trial before the Honorable A. S. Crossfield. The Oelwerke Teutonia, a
corporation, appeared as claimant of the copra. The New Zealand Insurance Company
appeared as insurer and assignee of the owners of 33 crates of agar-agar; The Tokio Marine
Insurance Company appeared as the insurer and assignee of 1,000 cases of bean oil and
two cases of bamboo lacquer work; and The Thames and Mersey Marine Insurance
Company appeared as a reinsurer to the extent of P6,500 on the cargo of copra. The court
found that the plaintiffs were "entitled to recover one-half of the net proceeds from the
property salved and sold (which has nothing to do with the steamship itself), and one-half
the value of the property delivered to the claimants."

Judgment was entered as follows:

 In favor of the plaintiffs, Erlanger & Galinger for one-half of the net proceeds of sales
amounting to P47,298.36 and one-half of the interest accruing thereon, and against
Carl Maeckler for the sum of P925, and against the New Zealand Insurance Company
(Ltd.) for the sum of P2,800, and against whomever the two cases marked R — W,
Copenhagen, were delivered to, and for the sum of P2,370.68, out of the proceeds of
the sale of 1,000 cases of vegetable oil, and in favor of the 'Oelwerke Teutonia' for
the sum of P71,328.53, now deposited with the Hongkong & Shanghai Banking
Corporation, together with one-half of the interest thereon.

No costs were taxed.

The Oelwerke Teutonia, The New Zealand Insurance Company (Ltd.), and Erlanger &
Galinger appealed from this decision. The Oelwerke Teutonia made the following
assignments of error: "

(I) The court below erred in finding that the plaintiffs are salvors of the copra in
question. (II) The court erred in holding that the plaintiffs are entitled to recover
one-half of the proceeds of the copra. (III) The court erred in rendering judgment in
favor of the plaintiffs for half of the proceeds of the copra. (IV) The court erred in
disallowing the defendants' counterclaim. (V) The court erred in overruling
defendant's motion for a new trial."

The New Zealand Insurance Company (Ltd.) made the following assignments of error:

Now comes the New Zealand Insurance Company (Ltd.), defendant and appellant in
the above-entitled cause, and avers that in the proceedings in the said cause, in the
Court of First Instance of Manila, there was manifest error to the prejudice of this
appellant, in this, to wit:

(I) That said court found that the plaintiffs are entitled to one-half of the value of
thirty crates of agar-agar delivered to his appellant; (II) That the said court ordered
judgment in favor of the plaintiffs and against this appellant for the sum of P2,800;
(III) That the said court denied the motion of this appellant for a new trial.

The appellants, Erlanger & Galinger, made the following assignments of error:

Error No. 1. The court erred in ruling that the plaintiffs were not entitled to a
reimbursement of their expenses, out of the gross value of the salved property,
before the division of the remainder into moieties between the salvors and the
claimants. Error No. 2. The court erred in holding that the cargo and the vessel are
equally chargeable with the expense of salvage. Error No. 3. The court erred in
refusing to award the plaintiffs, out of the proceeds of the sale of the cargo, the sum
of P28,755.86 as compensation and the sum of P98,720 as reimbursement of
expenses, or a total of P127,475.08. Error No. 4. The court erred in awarding into
the claimaint 'Oelwerke Teutonia' the sum of P17,328.53, or any part thereof out of
the proceeds of the salved cargo. Error No. 5. The court erred in denying the motion
of the plaintiffs for a new trial."

The assignments of error and the briefs of all of the appellants raised by three questions:
(1) Was the ship abandoned? (2) Was the salvage conducted with skill, diligence, and
efficiency? (3) Was the award justified?
The general rules and principles governing salvage services and salvage awards are well
settled. This branch of the law of the sea dates back to the early history of navigation. We
find the recorded in the Laws of Oleron, which were promulgated sometime before the year
1266, at article IV:

If a vessel, departing with her lading from Bordeaux, or any other place, happens in
the course of her voyage, to be rendered unfit to proceed therein, and the mariners
save as much of the lading as possibly they can; if the merchants require their goods
of the master, he may deliver them if he pleases, they paying the freight in
proportion to the part of the voyage that is performed, and the costs of the salvage.
But if the master can readily repair his vessel, he may do it; of if he pleases, he may
freight another ship to perform his voyage. And if he has promised the people who
help him to save the ship the third, or the half part of the goods saved for the
danger they ran, the judicatures of the country should consider the pains and trouble
they have been at, and reward them accordingly, without any regard to the promises
made them by the parties concerned in the time of their distress. (See 30 Fed. Cas.,
at page 1172).

The courts of the United States and England have, in a long line of adjudicated cases,
discussed the various phases of this important subject. In general, salvage may be defined
as a service which one person renders to the owner of a ship or goods, by his own labor,
preserving the goods or the ship which the owner or those entrusted with the care of them
have either abandoned in distress at sea, or are unable to protect and secure. The Supreme
Court of the United States and the other Federal Courts of the United States have had
occasion numerous times to quote with approval the following definition from Flanders on
Maritime Law:

Salvage is founded on the equity of remunerating private and individual services

performed in saving, in whole or in part, a ship or its cargo from impending peril, or
recovering them after actual loss. It is a compensation for actual services rendered
to the property charged with it, and is allowed for meritorious conduct of the salvor,
and in consideration of a benefit conferred upon the person whose property he has
saved. A claim for salvage rests on the principle that, unless the property be in fact
saved by those who claim the compensation, it can not be allowed, however
benevolent their intention and however heroic their conduct. (The Job H. Jackson,
161 Fed. Rep., 1015, 1017; The Amelia, 1 Cranch, 1; The Alberta, 9 Cranch, 369;
Clarke vs. Dodge Healy, 4 Wash. C. C., 651; Fed. Cas. No. 2849.)

In the case of Williamson vs. The Alphonso (Fed. Cas., No. 17749; 30 Fed. Cas. 4, 5), the
court laid down practically the same rule.

The relief of property from an impending peril of the sea, by the voluntary exertions
of those who are under no legal obligation to render assistance, and the consequent
ultimate safety of the property, constitute a case of salvage. It may be a case of
more or less merit, according to the degree of peril in which the property was, and
the danger and difficulty of relieving it; but these circumstances affect the degree of
the service and not its nature.

In Blackwall vs. Saucelito Tug Company (10 Wall., 1, 12), the court said:

Salvage is the compensation allowed to persons by whose assistance a ship or her

cargo has been saved, in whole or in part, from impending peril on the sea, or in
 recovering such property from actual loss, as in case of shipwreck, derelict, or
recapture.

It will be noticed from the above definitions that there are certain definite conditions which
must always exist in a case of pure salvage. The Supreme Court of the United States,
speaking through Mr. Justice Clifford, in the case of The Mayflower vs. The Sabine (101 U.
S., 384) makes those conditions three (p. 384).

Three elements are necessary to a valid salvage claim: (1) A marine peril. (2)
Service voluntarily rendered when not required as an existing duty or from a special
contract. (3) Success, in whole or in part, or that the service rendered contributed to
such success.

These are the general principles governing salvage.

The question whether or not a particular ship and her cargo is a fit object of salvage
depends upon her condition at the time the salvage services are performed. In the present
case the plaintiff-appellant claims that the Nippon was a derelict or quasi-derelict and that
their claim should be adjudged upon this cases. A derelict is defined as "A ship or her cargo
which is abandoned and deserted at sea by those who were in charge of it, without any
hope of recovering it (sine spe recuperandi), or without any intention of returning to it (sine
animo revertendi). Whether property is to be adjudged derelict is determimed by
ascertaining what was the intention and expectation of those in charge of it when they
quitted it. If those in charge left with the intention of returning, or of procuring assistance,
the property is not derelict, but if they quitted the property with the intention of finally
leaving it, it is derelict, and a change of their intention and an attempt to return will not
change its nature." (Abbott's Law of Merchant Ships and Seamen, Fourteenth Edition, p.
994.)

This contention of the plaintiffs raises the first question: (1) Was the ship abandoned?

The defendant-appellant Oelwerke Teutonia contends that the captain and the crew did not
leave the ship sine animo revertendi, but that it was their intention to go to Hongkong and
procure assistance with which to save the ship and her cargo. Whether the intention to
return exists in a particular case is always difficult to determine. It is indeed a rare case
when the master of the ship will leave without the intention of returning, if there is the
slightest hope of saving his vessel. In the case of The Coromandel (1 Swab., 208) Dr.
Lushington said:

It may be perfectly true that the master and these fifteen men, when they had got
on board The Young Frederick, and were sailing away to Yarmouth, intended, if
possible, to employ steamers to go and rescue the vessel, which was at no great
distance. But is not that the case every day? A master and crew abandon a vessel for
the safety of their lives; he does not contemplate returning to use his own exertions,
but the master hardly ever abandons a vessel on the coast without the intention, if
he can obtain assistance, to save his vessel. That does not take away the legal
character of derelict. (Norcross vs. The Laura, 14 Wall., 336.)

Judge Crossfield found that:

 At the time the plaintiff commenced the attempt to salve what was possible of the S.
S. Nippon and cargo, it was justified, from all the conditions existing, in believing
that it had been abandoned and in taking possession, even though the master of the
vessel intended when he left it, to return and attempt salvage.

Such intention, if it existed, does not appear to have been very firmly fixed,
considering the leisurely manner in which the master proceeded after he reached the
Port of Hongkong.

The evidence amply supports this finding. The chief officer, Weston, upon reaching the coast
of Zambales, on May 12, 1913, sent the following telegram to the Director of the Bureau of
Navigation:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.

Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew
boats gone — 12.15 p. m.

(Sgd.) R. WESTON.

On the evening of the same day Weston sent the following telegram:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.

Left with nine hands at noon, 9th, 26 men still on board, ship well on reef, stern part
afloat, about ten feed of water in holds, starboard list, heavy swell breaking over,
little hope of saving ship — 6.27 p. m.

(Sgd.) WESTON.

On May 13, 1913, Captain Dixon of the S. S. Manchuria, after rescuing the remainder of the
crew, left on board the Nippon , sent the following telegram to the Director of Navigation.
 S. S. `MANCHURIA,' May 13, 1913.

All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel
stranded May 9th. She is full of water fore and aft, and is badly ashore. Ship
abandoned. Proceeding Hongkong — 9.40 a. m.

(Sgd.) DIXON, Master.

On May 14, 1913, after the members of the crew who came ashore with Weston had
reached Manila, they made the following signed statement:

MANILA, P. I., May 14, 1913.

We, the undersigned officers and part of the crew of the Swedish steamer Nippon, do
hereby declare that the S. S. Nippon struck on Scarborough Reef, about 4.30 on the
afternoon on Thursday May 8 1913. Two of her boats were lost after we struck the
reef, leaving only two on board and those damaged. The ship was filled with water
and pounding on the reef and we considered her a wreck. In company with the chief
officer, we left the ship about noon on Friday, May 9, 1913, in a small boat and
reached Sta. Cruz Zambales, a distance of 130 miles on the morning of Monday, May
12, 1913, and immediately the chief officer wired the Director of Navigation at Manila
for assistance to rescue the balance of the crew left aboard the Nippon, as we
considered their lives in danger and the ship a wreck, with little hope of saving her.

(Signed.)

F. Carman A.G. Erickson

G.E. Johansson F. Palm

W. Bratt J. Karlberg
 B. Nyolram E. Thulin

E. Petterson

On May 16, 1913, Captain Anderson of the Coast Guard cutter Mindoro made the following
report to the Director of Navigation.

S.S. Mindoro
Manila, P.I., May 16, 1913

Sir

I have the honor to make he following report of voyage made to Scarborough Reef,
May 12 to 14, 1913 for officers and crew of S.S. Nippon.

May 13, 1913, being 2 1/2 miles sought of reef, I observed S. S. Nippon stranded on
the N. E. edge of reef. I immediately steered northward around the western edge of
reef and arrived of stranded ship at 9.30 a. m. S. S. Manchuria was laying to about 1
1/2 miles northward of reef, making signals for me to come alongside. I immediately
proceeded out to the Manchuria; upon arrival alongside the Manchuria the captain of
the same ship informed me that the S. S. Nippon was abandoned and that he had
the captain and crew on board for Hongkong. I then asked the captain of
the Manchuria if the captain of the Nippon cared to go to Hongkong, as I was there
to bring him and the crew to Manila if he desired to go. The captain of
the Manchuria again informed me that the captain of the Nippon intended to go to
Hongkong. I answered `All right, I will then go and have a look at the Nippon and
see how badly she is wrecked.' The captain of the Manchuria made the remark that
she was half full of water and that she was very badly wrecked, but that there was
still some baggage left on broad. He also informed me that he had a wire from the
Director of Navigation ordering me to proceed to Santa Cruz to pick up boat's crew
from Nippon . I said, `All right. I will go and get baggage and have a look at the
wreck.' I then left the Manchuria and steamed over to the wreck. On arrival
alongside of the wreck I took on board all baggage packed standing on deck and
sounded around the ship, fore and aft, finding 11 feet of water forward at low water
and 20 feet aft in board, gradually decreasing from forward to aft and I found in
holds about 8 feet of water and the cargo as far as I could see, on top, was nice and
dry, and it is my opinion that with the position the ship is laying in and with the
Southwest monsoon blowing the ship and most of the cargo can be salved, if work is
started before the heavy typhoon season sets in. After leaving the wreck, I
proceeded to Santa Cruz and picked up the first officer and crew of nine men and
brought them to Manila.
 On my second trip to the wreck, May 15th, I examined Nippon more fully and I
believe that if the cargo is taken out the ship can be saved after the holes are pathed
up, if this is done before the heavy weather sets in.

Very respectfully,

(Sgd.) GEO. ANDERSON,

Captain, 'Mindoro.'

THE DIRECTOR OF NAVIGATION, Manila.

Copy sent Struckman & Company, May 16, 1913.

(Sgd.) "A. S. Thompson, chief clerk.

The testimony of Captain Eggert of the Nippon regarding the circumstances of the wreck, is
as follows: (2d part of record, p. 327). "(P. 334.)

Q. When the Manchuria visited the scene of the wreck on May 13, how many of
you went on board? —

A. We all went on board.

Q. By 'all' you mean yourself, passenger, and all the members of the crew that
remained? —

A. Yes.

Q. What did you take with you? —

A. Just personal luggage, not all, what you could carry in a small boat, it could
not be very much considering that the boat was broken and there were 27 men, the
ship's chronometer and ship's papers.

Q. What do you mean by `ship's papers'? —

A. Register, articles.

Q. Did you take the ship's log? —

A. Yes; that is the first thing I take.

Q. That is the first thing you take under what circumstances? —

A. Under any circumstances of accidents to the ship; because it is the official

record up to the time an accident happens.
Q. Do you mean to state, captain, that in the event of any accident to a ship, no
matter how slight, that the ship's log and register and articles are taken ashore? —

A. The ship's log on any occasion has to be brought before the Swedish Consul.

Q. How about the register and articles? —

A. Of course not.

Q. Under what circumstances do you take ashore the ship's articles and register?
—

A. When I leave the ship myself I have, of course, to take those papers with me.

Q. Every time you leave the ship? —

A. No. Every time when I leave it stranded as she was. If I go on shore and try
to get means for taking my ship off the ground, I have to prove what ship it is and
all that. In the meantime a gale may come up and the ship be torn off the rock and
destroyed and the papers lost."

(P. 336.) Q. What were the conditions prevailing aboard the ship from the time
that she stranded until the Manchuria arrived? —

A. The first night there was very bad sea and high wind. The ship was came so
much better than we could send the boat off about 11 o'clock in the forenoon by
using precautions, oil, etc. The third and fourth day the weather was fine.

(P. 337.) Q. And do you now admit that you were mighty glad to get off
the Nippon ? —

A. We were all mighty glad.

Q. Why were you mighty glad? —

A. Chiefly because the crew had insisted on leaving the ship in some way, by
building rafts, or in that boat of ours. And secondly because of the uncertainty. We
did not know if our boat had reached shore. The scene of the accident was quite out
of the track of any vessel, so it was quite natural when we saw that ship coming up
we were glad to get into communication with the outside world.

Q. You say that the crew had insisted on leaving the ship? —

A. They were not insisting on it because they can not insist against the master of
a ship. But they would like to get off.

Q. Why were they discussing the question? —

A. Because they considered it better to leave the ship and reach land rather than
stay on the ship, not knowing if the boat had reached land or not.
Q. They considered it better for what purpose? —

A. Being safe.

Q. You mean better from the standpoint of safety of their life and limb? —

A. Yes. To their lives.

(P. 343.) Q. Captain, if your purpose in leaving the Nippon was to go to Hongkong
for the purpose of arranging for her salvage, why did you not leave some of the crew
on board? —

A. How could I leave some of the crew on board when there was no attendant?
There could be a gale at any time and the ship would have slipped off and broken to
pieces. I first of all was responsible for their lives."

(P. 348.) Q. (By Mr. Rohde.) Captain, did you or did you not leave the Nippon , with
the intention of returning and the hope of recovering your ship and cargo? —

A. I left the Nippon with the full intention of returning to the ship and try to
recover her, and I discussed that matter during the three days we were on the reef
with every member I could see in the crew, and with the passenger. Everybody knew
as soon as I put my foot on the Manchuria it was for the purpose of getting
assistance. Captain Dixon knew, his officers knew it, and his crew knew it.

(Mr. Cohn.) You have not fully replied to the question asked you by counsel for the
defendant, which is whether you had the hope of recovering the ship. —

A. I had hope if the weather continued fine.

(Mr. Cohn.) If you had that hope why didn't you leave some of your crew on board?
—

A. Because the hope would not justify me leaving any of the crew on the ship.

(Mr. Cohn.) Your hope was so slight it did not warrant your leaving anybody on
board? —

A. A hope is always slight. I mean to say your hope will never justify you to risk
another man's life, even if you have a very good foundation for your hope. Life
comes before property.

(Mr. Cohn.) Just what do you mean by "hope"? —

A. I mean to say that if the weather continues fine there is no risk, but if there is
a typhoon or gale we will be worse off and the ship will be smashed and the crew
perish. That is what I mean by a "hope" in this occasion.
 (Mr. Cohn.) What you mean, Captain, is that you were going to Hongkong and if you
could find some one that was willing to go out and look for your ship, and if your ship
was still there, that you would undertake to salve her if you could. —

A. Of course.

Chief Engineer Emil Gohde was asked why the crew wanted to get ashore.

(P. 353.) Q. Why did they want to get to shore? —

A. They wanted to save their lives. We didn't know the weather in the China Sea.
We could have expected a typhoon in a couple of days and very likely the ship would
have gone into the sea.

Captain Eggert sent the following cablegram to the owners of the Nippon , after
reaching Hongkong on May 14, 1913:

(P. 360.) Nippon wrecked during typhoon eight May Scarborough Shoal latitude 15
longitude 118 probably total wreck bottom seriously damaged ship full of water chief
officer and nine men took to boat for rescue landed twelfth Luzon
mailsteamer Manchuria saved captain and remaining crew morning thirteenth.
Arrived Hongkong tonight. Wreck on edge of reef, will probably slip off and sink by
first gale captain arranging to visit wreck and attempt salvage.

EGGERT.

Captain Eggert did not make any determined effort to arrange for the salvage of the Nippon,
as will be seen from the testimony.

(P. 330. Captain Eggert testifying).

Q. What did you do upon your arrival in Hongkong? —

A. The first thing I did — it was about 5 o'clock in the afternoon — I went to the
office of our agents — my owners' agents. It was then close up so I had to proceed
to the private residence of the manager. From there I dispatched a telegram to the
owners.

xxx xxx xxx

Q. What date was this telegram sent? —

A. On the evening of the 14th.

Q. Of what month? —

A. Of May.
 Q. Did you enter into any negotiations with persons or firms? —

A. Yes. The first thing in the morning of the 15th I visited together with the
Swedish Consul the Tykoo dockyard people, the Hongkong dockyard people, and
went to the Mitsui Bussan Kaisha branch office, and those people sent a wire to their
home office in Nagasaki.

Q. What, if anything, interrupted your negotiations with the firms and persons in
Hongkong relative to the salvage of the Nippon and her cargo? —

A. A wire from my owners.

xxx xxx xxx

Q. When was this telegram received by you, Captain? —

A. On the 17th.

Q. What did you do then? —

A. I tried to find out when the next steamer was leaving for Manila and there
was none leaving before the 20th, the steamer I took and proceeded here.

From the above it will be seen that Capt. Eggert had over two days in which to arrange for
salvage operations and he did nothing, while the plaintiffs, who were strangers and had no
interest, sent out a salvage expedition in twenty-four hours after they discovered that the
ship was wrecked.

The evidence proves that the Nippon was in peril; that the captain left in order to protect his
life and the lives of the crew; that the animo revertendi was slight. The argument of the
defendant-appellant to the effect that the ship was in no danger is a bit out of place in view
of the statement of the captain that she would sink with the first gale, coupled with the fact
that a typhoon was the cause of her stranding.

The Federal Courts have, a number of times, had presented to them cases in which the
facts were very similar to the facts in the present case. The claim for salvage was allowed in
each of these cases. In The Bee (Fed. Cas. No. 1219; 3 Fed. Cas., 41), the facts were as
follows: The Bee sailed from Boston to Nova Scotia. Three days after leaving port a gale was
encountered which forced her to run into a cove on the north side of Grand Manan Island,
where an anchor was let out. The ship was somewhat injured from the force of the storm.
The master and the crew stayed on board for 24 hours and then went ashore to procure
assistance. The island was very sparsely settled. They met on shore a number of men (the
libelants) to whom they explained the predicament and position of the ship. These men
immediately went to the ship, boarded her, and took possession. After the master had been
ashore about five hours he returned to the ship and found the libelants in possession. The
owners contended that the master was excluded from the ship wrongfully and therefore the
libelants could not claim salvage. The court stated the law as follows (p. 44):

When a vessel is found at sea, deserted, and has been abandoned by the master and
crew without the intention of returning and resuming the possession, she is, in the
sense of the law, derelict, and the finder who takes the possession with the intention
 of saving her, gains a right of possession, which he can maintain against the true
owner. The owner does not, indeed, renounce his right of property. This is not
presumed to be his intention, nor does the finder acquire any such right. But the
owner does abandon temporarily his right of possession, which is transferred to the
finder, who becomes bound to preserve the property with good faith, and bring it to
a place of safety for the owner's use; and he acquired a right to be paid for his
services a reasonable and proper compensation, out of the property itself. He is not
bound to part with the possession until this is paid, or it is taken into the custody of
the law, preparatory to the amount of salvage being legally ascertained. Should be
salvors meet with the owner after an abandonment, and he should tender his
assistance in saving and securing the property, surely this ought not, without good
reasons, to be refused, as this would be no bar to the right of salvage, and should it
be unreasonably rejected it might affect the judgment of a court materially, as to the
amount proper to be allowed. Still, as I understand the law, the right of possession is
in the salvor. But when the owner, or the master and crew who represent him, leave
a vessel temporarily, without any intention of a final abandonment, but with the
intent to return and resume the possession, she is not considered as a legal derelict,
nor is the right of possession lost by such temporary absence for the purpose of
obtaining assistance, although no individual may be remaining on board for the
purpose of retaining the possession. Property is not, in the sense of the law, derelict
and the possession left vacant for the finder, until the spes recuperandi is gone, and
the animus revertendi is finally given up. (The Aquila, 1 C. Rob. Adm., 41.) But when
a man finds property thus temporarily left to the mercy of the elements, whether
from necessity or any other cause, though not finally abandoned and legally derelict,
and he takes possession of it with the bona fide intention of saving it for the owner,
he will not be treated as a trespasser. On the contrary, if by his exertions he
contributes materially to the preservation of the property, he will entitle himself to a
remuneration according to the merits of his service as a salvor.

The court allowed salvage in this case. They held that the master had taken insufficient
precautions to protect his vessel and although the ship was not a legal derelict, the libelants
were salvors and entitled to salvage.

In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the ship John Gilpin, in
attempting to leave New York harbor in a winter storm, was driven ashore. The ship's crew
sent for help and in the meantime put forth every effort to get her off. Help arrived toward
evening, but accomplished nothing. The master and crew went ashore. The same night the
libelants went out to the ship with equipment and started working. It was contended that
the master had gone ashore for assistance. He returned the next morning with a tug and
some men and demanded possession, which was refused. Salvage was allowed. The court
said (p. 676):

The libelants, in the exercise of their calling as wreckers, coming to a vessel in that
plight, would be guilty of a dereliction of duty if they failed to employ all their means
for the instantaneous preservation of property so circumstanced. This may not be
strictly and technically a case of derelict (Clarke vs. The Dodge Healy, Case No.
2849), if really the master of the brig had gone to the city to obtain the necessary
help to save the cargo and brig, intending at the time, to return with all practicable
dispatch. It appears he came to the wreck by 8 or 9 a. m. the following day, in a
steam-tug, with men to assist in saving the cargo. The animus revertendi et
recuperandi may thus far have continued with the master, but this mental hope or
purpose must be regarded inoperative and unavailing as an actual occupancy of the
 vessel, or manifestation to others of a continuing possession. She was absolutely
deserted for 12 or 14 hours in a condition when her instant destruction was
menaced, and the lives of those who should attempt to remain by her would be
considered in highest jeopardy. She was quite derelict; and being thus found (The
Boston, Case no. 1673; Rowe vs. The Brig, Case no. 12093; 1 Sir Lionel Jenkins, 89)
by the libelants, the possession they took of her was lawful. (The Emulous, Case No.
4480.)

Possession being thus taken when the vessel was, in fact, abandoned and quite
derelict, under peril of instant destruction, the libelants had a right to retain it until
the salvage was completed, and no other person could interfere against them
forcibly, provided they were able to effect the purpose, and were conducting the
business with fidelity and vigor.

In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the following facts:
The four-masted schooner Myrtle Tunnel sailed from Brunswick bound for New York. The
first day out a hurricane struck her and tore the sails away and carried off the deck load.
She was badly damaged and leaking. The master of the Myrtle Tunnel requested towage by
the steamship Mae to the port of Charleston. The Mae, on account of her own damaged
condition, was unable to tow but she took the master and crew of the Myrtle Tunnel off and
landed them at Charleston. The owners were notified and they started an expedition out in
search. Before this expedition reached her, the steamship Shawmut sighted the Myrtle
Tunnel, and, finding that she was abandoned and waterlogged, took her in two and
succeeded in taking her to Charleston. The owners of the Myrtle Tunnel contended that she
was not derelict, because the master had gone ashore to procure assistance. With reference
to this question, the court said (p. 478):

The first question that arises is whether the Myrtle Tunnel is a derelict. Prima facie a
vessel found at sea in a situation of peril, with no one aboard of her, is a derelict; but
where the master and crew leave such vessel temporarily, without any intention of
final abandonment, for the purpose of obtaining assistance, and with the intent to
return and resume possession, she is not technically a derelict. It is not of
substantial importance to decide that question. She was what may be called a quasi-
derelict; abandoned, helpless, her sails gone, entirely without power in herself to
save herself from a situation not of imminent, but of considerable peril; lying about
midway between the Gulf Stream and the shore, and about 30 miles from either. An
east wind would have driven her upon one, and a west wind into the other, where
she should have become a total loss. Lying in the pathway of commence, with
nothing aboard to indicate an intention to return and resume possession, it was a
highly meritorious act upon the part of the Shawmut to take possession of her, and
the award must be governed by the rules which govern in case of derelicts; the
amount of it to be modified in some degree in the interest of the owners in
consideration of their prompt, intelligent, and praiseworthy efforts to resume
possession of her, wherein they incurred considerable expense.

The first of these cases was decided in 1836 and the last in 1907. The indicate that the
abandonment of a vessel by all on board, when the vessel is in peril, will justify third parties
in taking possession with the bona fide intention of saving the vessel and its cargo for its
owners. The mental hope of the master and the crew will in no way affect the possession
nor the right to salvage. See also The Hyderabad (11 Fed. Rep., 749), The Cairnsmore (20
Fed. Rep., 519), Pearce vs. The Ann L. Lockwood (37 Fed. Rep., 233).
This brings us to the second question raised by the assignments of error: (2) Was the
salvage conducted with skill, diligence, and efficiency? The court found:

While the plaintiff entered upon the salvage proceedings without proper means and
not being adapted by their business to conduct their work, and while it may appear
that possibly the salvage might have been conducted in a better manner and have
accomplished somewhat better results in the saving of the copra cargo, yet it
appears that they quickly remedied their lack of means and corrected the conduct of
the work so that it accomplished fairly good results.

It does not appear from the evidence that anyone then or subsequently suggested or
found any other course which might have been pursued and which would have
brought better results.

There was some dispute whether Manila or Hongkong should be used as a base for
operations. Capt. Robinson, who was the only one of the experts who had had any
experience in handling wet copra, unqualifiedly approved Manila as a base for operations.
(P. 437, 3d part of record):

Q. Assuming that you had been asked to undertake the work of salving the
steamer Nippon and her cargo, please state whether you would have undertaken
that work with the men and material available in Manila, or whether you would have
gone to Hongkong and used Hongkong men and material and made Hongkong your
base on operations. —

A. Certainly not. I would have made Manila my base, which I always have done.

Lebreton, a stevedore, testified that he would have gotten some of his materials from
Hongkong but that he would have freighted the salved cargo to Manila. All other things
being equal, the fact that Hongkong is forty sailing hours from Scarborough Reef while
Manila is less than twenty-four sailing hours would make Manila by far the more logical
base.

The plaintiffs sent men into the hold of the ship and sacked the copra and brought it to
Manila where it was sold. Some of the witnesses contended that other methods should have
been used. They testified that "grabs" or "claim shells" would have brought better results,
but none of these witnesses had had any experience in unloading wet copra. Capt. Robinson
was the only witness called who had had any experience in this class of work. He testified
that the only way all the copra could be gotten out was by sacks or by canvas slights; that
"grabs" would be of no use because of the inability to work with them between decks. The
copra was in three layers. The top layer was dry, the middle layer was submerged every
time the tide rose, and the lower layer was submerged all of the time. It was manifestly
impossible to keep these layers separate by using "grabs" or "clam shells." The fact that wet
copra is exceedingly difficult to handle, on account of the gases which arise from it, is also
of prime importance in weighing the testimony of defendant's witnesses, because none of
them had ever had experience with wet copra.

The plaintiffs commenced the actual work of salving the ship and cargo on May 18, 1913.
The last of the cargo was a brought to Manila the latter part of June. The last of the dry
copra was brought to Manila on June 5. The estimates of the experts with regard to the time
necessary to remove the cargo ranged from eight to twenty days. The greater portion of the
cargo was brought in by the plaintiffs within fifteen days. The delay after June 5 was due to
the difficulty in inducing laborers to work with wet copra. This difficulty would have arisen
with any set of salvors and cannot be attributed to a lack of care or diligence on the part of
the plaintiffs.

The plaintiffs were diligent in commencing the work and were careful and efficient in its
pursuit and conclusion.

The third and last question is with regard to the amount of the award — (3) Was the award
justified?

Compensation as salvage is not viewed by the admiralty courts merely as pay on the
principle of quantum meruit or as a remuneration pro opere et labore, but as a
reward given for perilous services, voluntarily rendered, and as an inducement to
mariners to embark in such dangerous enterprises to save life and property. (The
Mayflower vs. The Sabine, 101 U. S., 384.)

The plaintiff-appellant contends that the expenses incurred should be deducted from the
entire amount of the salved property and the remainder be divided as a reward for the
services rendered. This contention has no basis in the law of salvage compensation. The
expenses incurred by the plaintiffs must be borne by them. It is true that the award should
be liberal enough to cover the expenses and give an extra amount as a reward for the
services rendered but the expenses are used in no other way as a basis for the final award.
A part of the risk that the plaintiffs incurred was that the goods salved would not pay them
for the amount expended in salving them. The plaintiffs knew this risk and they should not
have spent more money than their reasonable share of the proceeds would amount to under
any circumstances.

In the case of The Carl Schurz (Case No. 2414; 5 Fed. Cas., 84) the actual expenditure by
the libelant in salving the vessel in question was $568.95. The ship when sold brought
$792. The libelant wanted the court to first deduct the expenses. The court refused to do
this but decreed a moiety. The court said (p. 86):

A salvor, in the view of the maritime law, has an interest in the property; it is called
a lien, but it never goes, in the absence of a contract expressly made, upon the idea
of a debt due by the owner to the salvor for services rendered, as at common law,
but upon the principle that the service creates a property in the thing saved. He is,
to all intents and purposes, a joint owner, and if the property is lost he must bear his
share like other joint owners.

This is the governing principle here. The libelant and the owners must mutually bear
their respective share of the loss in value by the sale. If the libelant has been
unfortunate and has spent his time and money in saving a property not worth the
expenditure he made, or if, having saved enough to compensate him, it is lost by the
uncertainties of a judicial sale for partition, so to speak, it is a misfortune not
uncommon to all who seek gain by adventurous speculations in values. The libelant
says in his testimony that he relied entirely on his rights as a salvor. This being so he
knew the risk he ran and it was his own folly to expend more money in the service
than his reasonable share would have been worth under all circumstances and
contingencies. He can rely neither on the common law idea of an implied contract to
pay for work on and about one's property what the work is reasonably worth with
alien attached by possession for satisfaction, nor upon any notion of an implied
maritime contract for the service, with a maritime lien to secure it, as in the case of
 repairs, or supplies furnished a needy vessel, or the like. In such a case the owner
would lose all if the property did not satisfy the debt, when fairly sold. But this
doctrine has no place in the maritime law of salvage. It does not proceed upon any
theory of an implied obligation, either of the owner or the res, to pay a quantum
meruit, nor actual expenses incurred, but rather on that of a reasonable
compensation or reward, as the case may be, to one who has rescued the res from
danger of total loss. If he gets the whole, the property had as well been lost entirely,
so far as the owner is concerned. (Smith vs. The Joseph Stewart, Fed. Cas. No.
13070.) I think the public policy of encouragement for such service does not, of
itself, furnish sufficient support for a rule which would exclude the owner from all
benefit to be derived from the service.

In Williams vs. The Adolphe (Fed. Cas. No. 17712; 29 Fed. Cas., 1350) the court said (p.
1353):

The claim of the libelants is for salvage, the services rendered were salvage services
and the owners are to receive their property again, after paying salvage for the
services rendered them. What service would it be to them to take their property
under circumstances calling for the whole of it by way of indemnity? The mistake of
the captain and the supercargo, and part owner of the Triton as to the value of the
property on board the Adolphe, should not operate to the injury of the owners
thereof; the salvors must bear the consequences of their own mistake, taking such a
proportion only of the property salved, as by the law of the admiralty should be
awarded them.

In The Edwards (12 Fed. Rep., 508, 509), the court said:

It is true that in rendering a salvage service the salvor assumes the risks of failure,
and his salvage depends upon his success and the amount of property saved; yet
when there is enough to fully compensate him for time and labor, and leave a
reasonable proportion for the owner, he should certainly be awarded that, if the
amount will allow no more.

In The L. W. Perry (71 Fed. Rep., 745, 746), the court said:

Without regard to the element of reward which is intended by the salvage allowance,
it is manifest that remuneration pro opere et labore would be placed in excess of the
fund here, if such basis were allowable. Therefore, it is contended on behalf of the
libelant that the entire sum remaining should be awarded for the salvage service;. . .
.

While salvage is of the nature of a reward of meritorious service, and for

determination of its amount the interests of the public and the encouragement of
others to undertake like service are taken into consideration, as well as the risk
incurred, and the value of the property saved, and where the proceeds for division
are small, the proportion of allowance to the salvor may be enlarged to answer these
purposes, nevertheless, the doctrine of salvage requires, as a prerequisite to any
allowance, that the service `must be productive of some benefit to the owners of the
property salved; for, however meritorious the exertions of alleged salvors may be, if
they are not attended with benefit to the owners, they can not be compensated as
such.' (Abb. Shipp. [London Ed., 1892], 722.) The claim of the libelant can only be
supported as one for salvage. It does not constitute a personal demand,
 upon quantum meruit, against the owners, but gives an interest in the property
saved, which entitles the salvor to a liberal share of the proceeds. . . .

(P. 747.) One of the grounds for liberality in salvage awards is the risk assumed by
the salvor, — that he can have no recompense for service or expense unless he is
successful in the rescue of property, and that his reward must be within the measure
of his success. He obtains an interest in the property, and in its proceeds when sold,
but accompanied by the same risk of any misfortune or depreciation which may
occur to reduce its value. In other words, he can only have a portion, in any event;
and the fact that his exertions were meritorious and that their actual value, or the
expense actually incurred, exceeded the amount produced by the service, cannot
operate to absorb the entire proceeds against the established rules of salvage. (The
Carl Schurz, Fed. Cas. No. 2414).

The plaintiff-appellants contends that the award of the lower court of one-half is the
established rule in cases of derelicts and should not be disturbed. It is well established now
that the courts have a wide discretion in settling the award. The award is now determined
by the particular facts and the degree of merit. In The Job H. Jackson (161 Fed. Rep., 1015,
1018), the court said:

There is no fixed rule for salvage allowance. The old rule in cases of a derelict was 50
per cent of the property salved; but under modern decisions and practice, it may be
less, or it may be more. The allowance rests in the sound discretion of the court or
judge, who hears the case, hears the witnesses testify, looks into their eyes, and is
acquainted with the environments of the rescue. . . . An allowance for salvage should
not be weighed in golden scales, but should be made as a reward for meritorious
voluntary services, rendered at a time when danger of loss is imminent, as a reward
for such services so rendered, and for the purpose of encouraging others in like
services.

In The Lamington (86 Fed. Rep., 675, 678), the court said:

While it appears most clearly that, since the old hard and fast rule of `50 per cent of
a derelict' was abandoned, the award is determined by a consideration of the
peculiar facts of each case, it is none the less true that the admiralty courts have
always been careful not only to encourage salving enterprises by liberality, when
possible, but also to recognize the fact that it is, after all, a speculation in which
desert and reward will not always balance.

The award is largely in the discretion of the trial court and it is rare that the appellate court
will disturb the findings.

Appellate courts rarely reduce salvage awards, unless there has been some violation
of just principles, or some clear or palpable mistake. They are reluctant to disturb
such award, solely on the ground that the subordinate court gave too large a sum,
unless they are clearly satisfied that the court below made an exorbitant estimate of
the services. It is equally true that, when the law gives a party a right to appeal, he
has the right to demand the conscientious judgment of the appellate court on every
question arising in the case, and the allowance of salvage originally decreased has,
in many cases, been increased or diminished in the appellate court, even where it did
not violate any of the just principles which should regulate the subject, but was
unreasonably excessive or inadequate. (Post vs. Jones, 19 How., 161). Although the
 amount to be awarded as salvage rests, as it is said, in the discretion of the court
awarding it, appellate courts will look to see if that discretion has been exercised by
the court of first instance in the spirit of those decisions which higher tribunals have
recognized and enforced, and will readjust the amount if the decree below does not
follow in the path of authority, even though no principle has been violated or mistake
made.

The property of the defendant-appellants which was salved was forced to pay the same
proportion of the award without distinction. The day copra and the agar-agar was salved
with much more ease than the wet copra. The courts have, almost universally, made a
distinction in this regard. In The America (1 Fed. Cas., 596), decided in 1836, the award
was as follows: 25 per cent on cargo salved dry; 50 per cent on cargo salved damaged; 60
per cent on cargo salved by diving.

In The Ajax (1 Fed. Cas., 252(, decided in 1836, the award was as follows: 33 per cent on
the dry; 50 per cent on the wet; 50 per cent on ship's materials. In The Nathaniel
Kimball (Fed. Cas. No. 10033), decided in 1853, the award was as follows: 30 per cent on
dry cargo; 50 per cent on wet, salved by diving and working under water.

In The Brewster (Fed. Cas. No. 1852), decided in 1848, the award was as follows: 33 per
cent, and as to some cargo where diving was necessary, 60 per cent.

In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the award was as follows: 25 per
cent salving dry deck cotton; 45 per cent salving cotton submerged between decks; 55 per
cent salving cotton by diving.

In The John Wesley (Fed. Cas. No. 7433), decided in 1866, the award was as follows: 15
per cent; on damaged cotton a slightly higher per cent.

In The Northwester (Fed. Cas. No. 10333), decided in 1873, the award was as follows: 20
per cent on cotton dry; 33 1/3 per cent on cotton wet and burnt; 40 per cent on materials;
50 per cent on property salved by diving.

In Baker vs. Cargo etc. of The Slobodna (35 Fed. Rep., 537), decided in 1887, the award
was as follows: 25 per cent on dry cotton; 33 1/3 per cent on wet cotton; 45 per cent on
materials.

In the cases in which the full award of 50 per cent was allowed the court usually made the
comment: "services highly meritorious," "meritorious service," "with great labor and
difficulty," or similar remarks.

In the salvage operations conducted by the plaintiff, the following property was involved:

First, the steamship Nippon , valued P250,000.00

at

Second, copra, net value, salved 142,657.05

 Third, agar-agar, net value, salved 5,635.00

Fourth, general cargo 5,939.68

Fifth, camphor, net value, salved 1,850.00

Sixth, curios, net value, salved 150.00

The plaintiff and the owners of the ship have heretofore, by mutual agreement, settled the
question of the amount of salvage of the ship. The plaintiff received for that part of their
services the sum of L15,000 or about P145,800.

No appeal was taken from the judgment of the lower court concerning the amount of
salvage allowed by it for the general cargo, the camphor, nor the curios salved.

The only question raised by the appellants is as to the amount of salvage which should be
awarded to the plaintiff-appellants for the copra and the agar-agar. After a careful study of
the entire record and taking into account the amount which the plaintiffs has heretofore
received, we have arrived at the conclusion that in equity and justice the plaintiff-appellants
should receive for their services the following amounts:

(a) 40 per cent of the net value of the wet copra salved.

(b) 25 per cent of the net value of the dry copra salved.

(c) 20 per cent of the net value of the agar-agar salved.

The net value of the wet copra salved amounted to P40,381.94; 40 per cent of that amount
would be P16,152.78. The net value of the dry copra salved amounted to P102,272.11; 25
per cent of that amount would be P25,568.77.

In ascertaining the net value of the copra salved, the expenses incurred by the Collector of
Customs in the sale of the copra, amounting to P4,080.01, has been deducted from the
total amount of the copra salved in the proportion of 2.5 to 1. Dividing the expense in that
proportion we have deducted from the amount of the dry copra salved the sum of
P2,914.39, and from the amount of the wet copra salved, the sum of P1,165.62.
The net value of the agar-agar salved amounted to P5,636; 20 per cent of that amount
would be P1,127.

In view of all of the foregoing, it is hereby ordered and decreed that the judgment of the
lower court be modified, and that a judgment be entered against the defendant-appellants
and in favor of the plaintiff-appellant, as follows: First, it is hereby ordered and decreed that
a judgment be entered against the defendant, the Oelwerke Teutonia, and in favor of the
plaintiff in the sum of P41,721.55. Second, it is further ordered and decreed that a
judgment be entered against the defendant, the New Zealand Insurance Company (Ltd.),
and in favor of the plaintiff, in the sum of P1,127. Third, it is further ordered and decreed
that the amount of the judgment hereinbefore rendered in favor of the plaintiff be paid out
of the money which is now under the control of the Court of First Instance of the city of
Manila. And without any finding as to costs, it is so ordered.

Arellano, C.J., Torres, Johnson, Carson, and Trent, JJ.

Barrios v. Go Thong 1 SCRA 600 (1984)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-17192 March 30, 1963

HONORIO M. BARRIOS, plaintiff-appellant,

vs.
CARLOS A. GO THONG & COMPANY, defendant-appellee.

Laput & Jardiel for plaintiff-appellant.

Quisumbing & Quisumbing for defendant-appellee.

BARRERA, J.:

From the decision of the Court of First Instance of Manila (in Civil Case No. 37219)
dismissing with costs his case against defendant Carlos A. Go Thong & Co., plaintiff Honorio
M. Barrios, interposed the present appeal.

The facts of the case, as found by the trial court, are briefly stated in its decision, to wit:

The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the
MV Henry I of the William Lines Incorporated, of Cebu City, plying between and to and from
Cebu City and other southern cities and ports, among which are Dumaguete City,
Zamboanga City, and Davao City. At about 8:00 o'clock on the evening of May 1, 1958,
plaintiff in his capacity as such captain and/or master of the aforesaid MV Henry I, received
or otherwise intercepted an S.O.S. or distress signal by blinkers from the MV Don Alfredo,
owned and/or operated by the defendant Carlos A. Go Thong & Company. Acting on and/or
answering the S.O.S. call, the plaintiff Honorio M. Barrios, also in his capacity as captain
and/or master of the MV Henry I, which was then sailing or navigating from Dumaguete
City, altered the course of said vessel, and steered and headed towards the beckoning MV
Don Alfredo, which plaintiff found to be in trouble, due to engine failure and the loss of her
propeller, for which reason, it was drifting slowly southward from Negros Island towards
Borneo in the open China Sea, at the mercy of a moderate easterly wind. At about 8:25
p.m. on the same day, May 1, 1958, the MV Henry I, under the command of the plaintiff,
succeeded in getting near the MV Don Alfredo — in fact as near as about seven meters from
the latter ship — and with the consent and knowledge of the captain and/or master of the
MV Don Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and
connected with two lines from the MV Henry I; and in that manner, position and situation,
the latter had the MV Don Alfredo in tow and proceeded towards the direction of Dumaguete
City, as evidenced by a written certificate to this effect executed and accomplished by the
Master, the Chief Engineer, the Chief Officer, and the Second Engineer, of the MV Don
Alfredo, who were then on board the latter ship at the time of the occurrence stated above
(Exh. A). At about 5:10 o'clock the following morning, May 2, 1958, or after almost nine
hours during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while
both vessels were approaching the vicinity of Apo Islands off Zamboanga town, Negros
Oriental, the MV Lux, a sister ship of the MV Don Alfredo, was sighted heading towards the
direction of the aforesaid two vessels, reaching then fifteen minutes later, or at about 5:25
o'clock on that same morning. Thereupon, at the request and instance of the captain and/or
master of the MV Don Alfredo, the plaintiff caused the tow lines to be released, thereby also
releasing the MV Don Alfredo.

These are the main facts of the present case as to which plaintiff and defendant quite agree
with each other. As was manifested in its memorandum presented in this case on August
22, 1958, defendant thru counsel said that there is, indeed, between the parties, no dispute
as to the factual circumstances, but counsel adds that where plaintiff concludes that they
establish an impending sea peril from which salvage of a ship worth more than
P100,000.00, plus life and cargo was done, the defendant insists that the facts made out no
such case, but that what merely happened was only mere towage from which plaintiff
cannot claim any compensation or remuneration independently of the shipping company
that owned the vessel commanded by him.

On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating:

Plaintiff bases his claim upon the provisions of the Salvage Law, Act No. 2616, .....

In accordance with the Salvage Law, a ship which is lost or abandoned at sea is
considered a derelict and, therefore, proper subject of salvage. A ship in a desperate
condition, where persons on board are incapable, by reason of their mental and
physical condition, of doing anything for their own safety, is a quasi-derelict and
may, likewise, be the proper subject of salvage. Was the MV Don Alfredo, on May 1,
1958, when her engine failed and, for that reason, was left drifting without power on
the high seas, a derelict or a quasi-derelict? In other words, was it a ship that was
lost or abandoned, or in a desperate condition, which could not be saved by reason
of incapacity or incapacity of its crew or the persons on board thereof? From all
appearances and from the evidence extant in the records, there can be no doubt, for
it seems clear enough, that the MV Don Alfredo was not a lost ship, nor was it
abandoned. Can it be said that the said ship was in a desperate condition, simply
because S.O.S. signals were sent from it?.

From the testimony of the captain of the MV Don Alfredo, the engine failed and the
ship already lost power as early as 8:00 o'clock on the morning of May 1, 1958;
although it was helpless, in the sense that it could not move, it did not drift too far
from the place where it was, at the time it had an engine failure. The weather was
fair — in fact, as described by witnesses, the weather was clear and good. The waves
were small, too slight — there were only ripples on the sea, and the sea was quite
smooth. And, during the night, while towing was going on, there was a moonlight.
Inasmuch as the MV Don Alfredo was drifting towards the open sea, there was no
danger of floundering. As testified to by one of the witnesses, it would take days or
even weeks before the ship could as much as approach an island. And, even then,
upon the least indication, the anchor could always be weighed down, in order to
prevent the ship from striking against the rocks.

"There was no danger of the vessel capsizing, in view of the fairness of the sea, and
the condition of the weather, as described above. As a matter of fact, although the
MV Don Alfredo had a motor launch, and two lifeboats, there was no attempt, much
less, was there occasion or necessity, to lower anyone or all of them, in order to
evacuate the persons on board; nor did the conditions then obtaining require an
order to jettison the cargo.

But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from
aboard the MV Don Alfredo, which was enough to establish the fact that it was
exposed to imminent peril at sea. It is admitted by the defendant that such S.O.S.
signal was, in fact, sent by blinkers. However, defendant's evidence shows that
Captain Loresto of the MV Don Alfredo, did not authorize the radio operator of the
aforesaid ship to send an S.O.S. or distress signal, for the ship was never in distress,
nor was it exposed to a great imminent peril of the sea. What the aforesaid Captain
told the radio operator to transmit was a general call; for, at any rate, message had
been sent to defendant's office at Cebu City, which the latter had acknowledged, by
sending back a reply stating that help was on the way. However, as explained by the
said radio operator, in spite of his efforts to send a general call by radio, he did not
receive any response. For this reason, the Captain instructed him to send the general
call by blinkers from the deck of the ship; but the call by blinkers, which follows the
dots and dashes method of sending messages, could not be easily understood by
deck officers who ordinarily are not radio operators. Hence, the only way by which
the attention of general officers on deck could be called, was to send an S.O.S. signal
which can be understood by all and sundry.

Be it as it may, the evidence further shows that when the two ships were already
within hearing distance (barely seven meters) of each other, there was a sustained
conversation between Masters and complement of the two vessels, by means of loud
speakers and the radio; and, the plaintiff must have learned of the exact nature and
extent of the disability from which the MV Don Alfredo had suffered — that is, that
the only trouble that the said vessel had developed was an engine failure, due to the
loss of its propellers..

It can thus be said that the MV Don Alfredo was not in a perilous condition wherein
the members of its crew would be incapable of doing anything to save passengers
and cargo, and, for this reason, it cannot be duly considered as a quasi-derelict;
hence, it was not the proper subject of salvage, and the Salvage Law, Act No. 2616,
is not applicable.

Plaintiff, likewise, predicates his action upon the provisions of Article 2142 of the
New Civil Code, which reads as follows:
 Certain lawful, voluntary and unilateral acts give to the juridical relation of
quasi-contract to the end that no one shall be unjustly enriched or benefited
at the expense of another.

This does not find clear application to the case at bar, for the reason that it is not the
William Lines, Inc., owners of the MV Henry I which is claiming for damages or
remuneration, because it has waived all such claims, but the plaintiff herein is the
Captain of the salvaging ship, who has not shown that, in his voluntary act done
towards and which benefited the MV Don Alfredo, he had been unduly prejudiced by
his employers, the said William Lines, Incorporated.

What about equity? Does not equity permit plaintiff to recover for his services
rendered and sacrifices made? In this jurisdiction, equity may only be taken into
account when the circumstances warrant its application, and in the absence of any
provision of law governing the matter under litigation. That is not so in the present
case.

In view of the foregoing, judgment is hereby rendered dismissing the case with costs
against the plaintiff; and inasmuch as the plaintiff has not been found to have
brought the case maliciously, the counterclaim of the defendant is, likewise,
dismissed, without pronouncement as to costs.

SO ORDERED.

The main issue to be resolved in this appeal is, whether under the facts of the case, the
service rendered by plaintiff to defendant constituted "salvage" or "towage", and if so,
whether plaintiff may recover from defendant compensation for such service.

The pertinent provision of the Salvage Law (Act No. 2616), provides:

SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control
of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe
place by other persons, the latter shall be entitled to a reward for the salvage.

Those who, not being included in the above paragraph, assist in saving a vessel or its cargo
from shipwreck, shall be entitled to a like reward.

According to this provision, those who assist in saving a vessel or its cargo from shipwreck,
shall be entitled to a reward (salvage). "Salvage" has been defined as "the compensation
allowed to persons by whose assistance a ship or her cargo has been saved, in whole or in
part, from impending peril on the sea, or in recovering such property from actual loss, as in
case of shipwreck, derelict, or recapture." (Blackwall v. Saucelito Tug Company, 10 Wall. 1,
12, cited in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178.) In
the Erlanger & Galinger case, it was held that three elements are necessary to a valid
salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when not
required as an existing duty or from a special contract, and (3) success in whole or in part,
or that the service rendered contributed to such success.1

Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff
against defendant? Like the trial court, we do not think there was. It appears that although
the defendant's vessel in question was, on the night of May 1, 1958, in a helpless condition
due to engine failure, it did not drift too far from the place where it was. As found by the
court a quo the weather was fair, clear, and good. The waves were small and too slight, so
much so, that there were only ripples on the sea, which was quite smooth. During the
towing of the vessel on the same night, there was moonlight. Although said vessel was
drifting towards the open sea, there was no danger of it floundering or being stranded, as it
was far from any island or rocks. In case of danger of stranding, its anchor could released,
to prevent such occurrence. There was no danger that defendant's vessel would sink, in
view of the smoothness of the sea and the fairness of the weather. That there was absence
of danger is shown by the fact that said vessel or its crew did not even find it necessary to
lower its launch and two motor boats, in order to evacuate its passengers aboard. Neither
did they find occasion to jettison the vessel's cargo as a safety measure. Neither the
passengers nor the cargo were in danger of perishing. All that the vessel's crew members
could not do was to move the vessel on its own power. That did not make the vessel a
quasi-derelict, considering that even before the appellant extended the help to the
distressed ship, a sister vessel was known to be on its way to succor it.

If plaintiff's service to defendant does not constitute "salvage" within the purview of the
Salvage Law, can it be considered as a quasi-contract of "towage" created in the spirit of
the new Civil Code? The answer seems to incline in the affirmative, for in consenting to
plaintiff's offer to tow the vessel, defendant (through the captain of its vessel MV Don
Alfredo) thereby impliedly entered into a juridical relation of "towage" with the owner of the
vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated.

Tug which put line aboard liberty ship which was not in danger or peril but which had
reduced its engine speed because of hot grounds, and assisted ship over bar and,
thereafter, dropped towline and stood by while ship proceeded to dock under own
power, was entitled, in absence of written agreement as to amount to be paid for
services, to payment for towage services, and not for salvage services. (Sause, et al.
v. United States, et al., 107 F. Supp. 489)

If the contract thus created, in this case, is one for towage, then only the owner of the
towing vessel, to the exclusion of the crew of the said vessel, may be entitled to
remuneration.

It often becomes material too, for courts to draw a distinct line

between salvage and towage, for the reason that a reward ought sometimes to be given to
the crew of the salvage vessel and to other participants in salvage services; and such
reward should not be given if the services were held to be merely towage. (The Rebecca
Shepherd, 148 F. 731.)

The master and members of the crew of a tug were not entitled to participate in payment by
liberty ship for services rendered by tug which were towage services and
not salvage services. (Sause, et al. v. United States, et al., supra.)

"The distinction between salvage and towage is of importance to the crew of the salvaging
ship, for the following reasons: If the contract for towage is in fact towage, then the crew
does not have any interest or rights in the remuneration pursuant to the contract. But if the
owners of the respective vessels are of a salvage nature, the crew of the salvaging ship is
entitled to salvage, and can look to the salvaged vessel for its share. (I Norris, The Law of
Seamen, Sec. 222.)
And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for
compensation for the towage service rendered to defendant, it is clear that plaintiff, whose
right if at all depends upon and not separate from the interest of his employer, is not
entitled to payment for such towage service.

Neither may plaintiff invoke equity in support of his claim for compensation against
defendant. There being an express provision of law (Art. 2142, Civil Code) applicable to the
relationship created in this case, that is, that of a quasi-contract of towage where the crew
is not entitled to compensation separate from that of the vessel, there is no occasion to
resort to equitable considerations.

WHEREFORE, finding no reversible error in the decision of the court a quo appealed from,
the same is hereby affirmed in all respects, with costs against the plaintiff-appellant. So
ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
Dizon, Regala and Makalintal, JJ., concur.

CHAPTER 16 – CARRIAGE OF GOODS BY SEA ACT (COGSA)

Elser Inc. v. CA 96 Phil 264 (1654)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-6517 November 29, 1954

E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE COMPANY, petitioners,

vs.
COURT OF APPEALS, INTERNATIONAL HARVESTER COMPANY OF THE PHILIPPINES
and ISTHMIAN STEAMSHIP COMPANY, respondents.

Gibbs and Chuidian for petitioners.

J. A. Wolfson for respondents.

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of Appeals which affirms that of court
as origin dismissing the complaint without pronouncement as to costs..

The facts, as found by the Court of Appeals, are:.

It appears that in the month of December, 1945 the goods specified in the Bill of
Lading marked as Annex A, were shipped on the 'S.S. Sea Hydra,' of Isthmian
Steamship Company, from New York to Manila, and were received by the consignee
'Udharam Bazar and Co.', except one case of vanishing cream valued at P159.78.
The goods were insured against damage or loss by the 'Atlantic Mutual Insurance
Co.' `Udharam Bazar and Co.' Inc., who denied having received the goods for
 custody, and the 'International Harvester Co. of the Philippines,' as agent for the
shipping company, who answer that the goods were landed and delivered to the
Customs authorities. Finally, 'Udaharam Bazar and Co.' claimed for indemnity of the
loss from the insurer, 'Atlantic Mutual Insurance Co.', and was paid by the latter's
agent 'E. E. Elser Inc.' the amount involved, that is, P159.78..

As may be noted, the Court of Appeals held that petitioners have already lost their right to
press their claim against respondent because of their failure to serve notice thereof upon
the carrier within 30 days after receipt of the notice of loss or damage as required by clause
18 of the bill of lading which was issued concerning the shipment of the merchandise which
had allegedly disappeared. In this respect, the court said that, "appellant unwittingly
admitted that they were late in claiming the indemnity for the loss of the case of the
vanishing cream as their written claim was made on April 25, 1946, or more than 30 days
after they had been fully aware of said loss," and because of this failure, the Court said the
action of petitioners should, and must, fall. Petitioners now contend that this finding is
erroneous in the light of the provisions of the Carriage of Goods by Sea Act of 1936, which
apply to this case, the same having been made an integral part of the covenants agreed
upon in the bill of lading.

There is merit in this contention. If this case were to be governed by clause 18 of the bill of
lading regardless of the provisions of the Carriage of Goods by Sea Act of 1936, the
conclusion reached by the Court of Appeals would indeed the correct, but in our opinion this
Act cannot be ignored or disregard in determining the equities of the parties it appearing
that the same was made an integral part of the bill of lading by express stipulation. It
should be noted, in this connection, that the Carriage of Goods by Sea Act of 1936 was
accepted and adopted by our government by the enactment of Commonwealth Act No. 65
making said Act "applicable to all contracts for the carriage in foreign trade." And the
pertinent provisions of the Carriage of the Goods by Sea Act of 1936 are:

6. Unless notice of loss or damage and the general nature of such loss or damage be
given in writing to the carrier of his agent at the port of discharge or at the time of
the removal of the goods into the custody of the person entitled to delivery thereof
under the contract of carriage, such removal shall be prima facie evidence of the
delivery by the carrier of the goods as described in the bill of lading. If the loss or
damage is not apparent, the notice must be given within three days of the delivery.

xxx xxx xxx

In any event the carrier and the ship shall be discharged from all liability in respect
of loss or damage unless suit is brought within one year after delivery of the goods
or the date when the goods should have been delivered: PROVIDED, That if a notice
of loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit
within one year after the delivery of the goods or the date when the goods should
have been delivered. (Section 3; Emphasis supplied.).

It would therefore appear from the above that a carrier can only be discharged from liability
in respect of loss or damage if the suit is not brought within one year after the delivery of
the goods or the date when the goods should have been delivered, and that, even if a notice
of loss or damage is not given as required, "that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery of the goods." In other words,
regardless of whether the notice of loss or damage has been given, the shipper can still
bring an action to recover said loss or damage within one year after the delivery of the
goods, and, as we have stated above, this is contrary to the provisions of clause 18 of the
bill of lading. The question that now rises is: Which of these two provisions should prevail?
Is it that contained in clause 18 of the bill of lading, or that appearing in the Carriage of
Goods by Sea Act?.

The answer is not difficult to surmise. That clause 18 must of necessity yields to the
provisions of the Carriage of Goods by Sea Act in view of the proviso contained in the same
Act which says: "any clause, covenant, or agreement in a contract of carriage relieving the
carrier or the ship from liability for loss or damage to or in connection with the goods . . . or
lessening such liability otherwise than as provided in this Act, shall be null and void and of
no effect." (section 3.) This means that a carrier cannot limit its liability in a manner
contrary to what is provided for in said act. and so clause 18 of the bill of lading must of
necessity be null and void. This interpretation finds no support in a number of cases recently
decided by the American courts. Thus, in Balfour, Guthrie and Co., Ltd., et al., vs.
American-West African Line, Inc. and American-West African Line, Inc. vs. Balfour, Guthrie
& Co., Ltd., et al., 136 F. 2d. 320, wherein the bill of lading provided that the owner should
not be liable for loss of cargo unless written notice thereof was given within 30 days after
the goods should have been delivered and unless written claim therefor was given within six
months after giving such written notice, the United States Circuit Court of Appeals, Second
Circuit, in a decision promulgated on August 2, 1943, made the following ruling:.

But the Act, section 3 (6), 45 U.S.A. section 1303 (6) provides that failure to give
'notice of loss or damages' shall not prejudice the right of the shipper to bring suit
within one year after the date when the goods should have been delivered. to
enforce a bill of lading provision conditioning a ship owner's liability upon the filing of
written claim of loss, which in turn requires and depends upon the filing of a prior
notice of loss, certainly would do violence to section 3(6) is that failure to file written
claim of loss in no event may prejudice right of suit within a year of the scheduled
date for cargo delivery. This is also to be concluded from section 3(8) 46 U.S. C. A.
Section 1303 (8),that any clause in a bill of lading lessening the liability of the carrier
otherwise than as provided in the Act shall be null and void. A similar provision in the
British Carriage of Goods by Sea Act, 14 and 15 Geo. V. c.22, has been interpreted
to nullify any requirement of written claim as a condition to suit at any time. CF.
Australian United Steam Navigation Co., Ltd., vs. Hunt (1921) 2 A. C. 351;
Conventry Sheppard and Co., vs. Larrinaga S. S. Co., 73 ll. L. Rep. 256.1

But respondents contend that while the United States Carriage of Goods by Sea Act of 1936
was accepted and adopted by our government by virtue of Commonwealth Act No. 65,
however, said Act does not have any application to the present case because the shipment
in question was made in December, 1945, and arrived in Manila in February, 1946 and at
that time the Philippines was still a territory or possession of the United States and,
therefore it may be said that the trade then between the Philippines and the United States
was not a "foreign trade". In other words, it is contended that the Carriage of Goods by Sea
Act as adopted by our government is only applicable "to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade," and, therefore, it does not apply
to the shipment in question..

Granting arguendo that the Philippines was a territory or possession of the United States for
the purposes of said Act and that the trade between the Philippines and the United States
before the advent of independence was not foreign trade or can only be considered in a
domestic sense, still we are of the opinion that the Carriage of Goods by Sea Act of 1936
may have application to the present case it appearing that the parties have expressly
agreed to make and incorporate the provisions of said Act as integral part of their contract
of carriage. This is an exception to the rule regarding the applicability of said Act. This is
expressly recognized by section 13 of said Act which contains the following proviso:

Nothing in this Act shall be held to apply to contracts for carriage of gods by sea
between any port of the United States or its possessions, and any other port of the
United States or its possessions: Provided, however, That any bill of lading or similar
document of title which evidence of a contract for the carriage of goods by sea
between such ports, containing an express statement that it shall be subject to the
provisions of this Act, shall be subjected hereto as fully as if subject hereto by the
express provisions of this Act. (Emphasis supplied.).

This is also recognized by the very authority cited by counsel for respondents, who, on this
matter, has made the following comment:

The Philippine Act of 1936 like the U.S. Act of 1936, applies propio vigore only to
foreign commerce to all contracts for the carriage of goods by sea and from
Philippine ports in foreign trade.

Prior to Philippine Independence on July 4, 1946, trade between the Philippines and
other ports and places under the American Flag, was not, by an ordinary definition,
foreign commerce. Hence, the U. S. and Philippine Acts did not apply to such trades,
even though conducted under foreign bottoms and under foreign flag, unless the
carrier expressly exercised the option given by section 13 of the U.S. Act to carry
under the provisions of that Act. The fact that the U.S. coastwise flag monopoly did
not extend to the Philippine trade did not alter the fact that the U.S. Trade with the
Islands is domestic. (knaught, Ocean Bills of Lading, 1947 ed. p. 250 (Emphasis
supplied.).

Having reached the foregoing conclusion, it would appear clear that action of petitioners has
not yet lapsed or prescribed, as erroneously held by the Court of Appeals, it appearing that
the present action was brought within one year after the delivery of the shipment in
question..

As regards the contention of respondents that petitioners have the burden of showing that
the loss complained of did not take place under after the goods left the possession or
custody of the carrier because they failed to give notice of their loss or damage as required
by law, which failures gives rise to the presumption that the goods were delivered in the bill
of lading, suffice it to state that, according to the Court of Appeals, the required notice was
given by the petitioners to the carrier or its agent on April 25, 1946. That notice is sufficient
to overcome the above presumption within the meaning of the law..

Wherefore the decision appealed from is reversed. Respondents, other than the Court of
Appeals, are hereby sentenced to pay to the petitioners the sum of P159.78, with legal
interest thereon from the date of the filing of the complaint, plus the costs of action..

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Concepcion and Reyes, J. B.
L., JJ., concur.

Ang v. Compania Maritima 133 SCRA 600 (1984)

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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

DOMINGO ANG, plaintiff-appellant,

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

AQUINO, J.:

This case involves the recovery of damages by the consignee from the carrier in case
of misdelivery of the cargo which action was dismissed by the trial court on the grounds of
lack of cause of action and prescription.

It should be noted that that legal point is already res judicata. In 1967 it was decided in
favor of plaintiff-appellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125
Phil. 543 and 125 Phil. 1040, three cases. As observed by Ang's counsel, the facts of those
cases and the instant case are the same mutatis mutandis. It was held that Ang has a
cause of action against the carrier which has not prescribed

In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by
Yau Yue Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company
of the Philippines and C.L. Diokno. He prayed that the defendants be ordered to pay him
solidarily the sum of US$130,539.68 with interest from February 9, 1963 plus attorney's
fees and damages.

Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under
certain conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was
loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by
the defendants, to be transported to Manila and consigned "to order" of the shipper, Tokyo
Boeki, Ltd., which indorsed the bill of lading issued by Compania Maritima to the order of
Yau Yue Commercial Bank.

Ang further alleged that the defendants, by means of a permit to deliver imported articles,
authorized the delivery of the cargo to Teves who obtained delivery from the Bureau of
Customs without the surrender of the bill of lading and in violation of the terms thereof.
Teves dishonored the draft drawn by Yau Yue against him.

The Hongkong and Shanghai Banking Corporation made the corresponding protest for the
draft's dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to
Ang.

The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of
action. Ang opposed the motion. As already stated, the trial court on May 22, 1964
dismissed the complaint on the grounds of lack of cause of action and prescription since the
action was filed beyond the one-year period provided in the Carriage of Goods by Sea Act.

In the American Steamship Agencies cases, it was held that the action of Ang is based
on misdelivery of the cargo which should be distinguished from loss thereof. The one-year
period provided for in section 3 (6) of the Carriage of Goods by Sea Act refers to loss of the
cargo. What is applicable is the four-year period of prescription for quasi-delicts prescribed
in article 1146 (2) of the Civil Code or ten years for violation of a written contract as
provided for in article 1144 (1) of the same Code.

As Ang filed the action less than three years from the date of the alleged misdelivery of the
cargo, it has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in
interest with a cause of action for damages.

WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the
trial court for further proceedings. Costs against the defendants.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Escolin and Cuevas, JJ., concur.

Abad Santos, J., took no part.

Dole Philippines v. Maritime Co. of the Phil., supra

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-61352 February 27, 1987

DOLE PHILIPPINES, INC., plaintiff-appellant,

vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee.

Domingo E. de Lara & Associates for plaintiff-appellant.

Bito, Misa and Lozada Law Office for defendant-appellee.

NARVASA, J.:

This appeal, which was certified to the Court by the Court of Appeals as involving only
questions of law, 1 relates to a claim for loss and/or damage to a shipment of machine parts
sought to be enforced by the consignee, appellant Dole Philippines, Inc. (hereinafter caged
Dole) against the carrier, Maritime Company of the Philippines (hereinafter called Maritime),
under the provisions of the Carriage of Goods by Sea Act. 2
 3
The basic facts are succinctly stated in the order of the Trial Court dated March 16, 1977,
the relevant portion of which reads:

xxx xxx xxx

Before the plaintiff started presenting evidence at today's trial at the instance
of the Court the lawyers entered into the following stipulation of facts:

1. The cargo subject of the instant case was discharged in Dadiangas unto the
custody of the consignee on December 18, 1971;

2. The corresponding claim for the damages sustained by the cargo was filed
by the plaintiff with the defendant vessel on May 4, 1972;

3. On June 11, 1973 the plaintiff filed a complaint in the Court of First
Instance of Manila, docketed therein as Civil Case No. 91043, embodying
three (3) causes of action involving three (3) separate and different
shipments. The third cause of action therein involved the cargo now subject of
this present litigation;

4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case
No. 91043 dismissing the first two causes of action in the aforesaid case with
prejudice and without pronouncement as to costs because the parties had
settled or compromised the claims involved therein. The third cause of action
which covered the cargo subject of this case now was likewise dismissed but
without prejudice as it was not covered by the settlement. The dismissal of
that complaint containing the three causes of action was upon a joint motion
to dismiss filed by the parties;

5. Because of the dismissal of the (complaint in Civil Case No. 91043 with
respect to the third cause of action without prejudice, plaintiff instituted this
present complaint on January 6, 1975.

4
xxx xxx xxx

To the complaint in the subsequent action Maritime filed an answer pleading inter alia the
affirmative defense of prescription under the provisions of the Carriage of Goods by Sea
Act, 5 and following pre-trial, moved for a preliminary hearing on said defense. 6 The Trial
Court granted the motion, scheduling the preliminary hearing on April 27, 1977. 7 The
record before the Court does not show whether or not that hearing was held, but under date
of May 6, 1977, Maritime filed a formal motion to dismiss invoking once more the ground of
prescription. 8 The motion was opposed by Dole 9 and the Trial Court, after due
consideration, resolved the matter in favor of Maritime and dismissed the complaint 10 Dole
sought a reconsideration, which was denied, 11 and thereafter took the present appeal from
the order of dismissal.

The pivotal issue is whether or not Article 1155 of the Civil Code providing that the
prescription of actions is interrupted by the making of an extrajudicial written demand by
the creditor is applicable to actions brought under the Carriage of Goods by Sea Act which,
in its Section 3, paragraph 6, provides that:
 *** the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the
goods or the date when the goods should have been
delivered; Provided, That, if a notice of loss or damage, either apparent or
conceded, is not given as provided for in this section, that fact shall not affect
or prejudice the right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should have been delivered.

xxx xxx xxx

Dole concedes that its action is subject to the one-year period of limitation prescribe in the
above-cited provision. 12 The substance of its argument is that since the provisions of the
Civil Code are, by express mandate of said Code, suppletory of deficiencies in the Code of
Commerce and special laws in matters governed by the latter, 13 and there being "*** a
patent deficiency *** with respect to the tolling of the prescriptive period ***" provided for
in the Carriage of Goods by Sea Act, 14 prescription under said Act is subject to the
provisions of Article 1155 of the Civil Code on tolling and because Dole's claim for loss or
damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll
or interrupt prescription under Article 1155, it operated to toll prescription also in actions
under the Carriage of Goods by Sea Act. To much the same effect is the further argument
based on Article 1176 of the Civil Code which provides that the rights and obligations of
common carriers shag be governed by the Code of Commerce and by special laws in all
matters not regulated by the Civil Code.

These arguments might merit weightier consideration were it not for the fact that the
question has already received a definitive answer, adverse to the position taken by Dole, in
The Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs. American President Lines,
Inc. 15 There, in a parallel factual situation, where suit to recover for damage to cargo
shipped by vessel from Tokyo to Manila was filed more than two years after the consignee's
receipt of the cargo, this Court rejected the contention that an extrajudicial demand toiled
the prescriptive period provided for in the Carriage of Goods by Sea Act, viz:

In the second assignment of error plaintiff-appellant argues that it was error

for the court a quo not to have considered the action of plaintiff-appellant
suspended by the extrajudicial demand which took place, according to
defendant's own motion to dismiss on August 22, 1952. We notice that while
plaintiff avoids stating any date when the goods arrived in Manila, it relies
upon the allegation made in the motion to dismiss that a protest was filed on
August 22, 1952 — which goes to show that plaintiff-appellant's counsel has
not been laying the facts squarely before the court for the consideration of
the merits of the case. We have already decided that in a case governed by
the Carriage of Goods by Sea Act, the general provisions of the Code of Civil
Procedure on prescription should not be made to apply. (Chua Kuy vs. Everett
Steamship Corp., G.R. No. L-5554, May 27, 1953.) Similarly, we now hold
that in such a case the general provisions of the new Civil Code (Art. 1155)
cannot be made to apply, as such application would have the effect of
extending the one-year period of prescription fixed in the law. It is desirable
that matters affecting transportation of goods by sea be decided in as short a
time as possible; the application of the provisions of Article 1155 of the new
Civil Code would unnecessarily extend the period and permit delays in the
settlement of questions affecting transportation, contrary to the clear intent
and purpose of the law. * * *
Moreover, no different result would obtain even if the Court were to accept the proposition
that a written extrajudicial demand does toll prescription under the Carriage of Goods by
Sea Act. The demand in this instance would be the claim for damage-filed by Dole with
Maritime on May 4, 1972. The effect of that demand would have been to renew the one-
year prescriptive period from the date of its making. Stated otherwise, under Dole's theory,
when its claim was received by Maritime, the one-year prescriptive period was interrupted
— "tolled" would be the more precise term — and began to run anew from May 4, 1972,
affording Dole another period of one (1) year counted from that date within which to
institute action on its claim for damage. Unfortunately, Dole let the new period lapse
without filing action. It instituted Civil Case No. 91043 only on June 11, 1973, more than
one month after that period has expired and its right of action had prescribed.

Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 ***
(and that) in legal contemplation *** (the) case (Civil Case No. 96353) was filed on January
6, 1975 *** well within the one-year prescriptive period in Sec. 3(6) of the Carriage of
Goods by Sea Act." 16 equates tolling with indefinite suspension. It is clearly fallacious and
merits no consideration.

WHEREFORE, the order of dismissal appealed from is affirmed, with costs against the
appellant, Dole Philippines, Inc.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Sea Land Service Inc. v. IAC, supra

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 75118 August 31, 1987

SEA-LAND SERVICE, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the
name and style of "SEN HIAP HING," respondents.

NARVASA, J.:

The main issue here is whether or not the consignee of seaborne freight is bound by
stipulations in the covering bill of lading limiting to a fixed amount the liability of the carrier
for loss or damage to the cargo where its value is not declared in the bill.

The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign
shipping and forwarding company licensed to do business in the Philippines, received from
Seaborne Trading Company in Oakland, California a shipment consigned to Sen Hiap Hing
the business name used by Paulino Cue in the wholesale and retail trade which he operated
out of an establishment located on Borromeo and Plaridel Streets, Cebu City.

The shipper not having declared the value of the shipment, no value was indicated in the bill
of lading. The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on
volume measurements Sea-land charged the shipper the total amount of US$209.28 2 for
freight age and other charges. The shipment was loaded on board the MS Patriot, a vessel
owned and operated by Sea-Land, for discharge at the Port Of Cebu.

The shipment arrived in Manila on February 12, 1981, and there discharged in Container No.
310996 into the custody of the arrastre contractor and the customs and port
authorities. 3 Sometime between February 13 and 16, 1981, after the shipment had been
transferred, along with other cargoes to Container No. 40158 near Warehouse 3 at Pier 3 in
South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and has
never been recovered. 4

On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the
value of the lost shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle
for US$4,000.00, or its then Philippine peso equivalent of P30,600.00. asserting that said
amount represented its maximum liability for the loss of the shipment under the package
limitation clause in the covering bill of lading.6 Cue rejected the offer and thereafter brought
suit for damages against Sea-Land in the then Court of First Instance of Cebu, Branch
X.7 Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land to pay
him P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00
for unrealized profit with one (1%) percent monthly interest from the filing of the complaint
until fully paid, P25,000.00 for attorney's fees and P2,000.00 as litigation expenses. 8

Sea-Land appealed to the Intermediate Appellate Court.9 That Court however affirmed the
decision of the Trial Court xxx in all its parts ... . 10 Sea-Land thereupon filed the present
petition for review which, as already stated, poses the question of whether, upon the facts
above set forth, it can be held liable for the loss of the shipment in any amount beyond the
limit of US$600.00 per package stipulated in the bill of lading.

To begin with, there is no question of the right, in principle, of a consignee in a bill of lading
to recover from the carrier or shipper for loss of, or damage to, goods being transported
under said bill ,although that document may have been — as in practice it oftentimes is —
drawn up only by the consignor and the carrier without the intervention of
the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some length
into the reasons behind this when, upon a claim made by the consignee of a motion picture
film shipped by air that he was never a party to the contract of transportation and was a
complete stranger thereto, it said:

But appellant now contends that he is not suing on a breach of contract but
on a tort as provided for in Art. 1902 of the Civil Code. We are a little
perplexed as to this new theory of the appellant. First, he insists that the
articles of the Code of Commerce should be applied: that he invokes the
provisions of aid Code governing the obligations of a common carrier to make
prompt delivery of goods given to it under a contract of transportation. Later,
as already said, he says that he was never a party to the contract of
transportation and was a complete stranger to it, and that he is now suing on
a tort or a violation of his rights as a stranger (culpa aquiliana) If he does not
invoke the contract of carriage entered into with the defendant company,
then he would hardly have any leg to stand on. His right to prompt delivery of
the can of film at the Phil. Air Port stems and is derived from the contract of
carriage under which contract, the PAL undertook to carry the can of film
safely and to deliver it to him promptly. Take away or ignore that contract
and the obligation to carry and to deliver and right to prompt delivery
disappear. Common carriers are not obligated by law to carry and to deliver
merchandise, and persons are not vested with the right to prompt delivery,
unless such common carriers previously assume the obligation. Said rights
and obligations are created by a specific contract entered into by the parties.
In the present case, the findings of the trial court which as already stated, are
accepted by the parties and which we must accept are to the effect that the
LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company
on the other, entered into a contract of transportation (p. 29, Rec. on
Appeal). One interpretation of said finding is that the LVN Pictures Inc.
through previous agreement with Mendoza acted as the latter's agent. When
he negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen"
and show it during the Naga town fiesta, he most probably authorized and
enjoined the Picture Company to ship the film for him on the PAL on
September 17th. Another interpretation is that even if the LVN Pictures Inc.
as consignor of its own initiative, and acting independently of Mendoza for the
time being, made Mendoza as consignee, a stranger to the contract if that is
possible, nevertheless when he, Mendoza appeared at the Phil Air Port armed
with the copy of the Air Way Bill (Exh. 1) demanding the delivery of the
shipment to him, he thereby made himself a party to the contract of
transportation. The very citation made by appellant in his memorandum
supports this view. Speaking of the possibility of a conflict between the order
of the shipper on the one hand and the order of the consignee on the other,
as when the shipper orders the shipping company to return or retain the
goods shipped while the consignee demands their delivery, Malagarriga in his
book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the
Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol.
II of his book entitled "Commentaries and Jurisprudence on the Commercial
Laws of the Philippines" p. 209, says that the right of the shipper to
countermand the shipment terminates when the consignee or legitimate
holder of the bill of lading appears with such big of lading before the carrier
and makes himself a party to the contract. Prior to that time he is a stranger
to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257,
paragraph 2, of the old Civil Code (now Art, 1311, second paragraph) which
reads thus:

Should the contract contain any stipulation in favor of a third

person, he may demand its fulfillment provided he has given
notice of his acceptance to the person bound before the
stipulation has been revoked.

Here, the contract of carriage between the LVN Pictures Inc. and the
defendant carrier contains the stipulations of delivery to Mendoza as
 consignee. His demand for the delivery of the can of film to him at the Phil Air
Port may be regarded as a notice of his acceptance of the stipulation of the
delivery in his favor contained in the contract of carriage and delivery. In this
case he also made himself a party to the contract, or at least has come to
court to enforce it. His cause of action must necessarily be founded on its
breach.

Since the liability of a common carrier for loss of or damage to goods transported by it
under a contract of carriage is governed by the laws of the country of destination 12 and
the goods in question were shipped from the United States to the Philippines, the liability of
petitioner Sea-Land to the respondent consignee is governed primarily by the Civil Code,
and as ordained by the said Code, suppletorily, in all matters not determined thereby, by
the Code of Commerce and special laws. 13 One of these suppletory special laws is the
Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by
Commonwealth Act No. 65, approved on October 22, 1936. Sec. 4(5) of said Act in part
reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for
any loss or damage to or in connection with the transportation of goods in an
amount exceeding $500 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the
bill of lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.

By agreement between the carrier, master, or agent of the carrier, and the
shipper another maximum amount than that mentioned in this paragraph
may be fixed: Provided, That such maximum shall not be less than the figure
above named. In no event shall the carrier be liable for more than the amount
of damage actually sustained.

xxx xxx xxx

Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to
its shipping clients 14 is a virtual copy of the first paragraph of the foregoing provision. It
says:

22. VALUATION. In the event of any loss, damage or delay to or in connection

with goods exceeding in actual value $500 per package, lawful money of the
United States, or in case of goods not shipped in packages, per customary
freight unit, the value of the goods shall be deemed to be $500 per package
or per customary freight unit, as the case may be, and the carrier's liability, if
any, shall be determined on the basis of a value of $500 per package or
customary freight unit, unless the nature and a higher value shall be declared
by the shipper in writing before shipment and inserted in this Bill of Lading.

And in its second paragraph, the bill states:

If a value higher than $500 shag have been declared in writing by the shipper
upon delivery to the carrier and inserted in this bill of lading and extra freight
 paid, if required and in such case if the actual value of the goods per package
or per customary freight unit shall exceed such declared value, the value shall
nevertheless be deemed to be declared value and the carrier's liability, if any,
shall not exceed the declared value and any partial loss or damage shall be
adjusted pro rata on the basis of such declared value.

Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights
and obligations of common carriers to the provisions of the Code of Commerce and of
special laws in matters not regulated by said (Civil) Code, the Court fails to fathom the
reason or justification for the Appellate Court's pronouncement in its appealed Decision that
the Carriage of Goods by Sea Act " ... has no application whatsoever in this case. 15 Not
only is there nothing in the Civil Code which absolutely prohibits agreements between
shipper and carrier limiting the latter's liability for loss of or damage to cargo shipped under
contracts of carriage; it is also quite clear that said Code in fact has agreements of such
character in contemplation in providing, in its Articles 1749 and 1750, that:

ART. 1749 A stipulation that the common carrier's liability is limited to the
value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding.

ART. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely
agreed upon.

Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is
repugnant to or inconsistent with any of the just-cited provisions of the Civil Code. Said
section merely gives more flesh and greater specificity to the rather general terms of Article
1749 (without doing any violence to the plain intent thereof) and of Article 1750, to give
effect to just agreements limiting carriers' liability for loss or damage which are freely and
fairly entered into.

It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading here
are nevertheless fully sustainable on the basis alone of the cited Civil Code provisions. That
said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750
itself in providing a limit to liability only if a greater value is not declared for the shipment in
the bill of lading. To hold otherwise would amount to questioning the justice and fairness of
that law itself, and this the private respondent does not pretend to do. But over and above
that consideration, the lust and reasonable character of such stipulation is implicit in it
giving the shipper or owner the option of avoiding acrrual of liability limitation by the simple
and surely far from onerous expedient of declaring the nature and value of the shipment in
the bill of lading. And since the shipper here has not been heard to complaint of having
been "rushed," imposed upon or deceived in any significant way into agreeing to ship the
cargo under a bill of lading carrying such a stipulation — in fact, it does not appear that said
party has been heard from at all insofar as this dispute is concerned — there is simply no
ground for assuming that its agreement thereto was not as the law would require, freely
and fairly sought and given.

The private respondent had no direct part or intervention in the execution of the contract of
carriage between the shipper and the carrier as set forth in the bill of lading in question. As
pointed out in Mendoza vs. PAL, supra, the right of a party in the same situation as
respondent here, to recover for loss of a shipment consigned to him under a bill of lading
drawn up only by and between the shipper and the carrier, springs from either a relation of
agency that may exist between him and the shipper or consignor, or his status as a stranger
in whose favor some stipulation is made in said contract, and who becomes a party thereto
when he demands fulfillment of that stipulation, in this case the delivery of the goods or
cargo shipped. In neither capacity can he assert personally, in bar to any provision of the
bill of lading, the alleged circumstance that fair and free agreement to such provision was
vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may be
observed that in one comparatively recent case 16 where this Court found that a similar
package limitation clause was "(printed in the smallest type on the back of the bill of lading,
it nonetheless ruled that the consignee was bound thereby on the strength of authority
holding that such provisions on liability limitation are as much a part of a bill of lading as
though physically in it and as though placed therein by agreement of the parties.

There can, therefore, be no doubt or equivocation about the validity and enforceability of
freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability
of the carrier to an agreed valuation unless the shipper declares a higher value and inserts
it into said contract or bill. This pro position, moreover, rests upon an almost uniform weight
of authority. 17

The issue of alleged deviation is also settled by Clause 13 of the bill of lading which
expressly authorizes trans-shipment of the goods at any point in the voyage in these terms:

13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the

exercise of its or his discretion and although transshipment or forwarding of
the goods may not have been contemplated or provided for herein, may at
port of discharge or any other place whatsoever transship or forward the
goods or any part thereof by any means at the risk and expense of the goods
and at any time, whether before or after loading on the ship named herein
and by any route, whether within or outside the scope of the voyage or
beyond the port of discharge or destination of the goods and without notice to
the shipper or consignee. The carrier or master may delay such transshipping
or forwarding for any reason, including but not limited to awaiting a vessel or
other means of transportation whether by the carrier or others.

Said provision obviates the necessity to offer any other justification for offloading the
shipment in question in Manila for transshipment to Cebu City, the port of destination
stipulated in the bill of lading. Nonetheless, the Court takes note of Sea-Land's explanation
that it only directly serves the Port of Manila from abroad in the usual course of voyage of
its carriers, hence its maintenance of arrangements with a local forwarder. Aboitiz and
Company, for delivery of its imported cargo to the agreed final point of destination within
the Philippines, such arrangements not being prohibited, but in fact recognized, by law. 18

Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is
applicable up to the final port of destination and that the fact that transshipment was made
on an interisland vessel did not remove the contract of carriage of goods from the operation
of said Act.

Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading
relied upon by petitioner Sea Land form no part of the short-form bill of lading attached to
his complaint before the Trial Court and appear only in the long form of that document
which, he claims. SeaLand offered (as its Exhibit 2) as an unused blank form with no entries
or signatures therein. He, however, admitted in the Trial Court that several times in the past
shipments had been delivered to him through Sea-Land, 20 from which the assumption may
fairly follow that by the time of the consignment now in question, he was already reasonably
apprised of the usual terms covering contracts of carriage with said petitioner.

At any rate, as observed earlier, it has already been held that the provisions of the Carriage
of Goods by Sea Act on package limitation [sec 4(5) of the Act hereinabove referred to] are
as much a part of a bill of lading as though actually placed therein by agreement of the
parties. 21

Private respondent, by making claim for loss on the basis of the bill of lading, to all intents
and purposes accepted said bill. Having done so, he —

... becomes bound by all stipulations contained therein whether on the front
or the back thereof. Respondent cannot elude its provisions simply because
they prejudice him and take advantage of those that are beneficial. Secondly,
the fact that respondent shipped his goods on board the ship of petitioner and
paid the corresponding freight thereon shows that he impliedly accepted the
bill of lading which was issued in connection with the shipment in question,
and so it may be said that the same is finding upon him as if it had been
actually signed by him or by any other person in his behalf. ... 22.

There is one final consideration. The private respondent admits 23 that as early as on April
22, 1981, Sea-Land had offered to settle his claim for US$4,000.00, the limit of said
carrier's liability for loss of the shipment under the bill of lading. This Court having reached
the conclusion that said sum is all that is justly due said respondent, it does not appear just
or equitable that Sea-Land, which offered that amount in good faith as early as six years
ago, should, by being made to pay at the current conversion rate of the dollar to the peso,
bear for its own account all of the increase in said rate since the time of the offer of
settlement. The decision of the Regional Trial Court awarding the private respondent
P186,048.00 as the peso value of the lost shipment is clearly based on a conversion rate of
P8.00 to US$1.00, said respondent having claimed a dollar value of $23,256.00 for said
shipment.24 All circumstances considered, it is just and fair that Sea-Land's dollar obligation
be convertible at the same rate.

WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed

and set aside. The stipulation in the questioned bill of lading limiting Sea-Land's liability for
loss of or damage to the shipment covered by said bill to US$500.00 per package is held
valid and binding on private respondent. There being no question of the fact that said
shipment consisted of eight (8) cartons or packages, for the loss of which Sea-Land is
therefore liable in the aggregate amount of US$4,000.00, it is the judgment of the Court
that said petitioner discharge that obligation by paying private respondent the sum of
P32,000.00, the equivalent in Philippine currency of US$4,000.00 at the conversion rate of
P8.00 to $1.00. Costs against private respondent.

SO ORDERED.

Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.

Maritime Agencies v. CA 187 SCRA 846 (1990)

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 77638 July 12, 1990

MARITIME AGENCIES & SERVICES, INC., petitioner,

vs.
COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON,
LTD., respondents.

G.R. No. 77674 July 12, 1990

UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner,

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

Del Rosario & Del Rosario for petitioner in G.R. No. 77638.

Zapa Aguillardo & Associates for petitioner in G.R. No. 77674.

Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.

CRUZ, J.:

Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping

Company of Hongkong the motor vessel named "Hongkong Island" for the shipment of
8073.35 MT (gross) bagged urea from Novorossisk, Odessa, USSR to the Philippines, the
parties signing for this purpose a Uniform General Charter dated August 9, 1979. 1

Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as
consignee, 3,400.04 to be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The
goods were insured by the consignee
with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. 3

Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray
Company, Inc. as the owner's agent.4

The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's
goods, then proceeded to Cebu on October 19, 1979, to discharge the rest of the cargo. On
October 31, 1979, the consignee filed a formal claim against Maritime, copy furnished
Macondray, for the amount of P87,163.54, representing C & F value of the 1,383
shortlanded bags. 5 On January 12, 1980, the consignee filed another formal claim, this time
against Viva Customs Brokerage, for the amount of P36,030.23, representing the value of
574 bags of net unrecovered spillage. 6
These claims having been rejected, the consignee then went to Union, which on demand
paid the total indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of
the consignee, Union then filed on September 19, 1980, a complaint for reimbursement of
this amount, with legal interest and attorney's fees, against Hongkong Island Company,
Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. 7 On April 20,
1981, the complaint was amended to drop Viva and implead Macondray Company, Inc. as a
new defendant. 8

On January 4, 1984, after trial, the trial court rendered judgment holding the defendants
liable as follows:

(a) defendants Hongkong Island Co., Ltd., and its local agent Macondray &
Co., Inc. to pay the plaintiff the sum of P87,163.54 plus 12% interest from
April 20, 1981 until the whole amount is fully paid, P1,000.00 as attorney's
fees and to pay one-half (1/2) of the costs; and

(b) defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum
of P36,030.23, plus 12% interest from April 20, 1981 until the whole amount
is fully paid, P600.00 as attorney's fees and to pay one-half (1/2) of the
costs.9

Petitioner appealed the decision to the Court of Appeals, which rendered a decision on
November 28, 1986, the dispositive portion of which reads:

WHEREFORE, the decision appealed from is modified, finding the charterer

Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime
Agencies & Services, Inc. liable for the amount of P87,163.54 plus interest at
12% plus attorney's fees of P1,000.00. Defendant Hongkong Island Co., Ltd.
represented by Macondray Co., Inc. are accordingly exempted from any
liability. 10

Maritime and Union filed separate motions for reconsideration which were both denied. The
movants are now before us to question the decision of the respondent court.

In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the
charterer's agent and should not answer for whatever responsibility might have attached to
the principal. It also argues that the respondent court erred in applying Articles 1734 and
1735 of the Civil Code in determining the charterer's liability.

In G.R. No. 77674, Union asks for the modification of the decision of the respondent court
so as to make Maritime solidarily and solely liable, its principal not having been impleaded
and so not subject to the jurisdiction of our courts.

These two cases were consolidated and given due course, the parties being required to
submit simultaneous memoranda. All complied, including Hongkong Island Company, Ltd.,
and Macondray Company, Inc., although they pointed out that they were not involved in the
petitions.

There are three general categories of charters, to wit, the demise or "bareboat charter," the
time charter and the voyage charter.
A demise involves the transfer of full possession and control of the vessel for the period
covered by the contract, the charterer obtaining the right to use the vessel and carry
whatever cargo it chooses, while manning and supplying the ship as well. 11

A time charter is a contract to use a vessel for a particular period of time, the charterer
obtaining the right to direct the movements of the vessel during the chartering period,
although the owner retains possession and control. 12

A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually
for the purpose of transporting goods for the charterer. The voyage charter is a contract of
affreightment and is considered a private carriage. 13

Tested by those definitions, the agreement entered into in the cases at bar should be
considered. This brings us to the basic question of who, in this kind of charter, shall be
liable for the cargo.

A voyage charter being a private carriage, the parties may freely contract respecting liability
for damage to the goods and other matters. The basic principle is that "the responsibility for
cargo loss falls on the one who agreed to perform the duty involved" in accordance with the
terms of most voyage charters. 14

This is true in the present cases where the charterer was responsible for loading, stowage
and discharging at the ports visited, while the owner was responsible for the care of the
cargo during the voyage. Thus, Par. 2 of the Uniform General Charter read:

2. Owners are to be responsible for loss of or damage to the goods or for

delay in delivery of the goods only in case the loss, damage or delay has been
caused by the improper or negligent stowage of the goods or by personal
want of due diligence on the part of the Owners or their Manager to make the
vessel in all respects seaworthy and to secure that she is properly manned,
equipped and supplied or by the personal act or default of the Owners or their
Manager.

And the Owners are responsible for no loss or damage or delay arising from
any other cause whatsoever, even from the neglect or default of the Captain
or crew or some other person employed by the Owners onboard or ashore for
whose acts they would, but for this clause, be responsible, or from
unseaworthiness of the vessel on loading or commencement of the voyage or
at any time whatsoever.

Damage caused by contact with or leakage, smell or evaporation from other

goods or by the inflammable or explosive nature or insufficient package of
other goods not to be considered as caused by improper or negligent
stowage, even if in fact so caused.

while Clause 17 of Additional Clauses to Charter party provided:

The cargo shall be loaded, stowed and discharged free of expense to the
vessel under the Master's supervision. However, if required at loading and
discharging ports the vessel is to give free use of winches and power to drive
them gear, runners and ropes. Also slings, as on board. Shore winchmen are
 to be employed and they are to be for Charterers' or Shippers' or Receivers'
account as the case may be. Vessel is also to give free use of sufficient light,
as on board, if required for night work. Time lost through breakdown of
winches or derricks is not to count as laytime.

In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial court rejected
similar stipulations as contrary to public policy and, applying the provisions of the Civil Code
on common carriers and of the Code of Commerce on the duties of the ship captain, held
the vessel liable in damages for loss of part of the cargo it was carrying. This Court
reversed, declaring as follows:

The provisions of our Civil Code on common carriers were taken from Anglo-
American law. Under American jurisprudence, a common carrier undertaking
to carry a special cargo or chartered to a special person only, becomes a
private carrier. As a private carrier, a stipulation exempting the owner from
liability for the negligence of its agent is not against public policy, and is
deemed valid.

Such doctrine we find reasonable. The Civil Code provisions on common

carriers should not be applied where the carrier is not acting as such but as a
private carrier. The stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent would be void only if the
strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in the case of a ship totally
chartered for the use of a single party.

Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that
case that the vessel was at fault. In the cases at bar, the trial court found that 1,383 bags
were shortlanded, which could only mean that they were damaged or lost on board the
vessel before unloading of the shipment. It is not denied that the entire cargo shipped by
the charterer in Odessa was covered by a clean bill of lading. 16 As the bags were in good
order when received in the vessel, the presumption is that they were damaged or lost
during the voyage as a result of their negligent improper stowage. For this the ship owner
should be held liable.

But we do agree that the period for filing the claim is one year, in accordance with the
Carriage of Goods by Sea Act. This was adopted and embodied by our legislature in Com.
Act No. 65 which, as a special law, prevails over the general provisions of the Civil Code on
prescription of actions. Section 3(6) of that Act provides as follows:

In any event, the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered;
Provided, that if a notice of loss for damage; either apparent or concealed, is
not given as provided for in this section, that fact shall not effect or prejudice
the right of the shipper to bring suit within one year after the delivery of the
goods or the date when the goods should have been delivered.

This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila
Railroad Co., 17 where it was held:
 Under the facts of this case, we held that the one-year period was correctly
reckoned by the trial court from December 19, 1961, when, as agreed upon
by the parties and as shown in the tally sheets, the cargo was discharged
from the carrying vessel and delivered to the Manila Port Service. That one-
year period expired on December 19, 1962. Inasmuch as the action was filed
on December 21, 1962, it was barred by the statute of limitations.

The one-year period in the cases at bar should commence on October 20, 1979, when the
last item was delivered to the consignee. 18 Union's complaint was filed against Hongkong on
September 19, 1980, but tardily against Macondray on April 20, 1981. The consequence is
that the action is considered prescribed as far as Macondray is concerned but not against its
principal, which is what matters anyway.

As regards the goods damaged or lost during unloading, the charterer is liable therefor,
having assumed this activity under the charter party "free of expense to the vessel." The
difficulty is that Transcontinental has not been impleaded in these cases and so is beyond
our jurisdiction. The liability imposable upon it cannot be borne by Maritime which, as a
mere agent, is not answerable for injury caused by its principal. It is a well-settled principle
that the agent shall be liable for the act or omission of the principal only if the latter is
undisclosed. 19

Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in
the case of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find
that case is applicable.

In that case, the charterer represented itself on the face of the bill of lading as the carrier.
The vessel owner and the charterer did not stipulate in the Charter party on their separate
respective liabilities for the cargo. The loss/damage to the cargo was sustained while it was
still on board or under the custody of the vessel. As the charterer was itself the carrier, it
was made liable for the acts of the ship captain who was responsible for the cargo while
under the custody of the vessel.

As for the charterer's agent, the evidence showed that it represented the vessel when it
took charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its
own name. Claims against the vessel for the losses/damages sustained by that cargo were
also received and processed by it. As a result, the charterer's agent was also considered a
ship agent and so was held to be solidarily liable with its principal.

The facts in the cases at bar are different. The charterer did not represent itself as a carrier
and indeed assumed responsibility ability only for the unloading of the cargo, i.e, after the
goods were already outside the custody of the vessel. In supervising the unloading of the
cargo and issuing Daily Operations Report and Statement of Facts indicating and describing
the day-to-day discharge of the cargo, Maritime acted in representation of the charterer and
not of the vessel. It thus cannot be considered a ship agent. As a mere charterer's agent, it
cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo
outside the custody of the vessel. Notably, Transcontinental was disclosed as the charterer's
principal and there is no question that Maritime acted within the scope of its authority.

Hongkong and Macondray point out in their memorandum that the appealed decision is not
assailed insofar as it favors them and so has become final as to them. We do not think so.
First of all, we note that they were formally impleaded as respondents in G.R No. 77674 and
submitted their comment and later their memorandum, where they discussed at length their
position vis-a-vis the claims of the other parties. Secondly, we reiterate the rule that even if
issues are not formally and specifically raised on appeal, they may nevertheless be
considered in the interest of justice for a proper decision of the case.i•t•c-aüsl Thus, we
have held that:

Besides, an unassigned error closely related to the error properly assigned, or

upon which the determination of the question raised by the error properly
assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as error.

At any rate, the Court is clothed with ample authority to review matters, even
if they are not assigned as errors in their appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case. 21

xxx xxx xxx

Issues, though not specifically raised in the pleadings in the appellate court,
may, in the interest of justice, be properly considered by said court in
deciding a case, if they are questions raised in the trial court and are matters
of record having some bearing on the issue submitted which the parties failed
to raise or the lower court ignore(d). 22

xxx xxx xxx

While an assignment of error which is required by law or rule of court has

been held essential to appellate review, and only those assigned will be
considered, there are a number of cases which appear to accord to the
appellate court a broad discretionary power to waive this lack of proper
assignment of errors and consider errors not assigned. 23

In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of
Manila held:

The Court, on the basis of the evidence, finds nothing to disprove the finding
of the marine and cargo surveyors that of the 66,390 bags of urea fertilizer,
65,547 bags were "discharged ex-vessel" and there were "shortlanded"
"1,383 bags", valued at P87,163.54. This sum should be the principal and
primary liability and responsibility of the carrying vessel. Under the contract
for the transportation of goods, the vessel's responsibility commence upon
the actual delivery to, and receipt by the carrier or its authorized agent, until
its final discharge at the port of Manila. Defendant Hongkong Island Co., Ltd.,
as "shipowner" and represented by the defendant Macondray & Co., Inc., as
its local agent in the Philippines, should be responsible for the value of the
bags of urea fertilizer which were shortlanded.

The remainder of the claim in the amount of P36,030.23, representing the

value of the 574 bags of unrecovered spillages having occurred after the
shipment was discharged from the vessel unto the ex-lighters as well as
during the discharge from the lighters to the truck which transported the
shipment to the consignee's warehouses should be for the account of the
defendant Maritime Agencies & Services, Inc.
We affirm the factual findings but must modify the legal conclusions. As previously
discussed, the liability of Macondray can no longer be enforced because the claim against it
has prescribed; and as for Maritime, it cannot be held liable for the acts of its known
principal resulting in injury to Union. The interest must also be reduced to the legal rate of
6%, conformably to our ruling in Reformina v. Tomol 24 and Article 2209 of the Civil Code,
and should commence, not on April 20, 1981, but on September 19, 1980, date of the filing
of the original complaint.

WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is
REINSTATED as above modified. The parties shall bear their respective costs.

SO ORDERED.

Narvasa, C.J., Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Mayer Steel Pipe v. CA 274 SCRA 452 (1997)

SECOND DIVISION

[G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, Petitioners, v. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, Respondents.

DECISION

PUNO, J.:

This is a petition for review on certiorari to annul and set aside the Decision of respondent
Court of Appeals dated December 14, 19951 and its Resolution dated February 22, 19962 in
CA-G.R. CV No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong Government
Supplies Department v. South Sea Surety Insurance Co., Inc. and The Charter Insurance
Corporation.3chanroblesvirtuallawlibrary

In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted

petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel
pipes and fittings. From August to October, 1983, Mayer shipped the pipes and fittings to
Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020,
MSPC-1017 and MSPC-1022.4chanroblesvirtuallawlibrary

Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with
private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter
Insurance Corp. (Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015
and 1025 with a total amount of US$212,772.09 were insured with respondent South Sea,
while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc.
as third-party inspector to examine whether the pipes and fittings are manufactured in
accordance with the specifications in the contract. Industrial Inspection certified all the pipes
and fittings to be in good order condition before they were loaded in the vessel.
Nonetheless, when the goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance
contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75.
Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of
repair of the damaged pipes. Private respondents refused to pay because the insurance
surveyor's report allegedly showed that the damage is a factory defect.

On April 17, 1986, petitioners filed an action against private respondents to recover the sum
of HK$299,345.30. For their defense, private respondents averred that they have no
obligation to pay the amount claimed by petitioners because the damage to the goods is
due to factory defects which are not covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not due
to manufacturing defects. It also noted that the insurance contracts executed by petitioner
Mayer and private respondents are "all risks" policies which insure against all causes of
conceivable loss or damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the insured. The dispositive
portion of the decision states:

WHEREFORE, judgment is hereby rendered ordering the defendants jointly and

severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal
rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.5chanroblesvirtuallawlibrary

Private respondents elevated the case to respondent Court of Appeals.

Respondent court affirmed the finding of the trial court that the damage is not due to
factory defect and that it was covered by the "all risks" insurance policies issued by private
respondents to petitioner Mayer. However, it set aside the decision of the trial court and
dismissed the complaint on the ground of prescription. It held that the action is barred
under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17,
1986, more than two years from the time the goods were unloaded from the vessel. Section
3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should have been delivered."
Respondent court ruled that this provision applies not only to the carrier but also to the
insurer, citing Filipino Merchants Insurance Co., Inc. vs.
Alejandro.6chanroblesvirtuallawlibrary

Hence this petition with the following assignments of error:

1. The respondent Court of Appeals erred in holding that petitioners' cause of action had
already prescribed on the mistaken application of the Carriage of Goods by Sea Act and the
doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and

2. The respondent Court of Appeals committed an error in dismissing the

complaint.7chanroblesvirtuallawlibrary

The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the
Carriage of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall
be discharged from all liability for loss or damage to the goods if no suit is filed within one
year after delivery of the goods or the date when they should have been delivered. Under
this provision, only the carrier's liability is extinguished if no suit is brought within one year.
But the liability of the insurer is not extinguished because the insurer's liability is based not
on the contract of carriage but on the contract of insurance. A close reading of the law
reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier
on the one hand and the shipper, the consignee and/or the insurer on the other hand. It
defines the obligations of the carrier under the contract of carriage. It does not, however,
affect the relationship between the shipper and the insurer. The latter case is governed by
the Insurance Code.

Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro8 and the other cases9 cited
therein does not support respondent court's view that the insurer's liability prescribes after
one year if no action for indemnity is filed against the carrier or the insurer. In that case,
the shipper filed a complaint against the insurer for recovery of a sum of money as
indemnity for the loss and damage sustained by the insured goods. The insurer, in turn,
filed a third-party complaint against the carrier for reimbursement of the amount it paid to
the shipper. The insurer filed the third-party complaint on January 9, 1978, more than one
year after delivery of the goods on December 17, 1977. The court held that the Insurer was
already barred from filing a claim against the carrier because under the Carriage of Goods
by Sea Act, the suit against the carrier must be filed within one year after delivery of the
goods or the date when the goods should have been delivered. The court said that "the
coverage of the Act includes the insurer of the goods."10chanroblesvirtuallawlibrary

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was
the insurer which filed a claim against the carrier for reimbursement of the amount it paid to
the shipper. In the case at bar, it was the shipper which filed a claim against the insurer.
The basis of the shipper's claim is the "all risks" insurance policies issued by private
respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by
the shipper, the consignee or the insurer. When the court said in Filipino Merchants that
Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the
insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year
period provided in the law. But it does not mean that the shipper may no longer file a claim
against the insurer because the basis of the insurer's liability is the insurance contract. An
insurance contract is a contract whereby one party, for a consideration known as the
premium, agrees to indemnify another for loss or damage which he may suffer from a
specified peril.11 An "all risks" insurance policy covers all kinds of loss other than those due
to willful and fraudulent act of the insured.12 Thus, when private respondents issued the "all
risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of
loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance
with Article 1144 of the New Civil Code.13chanroblesvirtuallawlibrary

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of

Appeals dated December 14, 1995 and its Resolution dated February 22, 1996 are hereby
SET ASIDE and the Decision of the Regional Trial Court is hereby REINSTATED. No costs.

SO ORDERED.

Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

PART III AVIATION LAW

CHAPTER – 19 PUBLIC SERVICE REGULATIONS

Luzon Stevedoring v. Public Service Commission 93 PHIL 735 (1953)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-5458 September 16, 1953

LUZON STEVEDORING CO., INC., and VISAYAN STEVEDORE TRANSPORTATION

CO., petitioners,
vs.
THE PUBLIC SERVICES COMMISSION and THE PHILIPPINE SHIPOWNERS'
ASSOCIATION, respondents.
Perkins, Ponce Enrile, Contreras and Enrique Belo for petitioners..

Ozaeta, Roxas, Lichauco, Picazo, Juan H. Paulino and Gerardo M. Alfonso for respondent
Philippine Shipowners Association.
A. H. Aspillera for respondent Public Service Commission.

TUASON, J.:

Petitioners apply for review of a decision of the Public Service Commission restraining them
"from further operating their watercraft to transport goods for hire or compensation
between points in the Philippines until the rates they propose to charge are approved by this
Commission."

The facts are summarized by the Commission as follows:.

... respondents are corporations duly organized and existing under the laws of the
Philippines, mainly engaged in the stevedoring or lighterage and harbor towage
business. At the same time, they are engaged in interisland service which consists of
hauling cargoes such as sugar, oil, fertilizer and other commercial commodities
which are loaded in their barges and towed by their tugboats from Manila to various
points in the Visayan Islands, Particularly in the Provinces of Negros Occidental and
Capiz, and from said places to manila. For this service respondents charge freightage
on a unit price with rates ranging from P0.50 to P0.62 1/2 per bag or picul of sugar
loaded or on a unit price per ton in the case of fertilizer or sand. There is no fixed
route in the transportation of these cargoes, the same being left at the indication of
the owner or shipper of the goods. the barge and the tugboats are manned by the
crew of respondents and, in case of damage to the goods in transit caused by the
negligence of said crews, respondents are liable therefore. The service for which
respondents charge freightage covers the hauling or carriage of the goods from the
point of embarkation to the point of disembarkation either in Manila or in any point in
the Visayan Islands, as the case may be.

The evidence also sufficiently establishes that respondents are regularly engaged in
this hauling business serving a limited portion of the public. Respondent Luzon
Stevedoring Company, Inc., has among its regular customers the San Miguel Glass
Factory, PRATRA, Shell Co., of P. I., Ltd., Standard Oil Co., of New York and
Philippine-Hawaiian; while respondent Visayan Stevedore transportation Co., has
among its regular customers the Insular Lumber, Shell Company, Ltd., Kim Kee Chua
Yu & Co., PRATRA and Luzon Merchandising Corporation. During the period from
January, 1949 and up to the present, respondents Luzon Stevedoring Co. Inc., has
been rendering to PRATRA regularly and on many occasions such service by carrying
fertilizer from Manila to various points in the Provinces of Negros Occidental and
Capiz, such as Hinigatan, Silay, Fabrica, Marayo, Mambaquid, Victorias and Pilar, and
on the return services, as evidenced by Exhibits A, A-1, A-2, A-3 and A-4,
respondent Luzon Stevedoring Company, Inc., charged PRATRA at the rate of P0.60
per picul or bag of sugar and, according to Mr. Mauricio Rodriquez, chief of the
division in charge of sugar and fertilizer of the PRATRA, for the transportation of
fertilizer, this respondent charged P12 per metric ton. During practically the same
period, respondent Visayan Stevedore Transportation Company transported in its
 barges and towed by its tugboats sugar for Kim Kee Chua Yu & Company coming
from Victorias, Marayo and Pilar to Manila, and for Luzon Merchandising Corporation,
from Hinigaran, Bacolod, Marayo and Victorias to Manila. For such service respondent
Visayan Stevedore Transportation Company charge Kim Kee Chua Yu Company for
freightage P0.60 per picul or bag as shown in Exhibits C, C-1, C-2, C-3, C-4, C-5, C-
6, C-7 and C-8, and Luzon Merchandising Corporation was also charged for the same
service and at the same rate as shown in Exhibits B, B-1 and B-2.

It was upon these findings that the Commission made the order now sought to be reviewed,
upon complaint of the Philippine Shipowners' Association charging that the then respondent
were engaged in the transportation of cargo in the Philippines for hire or compensation
without authority or approval of the Commission, having adopted, fixed and collected freight
charges at the rate of P0.60 per bag or picul, particularly sugar, loaded and transported in
their lighters and towed by their tugboats between different points in the Province of Negros
Occidental and Manila, which said rates resulted in ruinous competition with complainant..

Section 13 (b) of the Public Service Law (Commonwealth Act No. 146) defines public service
thus:

The term "public service" includes every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional or accidental, and done for
general business purpose any common carrier, railroad, street railway, traction
railway, subway, motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier service
of any class, express service, steamboat, or steamship line, pontines, ferries, and
small water craft, engaged in the transportation of passengers and freight, shipyard,
marine railway, marine repair shop, warehouse, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system, sewerage, gas, electric light, hear and
power, water supply and power, petroleum, sewerage system, telephone, wire or
wireless telegraph system and broadcasting radio stations.

It is not necessary, under this definition, that one holds himself out as serving or willing to
serve the public in order to be considered public service. .

In Luzon Brokerage Company vs. Public Service Commission (40 Off. Gaz., 7th Supplement,
p. 271), this court declared that "Act 454 is clear in including in the definition of a public
service that which is rendered for compensation, although limited exclusively to the
customers of the petitioner."

In that case, the Luzon Brokerage Company, a customs broker, had been receiving,
depositing and delivering goods discharged from ships at the pier to its customers. As here,
the Luzon Brokerage was then rendering transportation service for compensation to a
limited clientele, not to the public at large..

In the United States where, it is said, there is no fixed definition of what constitutes public
service or public utility it is also held that it is no always necessary, in order to be a public
service, that an organization be dedicated to public use, i.e., ready and willing to serve the
public as a class. It is only necessary that it must in some way be impressed with a public
interest; and whether the operation of a given business is a public utility depends upon
whether or not the service rendered by it is a public as a class. It is only necessary that it
must in some way be impressed with a public interest; and whether the operation of a given
business is a public utility depends upon whether or not the service rendered by it is of a
public character and of public consequence and concern. (51 C. J. 5.) Thus, a business may
be affected with public interest and regulated for public good although not under any duty
to serve the public. (43 Am. Jur., 572.) .

It can scarcely be denied that the contracts between the owners of the barges and the
owners of the cargo at bar were ordinary contracts of transportation and not of lease.
Petitioners' watercraft was manned entirely by crews in their employ and payroll, and the
operation of the said craft was under their direction and control, the customers assuming no
responsibility for the goods handled on the barges. The great preponderance of the evidence
contradicts the assertion that there was any physical or symbolic conveyance of the
possessing of the tugboats and barges to the shippers. Whether the agreements were
written or verbal, the manner of payment of freight charges, the question who loaded and
unloaded the cargo, the propriety of the admission of certain receipts in evidence, etc., to
all of which the parties have given much attention — these are matters of form which do not
alter the essential nature of the relationship of the parties to the transactions as revealed by
the fundamental facts to record..

It is contended that "if the Public Service Act were to be construed in such manner as to
include private lease contracts, said law would be unconstitutional," seemingly implying
that, to prevent the law from being in contravention of the Constitution, it should be so read
as to embrace only those persons and companies that are in fact engaged in public service"
with its corresponding qualification of an offer to serve indiscriminately the public.".

It has been already shown that the petitioners' lighters and tugboats were not leased, but
used to carry goods for compensation at a fixed rate for a fixed weight. At the very least,
they were hired, hired in the sense that the shippers did not have directions, control and
maintenance thereof, which is a characteristic feature of lease..

On the second proposition, the Public Service Commission has, in our judgment, interpreted
the law in accordance with legislative intent. Commonwealth Act No. 146 declares in
unequivocal language that an enterprise of any of the kinds therein enumerated is a public
service if conducted for hire or compensation even if the operator deals only with a portion
of the public or limited clientele.

It has been seen that public utility, even where the term is not defined by statute, is not
determined by the number of people actually served. Nor does the mere fact that service is
rendered only under contract prevent a company from being a public utility. (43 Am. Jur.,
573.) on the other hand, casual or incidental service devoid of public character and interest,
it must be admitted, is not brought within the category of public utility. The demarcation
line is not susceptible of exact description or definition, each case being governed by its
peculiar circumstances..

"It is impossible to lay down any general rule on the subject whether the rendering of
incidental service to member of the public by an individual or corporation whose principal
business is of a different nature constitute cases are in conflict, as the question involved
depends on such factor as the extent of service, whether such person or company has held
himself or itself out as ready to serve the public or a portion of the public generally, or in
other ways conducted himself or itself as a public utility. In several cases, it has been held
that the incidental service rendered to others constituted such person or corporation a
public utility, but in other cases, a contrary decision has been reached." (43 Am. Jur., 573.).
The transportation service which was the subject of complaint was not casual or incidental.
It had been carried on regularly for two years at almost uniform rates of charges. Although
the number of the petitioners' customers was limited, the value of goods transported was
not inconsiderable. Petitioners did not have the same customers all the time embraced in
the complaint, and there was no reason to believe that they would not accept, and there
was nothing to prevent them from accepting, new customers that might be willing to avail
of their service to the extent of their capacity. Upon the well-established facts as applied to
the plain letter of Commonwealth Act No. 146, we are of the opinion that the Public Service
Commission's order does not invade private rights of property or contract..

In at least one respect, the business complained of was a matter of public concern. The
Public Service Law was enacted not only to protect the public against unreasonable charges
and poor, inefficient service, but also to prevent ruinous competition. That, we venture to
say, is the main purpose in bringing under the jurisdiction of the Public Service Commission
motor vehicles, other means of transportation, ice plants, etc., which cater to a limited
portion of the public under private agreements. To the extent that such agreement may tent
to wreck or impair the financial stability and efficiency of public utilities who do offer service
to the public in general, they are affected with interest and come within the police power of
the state to regulate..

Just as the legislature may not "declare a company or enterprises to be a public utility when
it is not inherently such," a public utility may not evade control and supervision of its
operation by the government by selecting its customers under the guise of private
transactions.1âwphïl.nêt

For the rest, the constitutionality of Commonwealth Act No. 146 was upheld, implicitly
in Luzon Brokerage Company vs. Public Service Commission, supra, and explicitly in
Pangasinan Transportation Company vs. Public Service Commission (70 Phil., 221).

Where there serious doubts, the court should still be reluctant to invalidate the Public
Service Law of any provision thereof. Although the legislature can not, by its mere
declaration, make something a utility which is not a fact such, "the public policy of the state
as announced by the legislature will be given due weight, and the determination of the
legislature that a particular business is subject to the regulatory power, because the public
welfare is dependent upon its proper conduct and regulation, will not lightly be disregarded
by the court." (51 C. J. 5.).

The objection to the designation of Attorney Aspillera as commissioner to take the evidence
was tardy. It was made for the first time after decision was rendered, following a prolonged
hearing in which the petitioners cross-examined the complainant's witnesses and presented
their own evidence..

The point is procedural, not jurisdictional, and may be waived by express consent or
acquiescence. So it was held in Everett Steamship Corporation vs. Chua Hiong, 90 Phil. 64
and La Paz Ice Plant and Cold Storage Company vs. Commission de Utilidades Publicas et
al., 89 Phil., 109..

Upon the foregoing considerations, the appealed order of the Public Service Commission is
affirmed, with costs against the petitioners. .

Paras, C. J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo and
Labrador, JJ., concur.
San Pablo v. Pantranco 153 SCRA 199 (1987)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-61461 August 21, 1987

EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,

vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.

CARDINAL SHIPPING CORPORATION, petitioner,

vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS,
INC., respondents.

GANCAYCO, J.:

The question that is posed in these petitions for review is whether the sea can be
considered as a continuation of the highway. The corollary issue is whether a land
transportation company can be authorized to operate a ferry service or coastwise or
interisland shipping service along its authorized route as an incident to its franchise without
the need of filing a separate application for the same.

The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic

corporation engaged in the land transportation business with PUB service for passengers
and freight and various certificates for public conveniences CPC to operate passenger buses
from Metro Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO
through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to
lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a
ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to
company buses and freight trucks that have to cross San Bernardo Strait. 1 In a reply of
April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the
request on the basis of the following observations:

1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp.

and Epitacio San Pablo; MARINA policies on interisland shipping restrict the
entry of new operators to Liner trade routes where these are adequately
serviced by existing/authorized operators.

2. Market conditions in the proposed route cannot support the entry of

additional tonnage; vessel acquisitions intended for operations therein are
necessarily limited to those intended for replacement purposes only. 2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3
Million pesos. It wrote the Chairman of the Board of Transportation (BOT) through its
counsel, that it proposes to operate a ferry service to carry its passenger buses and freight
trucks between Allen and Matnog in connection with its trips to Tacloban City invoking the
case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a
ferry service in connection with its franchise for bus operation in the highway from Pasay
City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a
small body of water, the said proposed ferry operation is merely a necessary and incidental
service to its main service and obligation of transporting its passengers from Pasay City to
Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for
public convenience to operate a ferry service between Allen and Matnog to cater exclusively
to its passenger buses and freight trucks.4

Without awaiting action on its request PANTRANCO started to operate said ferry service.
Acting Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel
until the application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT
enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be cited to
show cause why its CPC should not be suspended or the pending application denied. 6

Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who
are franchise holders of the ferry service in this area interposed their opposition. They claim
they adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT
then asked the legal opinion from the Minister of Justice whether or not a bus company with
an existing CPC between Pasay City and Tacloban City may still be required to secure
another certificate in order to operate a ferry service between two terminals of a small body
of water. On October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to
the effect that there is no need for bus operators to secure a separate CPC to operate a
ferryboat service holding as follows:

Further, a common carrier which has been granted a certificate of public

convenience is expected to provide efficient, convenient and adequate service
to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities
Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad
Commissioners, 58 SO 543) It is the right of the public which has accepted
the service of a public utility operator to demand that the service should be
conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-
991) Thus, when the bus company in the case at bar proposes to add a ferry
service to its Pasay Tacloban route, it merely does so in the discharge of its
duty under its current certificate of public convenience to provide adequate
and convenient service to its riders. Requiring said bus company to obtain
another certificate to operate such ferry service when it merely forms a part
— and constitutes an improvement — of its existing transportation service
would simply be duplicitous and superfluous. 7

Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service
is part of its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so
as to reflect the same in this wise:

Let the original Certificate of public convenience granted to Pantranco South

Express Co., Inc. be amended to embody the grant of authority to operate a
private ferry boat service as one of the conditions for the grant of the
certificate subject to the condition that the ferryboat shall be for the exclusive
use of Pantranco buses, its passengers and freight trucks, and should it offer
itself to the public for hire other than its own passengers, it must apply for a
 separate certificate of public convenience as a public ferry boat service,
separate and distinct from its land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for
reconsideration of said decision and San Pablo filed a supplemental motion for
reconsideration that were denied by the BOT on July 21, 1981. 9

Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary
injunction 10 seeking the revocation of said decision, and pending consideration of the
petition, the issuance of a restraining order or preliminary injunction against the operation
by PANTRANCO of said ferry service. San Pablo raised the following issues:

A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE

PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC
SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION
DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT
PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION
OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON — ALLEN,
SAMAR — EVEN AS THERE MUST BE A FORMAL APPLICATION FOR
AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?

B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF

OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG,
SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR
FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR
CONTINUATION OF THE HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH
AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-
ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN
FERRY SERVICE?

C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT

PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER,
NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT
THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF
HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE
FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?

D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT

PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF
THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY
THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE
MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A
VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS
PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION
MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF AUGUST 10, 1976
AND FEBRUARY 26, 1982?

E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT

PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE
ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES
 OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING
CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar
issues, namely:

a. the decision did not conform to the procedures laid down by law for an
amendment of the original certificate of public convenience, and the authority
to operate a private ferry boat service to PANTRANCO was issued without
ascertaining the established essential requisites for such grant, hence,
violative of due process requirements;

b. the grant to PANTRANCO of authority to operate a ferryboat service as a

private carrier on said route contravenes existing government policies relative
to the rationalization of operations of all water transport utilities;

c. it contravenes the memorandum of agreement between MARINA and the

Board of Transportation; d. the grant of authority to operate a ferry service as
a private carrier is not feasible; it lessens PANTRANCO's liability to passengers
and cargo to a degree less than extraordinary diligence?

e. PANTRANCO is not a private carrier when it operates its ferry service;

f. it runs counter to the "old operator" doctrine; and

g. the operation by PANTRANCO of the ferry service cnstitutes undue

competition.

The foregoing considerations constitutes the substantial errors committed by

the respondent Board which would more than amply justify review of the
questioned decision by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.

The resolution of all said issues raised revolves on the validity of the questioned BOT
decision.

The BOT resolved the issue of whether a ferry service is an extension of the highway and
thus is a part of the authority originally granted PANTRANCO in the following manner:

A ferry service, in law, is treated as a continuation of the highway from one

side of the water over which passes to the other side for transportation of
passengers or of travellers with their teams vehicles and such other property
as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC
Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a
specially constructed boat to carry passengers and property across rivers or
bodies of water from a place in one shore to a point conveniently opposite on
the other shore and continuation of the highway making a connection with the
thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp,
85). It comprises not merely the privilege of transportation but also the use
for that purpose of the respective landings with outlets therefrom. (Nole vs.
 Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a
private ferry. A public ferry service is one which all the public have the right
to resort to and for which a regular fare is established and the ferryman is a
common carrier be inbound to take an who apply and bound to keep his ferry
in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A
ferry (private) service is mainly for the use of the owner and though he may
take pay for ferriage, he does not follow it as a business. His ferry is not open
to the public at its demand and he may or may not keep it in operation
(Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140
Ark 158; 215 S.W. 698).

The ferry boat service of Pantranco is a continuation of the highway traversed

by its buses from Pasay City to Samar, Leyte passing through Matnog
(Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private
carrier because it will be used exclusively to transport its own buses,
passengers and freight trucks traversing the said route. It will cater
exclusively to the needs of its own clientele (passengers on board- Pantranco
buses) and will not offer itself indiscriminately for hire or for compensation to
the general public. Legally therefore, Pantranco has the right to operate the
ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to
Allen (Samar) and vice versa for the exclusive use of its own buses,
passengers and freight trucks without the need of applying for a separate
certificate of public convenience or provisional authority. Since its operation is
an integral part of its land transport system, its original certificate of public
convenience should be amended to include the operation of such ferryboat for
its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :

The term "ferry" implied the continuation by means of boats, barges, or rafts,
of a highway or the connection of highways located on the opposite banks of
a stream or other body of water. The term necessarily implies transportation
for a short distance, almost invariably between two points, which is unrelated
to other transportation .(Emphasis supplied)

The term "ferry" is often employed to denote the right or franchise granted by
the state or its authorized mandatories to continue by means of boats, an
interrupted land highway over the interrupting waters and to charge toll for
the use thereof by the public. In this sense it has also been defined as a
privilege, a liberty, to take tolls for transporting passengers and goods across
a lake or stream or some other body of water, with no essential difference
from a bridge franchise except as to the mode of transportation, 22 Am. Jur.
553.

A "ferry" has been defined by many courts as "a public highway or

thoroughfare across a stream of water or river by boat instead of a bridge."
(St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48
L. ed. 518; etc.)

The term ferry is often employed to denote the right or franchise granted by
the state or its authorized mandatories to continue by means of boats, an
interrupted land highway over the interrupting waters and to charge toll for
 the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165
Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)

"Ferry" is service necessity for common good to reach point across a stream
lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp.
851,853)'

"Ferry" properly means a place of transit across a river or arm of the sea, but
in law it is treated as a franchise, and defined as the exclusive right to carry
passengers across a river, or arm of the sea, from one vill to another, or to
connect a continuous line of road leading from township or vill to another.
(Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'

Includes various waters: (1) But an arm of the sea may include various
subordinate descriptions of waters, where the tide ebbs and flows. It may be
a river, harbor, creek, basin, or bay; and it is sometimes used to designate
very extensive reaches of waters within the projecting capes or points or a
country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court
said: "The distinction between rivers navigable and not navigable, that is,
where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith,
2 Dougl. 441, 99 Reprint 283. The former are called arms of the sea, while
the latter pass under the denomination of private or inland rivers" Adams vs.
Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio &
Carillo and Municipality of Gattaran vs. Elizaga 17 this Court considered as ferry service
such water service that crosses rivers.

However, in Javellana We made clear distinction between a ferry service and coastwise or
interisland service by holding that:

We are not unmindful of the reasons adduced by the Commission in

considering the motorboat service between Calapan and Batangas as ferry;
but from our consideration of the law as it stands, particularly Commonwealth
Act No. 146, known as the Public Service Act and the provisions of the
Revised Administrative Code regarding municipal ferries and those regarding
the jurisdiction of the Bureau of Customs over documentation, registration,
licensing, inspection, etc. of steamboats, motorboats or motor vessels, and
the definition of ferry as above quoted we have the impression and we are
inclined to believe that the Legislature intended ferry to mean the service
either by barges or rafts, even by motor or steam vessels, between the banks
of a river or stream to continue the highway which is interrupted by the body
of water, or in some cases to connect two points on opposite shores of an
arm of the sea such as bay or lake which does not involve too great a
distance or too long a time to navigate But where the line or service involves
crossing the open sea like the body of water between the province of
Batangas and the island of Mindoro which the oppositors describe thus "the
intervening waters between Calapan and Batangas are wide and dangerous
with big waves where small boat barge, or raft are not adapted to the
service," then it is more reasonable to regard said line or service as more
properly belonging to interisland or coastwise trade. According to the finding
of the Commission itself the distance between Calapan is about 24 nautical
 miles or about 44.5 kilometers. We do not believe that this is the short
distance contemplated by the Legislature in referring to ferries whether within
the jurisdiction of a single municipality or ferries between two municipalities
or provinces. If we are to grant that water transportation between Calapan
and Batangas is ferry service, then there would be no reason for not
considering the same service between the different islands of the Philippines,
such as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon;
Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and
Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.

The Commission makes the distinction between ferry service and motorship in
the coastwise trade, thus:

A ferry service is distinguished from a motorship or motorboat service

engaged in the coastwise trade in that the latter is intended for the
transportation of passengers and/or freight for hire or compensation between
ports or places in the Philippines without definite routes or lines of service.

We cannot agree. The definiteness of the route of a boat is not the deciding
factor. A boat of say the William Lines, Inc. goes from Manila to Davao City
via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite
route, and yet it may not for that reason be regarded as engaged in ferry
service. Again, a vessel of the Compania Maritima makes the trip from Manila
to Tacloban and back, twice a week. Certainly, it has a definite route. But that
service is not ferry service, but rather interisland or coastwise trade.

We believe that it will be more in consonance with the spirit of the law to
consider steamboat or motorboat service between the different islands,
involving more or less great distance and over more or less turbulent and
dangerous waters of the open sea, to be coastwise or inter-island service.
Anyway, whether said service between the different islands is regarded as
ferry service or coastwise trade service, as long as the water craft used are
steamboats, motorboats or motor vessels, the result will be the same as far
as the Commission is concerned. " 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of
the Philippines, that Matnog which is on the southern tip of the island of Luzon and within
the province of Sorsogon and Allen which is on the northeastern tip of the island of Samar,
is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The parties
admit that the distance between Matnog and Allen is about 23 kilometers which maybe
negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent
PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which
separates Matnog and Allen leads to the ocean it must at times be choppy and rough so that
it will not be safe to navigate the same by small boats or barges but only by such
steamboats or vessels as the MV "Black Double. 19

Considering the environmental circumstances of the case, the conveyance of passengers,

trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise
or interisland shipping service. Under no circumstance can the sea between Matnog and
Allen be considered a continuation of the highway. While a ferry boat service has been
considered as a continuation of the highway when crossing rivers or even lakes, which are
small body of waters - separating the land, however, when as in this case the two terminals,
Matnog and Allen are separated by an open sea it can not be considered as a continuation
of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of
an interisland or coastwise shipping service in accordance with the provisions of law. Its CPC
as a bus transportation cannot be merely amended to include this water service under the
guise that it is a mere private ferry service.

The contention of private respondent PANTRANCO that its ferry service operation is as a
private carrier, not as a common carrier for its exclusive use in the ferrying of its passenger
buses and cargo trucks is absurd. PANTRANCO does not deny that it charges its passengers
separately from the charges for the bus trips and issues separate tickets whenever they
board the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot pretend
that in issuing tickets to its passengers it did so as a private carrier and not as a common
carrier. The Court does not see any reason why inspite of its amended franchise to operate
a private ferry boat service it cannot accept walk-in passengers just for the purpose of
crossing the sea between Matnog and Allen. Indeed evidence to this effect has been
submitted. 21 What is even more difficult to comprehend is that while in one breath
respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is
concerned, in another breath it states that it does not thereby abdicate from its obligation
as a common carrier to observe extraordinary diligence and vigilance in the transportation
of its passengers and goods. Nevertheless, considering that the authority granted to
PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account
as a common carrier towards its passengers and cargo. Such an anomalous situation that
will jeopardize the safety and interests of its passengers and the cargo owners cannot be
allowed.

What appears clear from the record is that at the beginning PANTRANCO planned to operate
such ferry boat service between Matnog and Alien as a common carrier so it requested
authority from MARINA to purchase the vessel M/V "Black Double 22 in accordance with the
procedure provided for by law for such application for a certificate of public
convenience. 23 However when its request was denied as the said routes "are adequately
serviced by existing/authorized operators, 24 it nevertheless purchased the vessel and
started operating the same. Obviously to go about this obstacle to its operation, it then
contrived a novel theory that what it proposes to operate is a private ferryboat service
across a small body of water for the exclusive use of its buses, trucks and passengers as an
incident to its franchise to convey passengers and cargo on land from Pasay City to
Tacloban so that it believes it need not secure a separate certificate of public
convenience. 25 Based on this representation, no less than the Secretary of Justice was led
to render an affirmative opinion on October 20, 1981, 26 followed a few days later by the
questioned decision of public respondent of October 23, 1981. 27 Certainly the Court cannot
give its imprimatur to such a situation.

Thus the Court holds that the water transport service between Matnog and Allen is not a
ferry boat service but a coastwise or interisland shipping service. Before private respondent
may be issued a franchise or CPC for the operation of the said service as a common carrier,
it must comply with the usual requirements of filing an application, payment of the fees,
publication, adducing evidence at a hearing and affording the oppositors the opportunity to
be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board
of Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July
21, 1982 in the same case denying the motions for reconsideration filed by petitioners are
hereby Reversed and set aside and declared null and void. Respondent PANTRANCO is
hereby permanently enjoined from operating the ferryboat service and/or
coastwise/interisland services between Matnog and Allen until it shall have secured the
appropriate Certificate of Public Convenience (CPC) in accordance with the requirements of
the law, with costs against respondent PANTRANCO.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.

Manzanal v. Ausejo 164 SCRA 36 (1988)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31056 August 4, 1988

LUCILA O. MANZANAL, petitioner,

vs.
MAURO A. AUSEJO and PUBLIC SERVICE COMMISSION, respondents.

Pastor C. Bacani and Rogelio E. Subong for petitioner.

Mauro A. Ausejo for and in his own behalf.

Leonor S. Saplala for public respondent.

MEDIALDEA, J.:

This is a petition for review on certiorari of the orders of the Public Service Commission
dated June 30, 1967 and September 1, 1969 in PSC Case No. 66-20-OC, entitled "Mauro A.
Ausejo, Complainant, vs. Lucila O. Manzanal, Respondent," wherein the certificate of public
convenience to operate a taxicab service in Manila and suburbs of herein petitioner Lucila O.
Manzanal was cancelled and revoked and her third motion for reconsideration was denied.

The case stemmed from the affidavit of Mauro A. Ausejo, with the Complaint, Investigation
and Enforcement Office (CIEO) of the Public Service Commission narrating a hold up
incident on March 13, 1966. In this affidavit, he implicated a taxicab unit whose plate
number was said to be "6100" and which was allegedly boarded by three (3) robbers as
they escaped from Roxas Boulevard in front of the L & S Building at about 6:00 a.m. of
March 13, 1966, after affiant and a companion, Mr. Jose Caballes were accosted and held-
up. On the basis of this affidavit, respondent Commission issued a "Show-Cause Order"
dated May 25, 1966 upon petitioner, to wit:
 ... respondent (Petitioner Manzanal) is hereby ordered to appeal before this
Commission, on this 24th day of June, 1966, at 9:00 o'clock in the morning to
show cause why her certificate of public convenience issued under Case No.
62-4503 should not be cancelled for not rendering safe, adequate and proper
service by employing a driver with criminal tendencies, in violation of Section
19 (a) of the Public Service Law and Section 47 of the Revised Order No. 1 of
this Commission.

Failure on the part of the respondent to appear at the hearing set will be
considered as a waiver of her right to be heard and this Commission will
decide the case on its merits. (Page 13, Rollo)

From October 10, 1966 to March 20, 1967, trial was conducted by the respondent Public
Service Commission. Mr. Ausejo and Mr. Caballes both narrated the alleged hold-up incident
as follows: Both were strolling along the seasided embankment of Dewey or Roxas
Boulevard at about 6:00 o'clock in the morning of March 13, 1966 towards the direction of
Pasay City. As they were in front of the L & S Building, they noticed that the three (3) men
alighted from a vehicle behind them. Immediately thereafter, these men accosted and held-
up both of them. Since the two offered some resistance, they attracted the attention of
other promenaders as well as the attention of about twelve passing motorists who stopped
to watch the spectacle, Two of the hold-uppers went after Mr. Caballes and the other one
took care of Mr. Ausejo who fought back and succeeded in disarming the hold-uppers of his
knife. He then drew his pistol and tried to shoot him but it jammed. As the two other hold-
uppers ran towards his direction, presumably to assist their companion, they were warned
that Mr. Ausejo had a gun and so they stopped and rushed instead to a waiting taxi bearing
Plate No. 6100.

At the trial, Mr. Caballes testified that the taxi was red in the entire body while private
respondent Ausejo said that the taxi was red and it had parts painted blue. Both however
said that the plate color was orange.

On the part of petitioner, Manzanal, she submitted documents disputing the possibility that
the taxicab in question was hers. She submitted the decision of the PSC in Case No. 65-
2149 where it appears that the commercial name of the taxi is Crisman Taxi and that the
color is "red top with emerald green body" and two certifications to the effect that the color
of the plate in 1965 was white with maroon background.

On June 30, 1967, the Public Service Commissioner Enrique Medina issued an order
deploring the fact that the respondent did not file a formal answer or explanation. The
Commission found that (a) there was no motive on the part of the said witnesses for the
complainant to testify against the operator or against the driver of taxi with Plate No. 61 00;
(b) the attention of the witnesses was concentrated on the number of the registration plate
and it is understandable that they paid little or no attention at all to the colors; and (c) the
conduct of the operator gave the impression that instead of applying a strong arm against
the erring driver, she has tried to protect and shield him.

Accordingly, respondent Commission considered the charges proven since the hold-up
incident was duly established and ordered the certificate of public convenience issued in
Case No. 62-4503, for five units revoked and cancelled.

Upon denial of her three motions for reconsideration, she filed this petition for review on
certiorari assigning these errors:
 I. The Respondent Commission erred in cancelling and revoking the certificate
of petitioner Manzanal on charges of failure to render safe, proper and
adequate service under Section. 19 (a) of the Public Service Act as amended
and for employing a driver with criminal record under Sec. 47 of the Revised
Order No. 1, as there was absolutely no evidence whatever presented to
prove such charges.

II. The respondent Commission erred when it cancelled and revoked the
certificate of petitioner Manzanal simply because one of her taxicab units
allegedly got involved in a hold-up incident when some, hold-uppers allegedly
boarded the same while escaping since this circumstance is not one of the
grounds for cancellation.

III. The respondent Commission erred in finding petitioner Manzanal guilty of

protecting and shielding the driver of the taxicab unit in question by not
letting him testify and not taking disciplinary action against him, in the face of
absolute absence of evidence to support such findings.

Petitioner included in her petition a prayer for the issuance of a preliminary mandatory
injunction to allow petitioner to resume operations during the pendency of this petition and
to enjoin respondent Commission from snowing another to appropriate her certificate and/or
line. She reiterated this prayer in a motion dated January 9, 1970. On February 16, 1970,
this Court issued a writ of preliminary injunction upon petitioner posting a bond of
P1,000.00 by allowing her to resume operations and at the same time enjoining the
operations of Yolanda Escolin , whose application for "appropriation" was granted in PSC
Case No. 68-9712. Upon motion of said Yolanda Escolin, this Court allowed her to intervene
and lifted the preliminary injunction issued upon her filing a bond of P5,000.00. However,
on June 23, 1970, this Court modified the order lifting the writ so that the first part thereof
allowing petitioner to resume operation of her taxicab service is deemed excluded from said
order of lifting.

Respondent Public Service Commission filed an answer to the petition stating that the
cancellation of petitioner's certificate was warranted by the evidence adduced during the
hearing pointing to the fact that the petitioner's driver was conclusively involved in the hold-
up.

Private respondent Mauro A. Ausejo on the other hand, manifested that he has chosen not
to file an answer to the petition. He, however, filed his comment to petitioner's motion
reiterating the prayer for the issuance of a writ of preliminary injunction. He affirmed
therein the presence of Felicisimo M. Valdez the driver of taxicab No. 6100 during the
hearings but stated, that he could not be sure then as to whether he was the driver of the
vehicle used by the hold-uppers. He likewise stated that he executed an affidavit dated
January 5, 1970 to the effect that the sole purpose of his complaint before the Public
Service Commission was merely to verify the driver of the taxi then bearing Plate No. 6100
so said driver could help the police in the apprehension and prosecution of the hold-uppers
and that in view of the death of said driver during the pendency of the investigation, he is
wining to forget everything.

We find the petition impressed with merit and agree with petitioner that the charges lodged
against her have not been duly proved. The respondent Public Service Commission anchors
the charges against petitioner on the following provisions, to wit:
 Section 19. Unlawful acts. — It shall be unlawful for any public service:

(a) to provide or maintain any service that is unsafe, improper, or

inadequate, or withhold or refine any service which can reasonably be
demanded and furnished, as found and determined by the Commission in a
final order which shall be conclusive and shall take effect in accordance with
this Act upon appeal or otherwise. (The Public Service Act, as amended)

Section 47. Courtesy, character, record, etc. Each operator shag employ only
such chauffeurs, conductors, agents, inspectors, auditors, and other
employees who are courteous and of good moral character, and in no case
shall he employ any person who has been convicted by competent court of
homicide and/or serious physical injuries, theft, estafa, robbery, and crimes
against chastity. Operators are prohibited from employing as chauffeurs
persons who do not have professional drivers" license. (Revised Order No. 1)

Section 19 (a) of the Public Service Act contemplates of failure to provide a service that is
safe, proper or adequate and refusal to render any service which can reasonably be
demanded and furnished. It refers specifically to the operator's inability to provide reliable
vehicles to transport the riding public to their places of destination and to the failure to
provide an adequate number of units authorized under his franchise at all times to secure
the public of sustained service. While the words "unsafe, inadequate and improper" may be
broad enough to cover a lot of things, they must be interpreted in consonance with the
purpose of the Public Service Law, which was specifically enacted, among other things, to
protect the public against unreasonable charges and poor inefficient service (Luzon
Stevedoring Co., Inc. vs. PSC, 93 Phil. 735) and to secure adequate sustained service for
the public at the least possible costs. (Batangas Transportation Co. vs. Orlanes, 52 Phil.
455). The facts of the case are bereft and wanting of any evidence to the effect that
petitioner rendered a service that is unsafe, inadequate and improper. There was no
testimony whatsoever that her vehicles are of such kind which may endanger the lives of
the passengers or are not suitable for the peculiar characteristics of the area serviced. There
is no proof that petitioner is not in a position to cope with the obligations and responsibilities
of the service and to maintain a complete number of units as authorized. While we agree
with respondent Commission that said provision does not necessarily require a "passenger-
operator" relationship, We disagree that a single hold-up incident which does not clearly link
petition's taxicab can be comprehended within its meaning.

Section 47 of the Revised Order No. 1, on the other hand, refers to the kind of persons an
operator must keep under his employ, namely: courteous, of good moral character and no
record of criminal conviction. Contrary to the claim of petitioner, this restriction equally
applies to those who are already employed as well as those merely seeking admission to the
service. (Pangasinan Transportation Co. vs. CIR, L-9736, May 20, 1957, 101 Phil. 480) The
reason behind this requirement of courtesy and good moral character cannot be assailed
and is understandable. A public service operator deals directly with the patronizing
community and the nature of such undertaking necessarily demands of the company the
maintenance of a personnel with unquestionable record of good moral character for the
public entrust their lives, properties and interests in said services and deserve utmost
courtesy, efficiency and safety in return. (Ibid.) But nowhere in the presentation of the facts
of the case was there any proof that petitioner violated this provision. There is no proof that
she has hired a driver with criminal record or bad moral character or has kept under her
employ, such driver despite knowledge about his moral behavior, discourteous conduct or
criminal record. Besides, the show cause order merely speaks of employing a driver with
"criminal tendencies" while Section 47 is couched in unmistakable mandatory terms; it
forbids the employment of persons "convicted" of offenses enumerated therein.

All that was proved during the investigation was the hold-up incident of March 13, 1966. But
proof of the hold-up incident is not proof of the charges under Section 19 (a) of the Public
Service Law and Sec. 47 of the Revised Order No. 17. Most importantly, even the precise
Identity of the taxicab boarded by the hold-uppers as they escaped had not been
established. The only testimony linking the taxicab of petitioner was that of the companion
of private respondent Ausejo that he saw the malefactors scamper away and seize a taxi
whose plate number was "6100". With respect to the description of the alleged taxi, he said
that the taxi was red in the entire body while private respondent Ausejo said that the taxi
was red and it had parts painted blue. Both confirmed each other that the plate color was
orange.

We find that petitioner has successfully refuted the alleged participation of her taxi. The
decision dated December 28, 1965 of respondent Commission granting her petition for
approval of her color scheme which authorized all her five (5) units to be painted with
emerald green; the certification of Mr. Pedro Morales of the Land Transportation
Commission, Chief of the Plate Section, to the effect that the plates for taxis for 1965 have
a maroon background; and the certification of Mr. Marcelo Vasquez of the Vasquez Bros. &
Co., Inc., the makers of vehicle plates for the Land Transportation Commission that the
orange colored plates are given to privately owned vehicles and that No. 6100 has been
given to both taxis and privately owned vehicles all cast a cloud of doubt on the real
Identity of the vehicle used by the malefactors.

Even on the assumption that it was petitioner's taxicab that was used by the escaping hold-
uppers, there is no evidence that the driver is a co-conspirator in the commission of the
offense of robbery. Conspiracy must be proved by clear and convincing evidence. The mere
claim that the taxicab was there and probably waiting is not proof of conspiracy in this case
as it should be recalled that there were about twelve vehicles that stopped to view the
spectacle. Further, it is possible that the driver did not act voluntarily as no person in his
right senses would defy the wishes of armed passengers. Even on the assumption that the
driver had participated voluntarily in the incident, his culpability should not be made a
ground for the cancellation of the certificate of petitioner. While an employer may be
subsidiarily liable for the employee's civil liability in a criminal action, subsidiary liability
presupposes that there was a criminal action. Besides, in order that an employer may be
subsidiarily liable, it should be shown that the employee committed the offense in the
discharge of his duties. While it is true also that an employer may be primarily liable under
Article 2180 of the Civil Code for the acts or omissions of persons for whom one is
responsible, this liability extends only to damages caused by his employees acting within
the scope of their assigned tasks. Clearly, the act in question is totally alien to the business
of petitioner as an operator and hence, the driver's illicit act is not within the scope of the
functions entrusted to him. Moreover, the action before respondent Commission is neither a
criminal prosecution nor an action for quasi-delict. Hence, there is absolutely no ground to
hold petitioner liable for the driver's act.

Finally, under Section 16 (n) of the Public Service Act, the power of the Commission to
suspend or revoke any certificate received under the provisions of the Act may only be
exercised whenever the holder thereof has violated or willfully and contumaciously refused
to comply with any order, rule or regulation of the Commission or any provision of the Act.
In the absence of showing that there is willful and contumacious violation on the part of
petitioner, no certificate of public convenience may be validly revoked.
The following are some instances where the cancellation of a certificate of public
convenience where held valid: (1) where the holder is a mere dummy (Pecson vs. Pecson,
78 Phil. 522); (2) where the operator ceased operation and placed his buses on storage
(Parades vs. Public Service Commission, L-7111, May 30, 1955); and (3) where the
operator abandons, totally the service (Collector vs. Buan, L-11438, July 31, 1958; Regodon
vs. Public Service Commission, L-11899, Sept. 23, 1958; Paez vs. Marcelo, L-1530, March
30, 1962). None of the willful acts in patent violation of the Public Service Law can be
attributed to petitioner herein.

Apropos, We find the respondent Commission's finding that the circumstances surrounding
the case, specially the conduct of petitioner, gave the impression that the petitioner instead
of applying a strong arm against the erring driver has tried to protect and shield him has no
basis in fact. While the rule is that the commission's findings of fact, if supported by
substantial evidence, are conclusive upon this Court, We are authorized to modify or ignore
them when it clearly appears that there is no evidence to support reasonably such
conclusion. (Javellana vs. La Paz Ice Plant & Cold Storage Co., 63 Phil. 621; Philippine
Shipowners Association vs. Public Utility Commissioner, 43 Phil. 328; San Miguel Brewery
vs. Lapid, 53 Phil. 539; Ice & Cold Storage Industries of the Phil., Inc. vs. Valero, 85 Phil. 7;
Halili vs. Daplas, 14 SCRA 14)

In the case at bar, it has been duly established that the driver of the taxicab, Felicisimo M.
Valdez, was always present during the initial hearings of this case before his death on
September 18, 1966. This fact is indicative of his willingness to take the witness stand but
death sealed his lips. For her part, petitioner explained that she did not testify because she
was candid enough not to pretend to know the exact whereabouts of her taxi at the fateful
time. Hence, the conclusion of respondent Commission that she tried to protect or shield her
driver by her refusal to refute or deny the claim of respondent Ausejo and Mr. Caballes is
not warranted by the facts of the case.

ACCORDINGLY, the instant petition for review is hereby GRANTED and the decision of
respondent Public Service Commission (now Land Transportation Franchising and
Regulatory Board [LTFRB]) dated June 30, 1967 cancelling and revoking the certificate of
public convenience of petitioner to operate a taxicab service in Manila for five (5) units
under Case No. 62-4503 as well as the order denying the motion for reconsideration are
hereby REVERSED and SET ASIDE.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griño-Aquino, JJ., concur.

Cogeo-Cubao Operator’s and Driver’s Association v. CA 207 SCRA 343 (1992)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 100727 March 18, 1992

COGEO-CUBAO OPERATORS AND DRIVERS ASSOCIATION, petitioner,
vs.
THE COURT OF APPEALS, LUNGSOD SILANGAN TRANSPORT SERVICES, CORP.,
INC., respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals which
affirmed with modification the decision of the Regional Trial Court awarding damages in
favor of respondent Lungsod Silangan Transport Services Corp., Inc. (Lungsod Corp. for
brevity).

The antecedents facts of this case are as follows:

It appears that a certificate of public convenience to operate a jeepney

service was ordered to be issued in favor of Lungsod Silangan to ply the
Cogeo-Cubao route sometime in 1983 on the justification that public
necessity and convenience will best be served, and in the absence of existing
authorized operators on the lined apply for . . . On the other hand, defendant-
Association was registered as a non-stock, non-profit organization with the
Securities and Exchange Commission on October 30, 1985 . . . with the main
purpose of representing plaintiff-appellee for whatever contract and/or
agreement it will have regarding the ownership of units, and the like, of the
members of the Association . . .

Perturbed by plaintiffs' Board Resolution No. 9 . . . adopting a Bandera'

System under which a member of the cooperative is permitted to queue for
passenger at the disputed pathway in exchange for the ticket worth twenty
pesos, the proceeds of which shall be utilized for Christmas programs of the
drivers and other benefits, and on the strength of defendants' registration as
a collective body with the Securities and Exchange Commission, defendants-
appellants, led by Romeo Oliva decided to form a human barricade on
November 11, 1985 and assumed the dispatching of passenger jeepneys . . .
This development as initiated by defendants-appellants gave rise to the suit
for damages.

Defendant-Association's Answer contained vehement denials to the

insinuation of take over and at the same time raised as a defense the
circumstance that the organization was formed not to compete with plaintiff-
cooperative. It, however, admitted that it is not authorized to transport
passengers . . . (pp. 15-16, Rollo)

On July 31, 1989, the trial court rendered a decision in favor of respondent Lungsod Corp.,
the dispositive portion of which states:

WHEREFORE FROM THE FOREGOING CONSIDERATION, the Court hereby

renders judgment in favor of the plaintiff and against the defendants as
follows:
 1. Ordering defendants to pay plaintiff the amount of P50,000.00 as actual
damages;

2. Ordering the defendants to pay the plaintiffs the amount of P10,000.00 as

attorney's fees.

SO ORDERED. (P. 39, Rollo)

Not satisfied with the decision, petitioner Association appealed with the Court of Appeals. On
May 27, 1991, respondent appellate court rendered its decision affirming the findings of the
trial court except with regard to the award of actual damages in the amount of P50,000.00
and attorney's fees in the amount of P10,000.00. The Court of Appeals however, awarded
nominal damages to petitioner in the amount of P10,000.00.

Hence, this petition was filed with the petitioner assigning the following errors of the
appellate court:

I. THE RESPONDENT COURT ERRED IN MERELY MODIFYING THE JUDGMENT

OF THE TRIAL COURT.

II. THE RESPONDENT COURT ERRED IN HOLDING THAT THE PETITIONER

USURPED THE PROPERTY RIGHT OF THE PRIVATE RESPONDENT.

III. AND THE RESPONDENT COURT ERRED IN DENYING THE MOTION FOR
RECONSIDERATION.

Since the assigned errors are interrelated, this Court shall discuss them jointly. The main
issue raised by the petitioner is whether or not the petitioner usurped the property right of
the respondent which shall entitle the latter to the award of nominal damages.

Petitioner contends that the association was formed not to complete with the respondent
corporation in the latter's operation as a common carrier; that the same was organized for
the common protection of drivers from abusive traffic officers who extort money from them,
and for the elimination of the practice of respondent corporation of requiring jeepney
owners to execute deed of sale in favor of the corporation to show that the latter is the
owner of the jeeps under its certificate of public convenience. Petitioner also argues that in
organizing the association, the members thereof are merely exercising their freedom or
right to redress their grievances.

We find the petition devoid of merit.

Under the Public Service Law, a certificate of public convenience is an authorization issued
by the Public Service Commission for the operation of public services for which no franchise
is required by law. In the instant case, a certificate of public convenience was issued to
respondent corporation on January 24, 1983 to operate a public utility jeepney service on
the Cogeo-Cubao route. As found by the trial court, the certificate was issued pursuant to a
decision passed by the Board of Transportation in BOT Case No. 82-565.

A certification of public convenience is included in the term "property" in the broad sense of
the term. Under the Public Service Law, a certificate of public convenience can be sold by
the holder thereof because it has considerable material value and is considered as valuable
asset (Raymundo v. Luneta Motor Co., et al., 58 Phil. 889). Although there is no doubt that
it is private property, it is affected with a public interest and must be submitted to the
control of the government for the common good (Pangasinan Transportation Co. v. PSC, 70
Phil 221). Hence, insofar as the interest of the State is involved, a certificate of public
convenience does not confer upon the holder any proprietary right or interest or franchise in
the route covered thereby and in the public highways (Lugue v. Villegas, L-22545, Nov . 28,
1969, 30 SCRA 409). However, with respect to other persons and other public utilities, a
certificate of public convenience as property, which represents the right and authority to
operate its facilities for public service, cannot be taken or interfered with without due
process of law. Appropriate actions may be maintained in courts by the holder of the
certificate against those who have not been authorized to operate in competition with the
former and those who invade the rights which the former has pursuant to the authority
granted by the Public Service Commission (A.L. Ammen Transportation Co. v. Golingco. 43
Phil. 280).

In the case at bar, the trial court found that petitioner association forcibly took over the
operation of the jeepney service in the Cogeo-Cubao route without any authorization from
the Public Service Commission and in violation of the right of respondent corporation to
operate its services in the said route under its certificate of public convenience. These were
its findings which were affirmed by the appellate court:

The Court from the testimony of plaintiff's witnesses as well as the

documentary evidences presented is convinced that the actions taken by
defendant herein though it admit that it did not have the authority to
transport passenger did in fact assume the role as a common carrier engaged
in the transport of passengers within that span of ten days beginning
November 11, 1985 when it unilaterally took upon itself the operation and
dispatching of jeepneys at St. Mary's St. The president of the defendant
corporation. Romeo Oliva himself in his testimony confirmed that there was
indeed a takeover of the operations at St. Mary's St. . . . (p. 36, Rollo)

The findings of the trial court especially if affirmed by the appellate court bear great weight
and will not be disturbed on appeal before this Court. Although there is no question that
petitioner can exercise their constitutional right to redress their grievances with respondent
Lungsod Corp., the manner by which this constitutional right is to be, exercised should not
undermine public peace and order nor should it violate the legal rights of other persons.
Article 21 of the Civil Code provides that any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage. The provision covers a situation where a person has
a legal right which was violated by another in a manner contrary to morals, good customs
or public policy. It presupposes loss or injury, material or otherwise, which one may suffer
as a result of such violation. It is clear form the facts of this case that petitioner formed a
barricade and forcibly took over the motor units and personnel of the respondent
corporation. This paralyzed the usual activities and earnings of the latter during the period
of ten days and violated the right of respondent Lungsod Corp. To conduct its operations
thru its authorized officers.

As to the propriety of damages in favor of respondent Lungsod Corp., the respondent

appellate court stated:

. . . it does not necessarily follow that plaintiff-appellee is entitled

to actual damages and attorney's fees. While there may have been allegations
 from plaintiff-cooperative showing that it did in fact suffer some from of injury
. . . it is legally unprecise to order the payment of P50,000.00 as actual
damages for lack of concrete proof therefor. There is, however, no denying of
the act of usurpation by defendants-appellants which constituted an invasion
of plaintiffs'-appellees' property right. For this, nominal damages in the
amount of P10,000.00 may be granted. (Article 2221, Civil Code). (p.
18, Rollo)

No compelling reason exists to justify the reversal of the ruling of the respondent appellate
court in the case at bar. Article 2222 of the Civil Code states that the court may award
nominal damages in every obligation arising from any source enumerated in Article 1157, or
in every case where any property right has been invaded. Considering the circumstances of
the case, the respondent corporation is entitled to the award of nominal damages.

ACCORDINGLY, the petition is DENIED and the assailed decision of the respondent appellate
court dated May 27, 1991 is AFFIRMED.

SO ORDERED.

Narvasa, C.J., Cruz and Griño-Aquino, JJ., concur.

Bellosillo, J., took no part.

KMU Labor Center v. Garcia supra

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,

vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND
REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF
THE PHILIPPINES, respondents.

Potenciano A. Flores for petitioner.

Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.

Jose F. Miravite for movants.

KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are essential to
the general public. They are enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public utility services are impressed
with public interest and concern. The same is true with respect to the business of common
carrier which holds such a peculiar relation to the public interest that there is superinduced
upon it the right of public regulation when private properties are affected with public
interest, hence, they cease to be juris privati only. When, therefore, one devotes his
property to a use in which the public has an interest, he, in effect grants to the public an
interest in that use, and must submit to the control by the public for the common good, to
the extent of the interest he has thus created.1

An abdication of the licensing and regulatory government agencies of their functions as the
instant petition seeks to show, is indeed lamentable. Not only is it an unsound
administrative policy but it is inimical to public trust and public interest as well.

The instant petition for certiorari assails the constitutionality and validity of certain
memoranda, circulars and/or orders of the Department of Transportation and
Communications (DOTC) and the Land Transportation Franchising and Regulatory Board
LTFRB)2 which, among others, (a) authorize provincial bus and jeepney operators to
increase or decrease the prescribed transportation fares without application therefor with
the LTFRB and without hearing and approval thereof by said agency in violation of Sec.
16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service
Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by
delegating that function to bus operators, and (b) establish a presumption of public need in
favor of applicants for certificates of public convenience (CPC) and place on the oppositor
the burden of proving that there is no need for the proposed service, in patent violation not
only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating
that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court
which places upon each party the burden to prove his own affirmative allegations.3 The
offending provisions contained in the questioned issuances pointed out by petitioner, have
resulted in the introduction into our highways and thoroughfares thousands of old and
smoke-belching buses, many of which are right-hand driven, and have exposed our
consumers to the burden of spiraling costs of public transportation without hearing and due
process.

The following memoranda, circulars and/or orders are sought to be nullified by the instant
petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the
implementation of a fare range scheme for provincial bus services in the country; (b) DOTC
Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport
services; (c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures
to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009,
providing implementing guidelines on the DOTC Department Order No. 92-587; and (e)
LTFRB Order dated March 24, 1994 in Case No. 94-3112.

The relevant antecedents are as follows:

On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular
No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus
operators to charge passengers rates within a range of 15% above and 15% below the
LTFRB official rate for a period of one (1) year. The text of the memorandum order reads in
full:
 One of the policy reforms and measures that is in line with the thrusts and
the priorities set out in the Medium-Term Philippine Development Plan
(MTPDP) 1987 — 1992) is the liberalization of regulations in the transport
sector. Along this line, the Government intends to move away gradually from
regulatory policies and make progress towards greater reliance on free
market forces.

Based on several surveys and observations, bus companies are already

charging passenger rates above and below the official fare declared by LTFRB
on many provincial routes. It is in this context that some form of liberalization
on public transport fares is to be tested on a pilot basis.

In view thereof, the LTFRB is hereby directed to immediately publicize a fare

range scheme for all provincial bus routes in country (except those operating
within Metro Manila). Transport Operators shall be allowed to charge
passengers within a range of fifteen percent (15%) above and fifteen percent
(15%) below the LTFRB official rate for a period of one year.

Guidelines and procedures for the said scheme shall be prepared by LTFRB in
coordination with the DOTC Planning Service.

The implementation of the said fare range scheme shall start on 6 August
1990.

For compliance. (Emphasis ours.)

Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S.
Fernando submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:

With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990
which the LTFRB received on 19 July 1990, directing the Board "to
immediately publicize a fare range scheme for all provincial bus routes in the
country (except those operating within Metro Manila)" that will allow
operators "to charge passengers within a range of fifteen percent (15%)
above and fifteen percent (15%) below the LTFRB official rate for a period of
one year" the undersigned is respectfully adverting the Secretary's attention
to the following for his consideration:

1. Section 16(c) of the Public Service Act prescribes the

following for the fixing and determination of rates — (a) the
rates to be approved should be proposed by public service
operators; (b) there should be a publication and notice to
concerned or affected parties in the territory affected; (c) a
public hearing should be held for the fixing of the rates; hence,
implementation of the proposed fare range scheme on August 6
without complying with the requirements of the Public Service
Act may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen

(15%) above the present LTFRB fares in the wake of the
devastation, death and suffering caused by the July 16
 earthquake will not be socially warranted and will be politically
unsound; most likely public criticism against the DOTC and the
LTFRB will be triggered by the untimely motu
propio implementation of the proposal by the mere expedient of
publicizing the fare range scheme without calling a public
hearing, which scheme many as early as during the Secretary's
predecessor know through newspaper reports and columnists'
comments to be Asian Development Bank and World Bank
inspired.

3. More than inducing a reduction in bus fares by fifteen

percent (15%) the implementation of the proposal will instead
trigger an upward adjustment in bus fares by fifteen percent
(15%) at a time when hundreds of thousands of people in
Central and Northern Luzon, particularly in Central Pangasinan,
La Union, Baguio City, Nueva Ecija, and the Cagayan Valley are
suffering from the devastation and havoc caused by the recent
earthquake.

4. In lieu of the said proposal, the DOTC with its agencies

involved in public transportation can consider measures and
reforms in the industry that will be socially uplifting, especially
for the people in the areas devastated by the recent
earthquake.

In view of the foregoing considerations, the undersigned respectfully suggests

that the implementation of the proposed fare range scheme this year be
further studied and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the

Philippines, Inc. (PBOAP) filed an application for fare rate increase. An across-the-board
increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses
with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed
basic per kilometer fare rate, with the said minimum-maximum fare range applying only to
ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per
kilometer fare for aircon buses, was sought.

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an
across-the-board increase of six and a half (P0.065) centavos per kilometer for ordinary
buses. The decrease was due to the drop in the expected price of diesel.

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C.
Bautista alleging that the proposed rates were exorbitant and unreasonable and that the
application contained no allegation on the rate of return of the proposed increase in rates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate
increase in accordance with the following schedule of fares on a straight computation
method, viz:

AUTHORIZED FARES
 LUZON
MIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37

STUDENT P1.15 P0.28

VISAYAS/MINDANAO

REGULAR P1.60 P0.375

STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405

AIRCON (PER KM.) P0.415.4

On March 30, 1992, then Secretary of the Department of Transportation and

Communications Pete Nicomedes Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full text of
the said order is reproduced below in view of the importance of the provisions contained
therein:

WHEREAS, Executive Order No. 125 as amended, designates the Department

of Transportation and Communications (DOTC) as the primary policy,
planning, regulating and implementing agency on transportation;

WHEREAS, to achieve the objective of a viable, efficient, and dependable

transportation system, the transportation regulatory agencies under or
attached to the DOTC have to harmonize their decisions and adopt a common
philosophy and direction;

WHEREAS, the government proposes to build on the successful liberalization

measures pursued over the last five years and bring the transport sector
nearer to a balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the
following policies and principles in the economic regulation of land, air, and
water transportation services are hereby adopted:

1. Entry into and exit out of the industry. Following the Constitutional dictum
against monopoly, no franchise holder shall be permitted to maintain a
monopoly on any route. A minimum of two franchise holders shall be
permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public
convenience, shall be: proof of Filipino citizenship, financial capability, public
need, and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be

deemed in favor of the applicant. The burden of proving that there is no need
for a proposed service shall be with the oppositor(s).

In the interest of providing efficient public transport services, the use of the
"prior operator" and the "priority of filing" rules shall be discontinued. The
route measured capacity test or other similar tests of demand for
vehicle/vessel fleet on any route shall be used only as a guide in weighing the
merits of each franchise application and not as a limit to the services offered.

Where there are limitations in facilities, such as congested road space in

urban areas, or at airports and ports, the use of demand management
measures in conformity with market principles may be considered.

The right of an operator to leave the industry is recognized as a business

decision, subject only to the filing of appropriate notice and following a phase-
out period, to inform the public and to minimize disruption of services.

2. Rate and Fare Setting. Freight rates shall be freed gradually from
government controls. Passenger fares shall also be deregulated, except for
the lowest class of passenger service (normally third class passenger
transport) for which the government will fix indicative or reference fares.
Operators of particular services may fix their own fares within a range 15%
above and below the indicative or reference rate.

Where there is lack of effective competition for services, or on specific routes,

or for the transport of particular commodities, maximum mandatory freight
rates or passenger fares shall be set temporarily by the government pending
actions to increase the level of competition.

For unserved or single operator routes, the government shall contract such
services in the most advantageous terms to the public and the government,
following public bids for the services. The advisability of bidding out the
services or using other kinds of incentives on such routes shall be studied by
the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of

policy, the government shall not engage in special financing and incentive
programs, including direct subsidies for fleet acquisition and expansion. Only
when the market situation warrants government intervention shall programs
of this type be considered. Existing programs shall be phased out gradually.

The Land Transportation Franchising and Regulatory Board, the Civil

Aeronautics Board, the Maritime Industry Authority are hereby directed to
submit to the Office of the Secretary, within forty-five (45) days of this Order,
the detailed rules and procedures for the Implementation of the policies
herein set forth. In the formulation of such rules, the concerned agencies
 shall be guided by the most recent studies on the subjects, such as the
Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the
Presidential Task Force on the Inter-island Shipping Industry, and the Inter-
island Liner Shipping Rate Rationalization Study.

For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and

Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the
LTFRB suggesting swift action on the adoption of rules and procedures to implement above-
quoted Department Order No. 92-587 that laid down deregulation and other liberalization
policies for the transport sector. Attached to the said memorandum was a revised draft of
the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and
(ii) Rate and Fare Setting, with comments and suggestions from the World Bank
incorporated therein. Likewise, resplendent from the said memorandum is the statement of
the DOTC Secretary that the adoption of the rules and procedures is a pre-requisite to the
approval of the Economic Integration Loan from the World Bank. 5

On February 17, 1993, the LTFRB issued Memorandum Circular

No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order
No. 92-587. The Circular provides, among others, the following challenged portions:

xxx xxx xxx

IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

The issuance of a Certificate of Public Convenience is determined by public

need. The presumption of public need for a service shall be deemed in favor
of the applicant, while burden of proving that there is no need for the
proposed service shall be the oppositor'(s).

xxx xxx xxx

V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition

complementary with the quality of service, subject to prior notice and public
hearing. Fares shall not be provisionally authorized without public hearing.

A. On the General Structure of Rates

1. The existing authorized fare range system of plus or minus 15 per cent for
provincial buses and jeepneys shall be widened to 20% and -25% limit in
1994 with the authorized fare to be replaced by an indicative or reference
rate as the basis for the expanded fare range.

2. Fare systems for aircon buses are liberalized to cover first class and
premier services.

xxx xxx xxx

 (Emphasis ours).

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation
policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of
the prescribed fare without first having filed a petition for the purpose and without the
benefit of a public hearing, announced a fare increase of twenty (20%) percent of the
existing fares. Said increased fares were to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward
adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for
lack of merit. The dispositive portion reads:

PREMISES CONSIDERED, this Board after considering the arguments of the

parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the
above-entitled case. This petition in this case was resolved with dispatch at
the request of petitioner to enable it to immediately avail of the legal
remedies or options it is entitled under existing laws.

SO ORDERED.6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary
restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting
and preventing respondents from implementing the bus fare rate increase as well as the
questioned orders and memorandum circulars. This meant that provincial bus fares were
rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A
moratorium was likewise enforced on the issuance of franchises for the operation of buses,
jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by
respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen
(15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%)
percent, over and above the existing authorized fare without having to file a petition for the
purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption
of public need in favor of an applicant for a proposed transport service without having to
prove public necessity, is illegal for being violative of the Public Service Act and the Rules of
Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues
raised by the petitioner, questions the wisdom and the manner by which the instant petition
was filed. It asserts that the petitioner has no legal standing to sue or has no real interest in
the case at bench and in obtaining the reliefs prayed for.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC
Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have
the standing to maintain the instant suit. They further claim that it is within DOTC and
LTFRB's authority to set a fare range scheme and establish a presumption of public need in
applications for certificates of public convenience.
We find the instant petition impressed with merit.

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the
standing to sue.

The requirement of locus standi inheres from the definition of judicial power. Section 1 of
Article VIII of the Constitution provides:

xxx xxx xxx

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes
pending between parties who have the right to sue in the courts of law and equity. Corollary
to this provision is the principle of locus standi of a party litigant. One who is directly
affected by and whose interest is immediate and substantial in the controversy has the
standing to sue. The rule therefore requires that a party must show a personal stake in the
outcome of the case or an injury to himself that can be redressed by a favorable decision so
as to warrant an invocation of the court's jurisdiction and to justify the exercise of the
court's remedial powers in his behalf.8

In the case at bench, petitioner, whose members had suffered and continue to suffer grave
and irreparable injury and damage from the implementation of the questioned memoranda,
circulars and/or orders, has shown that it has a clear legal right that was violated and
continues to be violated with the enforcement of the challenged memoranda, circulars
and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday,
are directly affected by the burdensome cost of arbitrary increase in passenger fares. They
are part of the millions of commuters who comprise the riding public. Certainly, their rights
must be protected, not neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is
ready to brush aside this barren procedural infirmity and recognize the legal standing of the
petitioner in view of the transcendental importance of the issues raised. And this act of
liberality is not without judicial precedent. As early as the Emergency Powers Cases, this
Court had exercised its discretion and waived the requirement of proper party. In the recent
case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al.,9 we ruled in the same lines
and enumerated some of the cases where the same policy was adopted, viz:

. . . A party's standing before this Court is a procedural technicality which it

may, in the exercise of its discretion, set aside in view of the importance of
the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-
2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-
3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo
v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside
this technicality because "the transcendental importance to the public of these
cases demands that they be settled promptly and definitely, brushing aside, if
we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)."
Insofar as taxpayers' suits are concerned, this Court had declared that it "is
not devoid of discretion as to whether or not it should be entertained," (Tan
v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion
to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].

xxx xxx xxx

In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions
before this court to question the constitutionality or validity of laws, acts,
decisions, rulings, or orders of various government agencies or
instrumentalities. Among such cases were those assailing the constitutionality
of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation
of vacation and sick leave to Senators and Representatives and to elective
officials of both Houses of Congress (Philippine Constitution Association, Inc.
v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed members of the
cabinet, their undersecretaries, and assistant secretaries to hold other
government offices or positions (Civil Liberties Union v. Executive Secretary,
194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d)
R.A. No. 7056 on the holding of desynchronized elections (Osmeña v.
Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the
charter of the Philippine Amusement and Gaming Corporation) on the ground
that it is contrary to morals, public policy, and order (Basco v. Philippine
Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975,
establishing the Philippine National Police. (Carpio v. Executive Secretary, 206
SCRA 290 [1992]).

Other cases where we have followed a liberal policy regarding locus

standi include those attacking the validity or legality of (a) an order allowing
the importation of rice in the light of the prohibition imposed by R.A. No.
3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA
377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed
amendments to the Constitution and P.D. No. 1031 insofar as it directed the
COMELEC to supervise, control, hold, and conduct the referendum-plebiscite
on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the
bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-
ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval
without hearing by the Board of Investments of the amended application of
the Bataan Petrochemical Corporation to transfer the site of its plant from
Bataan to Batangas and the validity of such transfer and the shift of feedstock
from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v. Board
of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191
SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue,
Commissioner of Customs, and the Fiscal Incentives Review Board exempting
the National Power Corporation from indirect tax and duties (Maceda v.
Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory
Board of 5 and 6 December 1990 on the ground that the hearings conducted
on the second provisional increase in oil prices did not allow the petitioner
 substantial cross-examination; (Maceda v. Energy Regulatory Board, 199
SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of
P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211
SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning
the apportionment, by district, of the number of elective members of
Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]);
and (i) memorandum orders issued by a Mayor affecting the Chief of Police of
Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662
[1980]).

In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275

[1975]), this Court, despite its unequivocal ruling that the petitioners therein
had no personality to file the petition, resolved nevertheless to pass upon the
issues raised because of the far-reaching implications of the petition. We did
no less in De Guia v. COMELEC (Supra) where, although we declared that De
Guia "does not appear to have locus standi, a standing in law, a personal or
substantial interest," we brushed aside the procedural infirmity "considering
the importance of the issue involved, concerning as it does the political
exercise of qualified voters affected by the apportionment, and petitioner
alleging abuse of discretion and violation of the Constitution by respondent."

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

Sec. 16. Proceedings of the Commission, upon notice and hearing. — The
Commission shall have power, upon proper notice and hearing in accordance
with the rules and provisions of this Act, subject to the limitations and
exceptions mentioned and saving provisions to the contrary:

xxx xxx xxx

(c) To fix and determine individual or joint rates, tolls, charges,

classifications, or schedules thereof, as well as commutation, mileage
kilometrage, and other special rates which shall be imposed, observed, and
followed thereafter by any public service: Provided, That the Commission
may, in its discretion, approve rates proposed by public services provisionally
and without necessity of any hearing; but it shall call a hearing thereon within
thirty days thereafter, upon publication and notice to the concerns operating
in the territory affected: Provided, further, That in case the public service
equipment of an operator is used principally or secondarily for the promotion
of a private business, the net profits of said private business shall be
considered in relation with the public service of such operator for the purpose
of fixing the rates. (Emphasis ours).

xxx xxx xxx

Under the foregoing provision, the Legislature delegated to the defunct Public Service
Commission the power of fixing the rates of public services. Respondent LTFRB, the
 existing regulatory body today, is likewise vested with the same under Executive
Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order
authorizes LTFRB "to determine, prescribe, approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the operation of
public land transportation services provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to

adapt to the increasing complexity of modern life. As subjects for governmental regulation
multiply, so does the difficulty of administering the laws. Hence, specialization even in
legislation has become necessary. Given the task of determining sensitive and delicate
matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is
entrusted with the power of subordinate legislation. With this authority, an administrative
body and in this case, the LTFRB, may implement broad policies laid down in a statute by
"filling in" the details which the Legislature may neither have time or competence to
provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies,
the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a
transport operator, or other public service.

In the case at bench, the authority given by the LTFRB to the provincial bus operators to set
a fare range over and above the authorized existing fare, is illegal and invalid as it is
tantamount to an undue delegation of legislative authority. Potestas delegata non delegari
potest. What has been delegated cannot be delegated. This doctrine is based on the ethical
principle that such a delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.10 A further delegation of such power would indeed
constitute a negation of the duty in violation of the trust reposed in the delegate mandated
to discharge it directly.11 The policy of allowing the provincial bus operators to change and
increase their fares at will would result not only to a chaotic situation but to an anarchic
state of affairs. This would leave the riding public at the mercy of transport operators who
may increase fares every hour, every day, every month or every year, whenever it pleases
them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine
Railway Co.,12 where respondent Philippine Railway Co. was granted by the Public Service
Commission the authority to change its freight rates at will, this Court categorically declared
that:

In our opinion, the Public Service Commission was not authorized by law to
delegate to the Philippine Railway Co. the power of altering its freight rates
whenever it should find it necessary to do so in order to meet the competition
of road trucks and autobuses, or to change its freight rates at will, or to
regard its present rates as maximum rates, and to fix lower rates whenever
in the opinion of the Philippine Railway Co. it would be to its advantage to do
so.

The mere recital of the language of the application of the Philippine Railway
Co. is enough to show that it is untenable. The Legislature has delegated to
the Public Service Commission the power of fixing the rates of public services,
but it has not authorized the Public Service Commission to delegate that
power to a common carrier or other public service. The rates of public
services like the Philippine Railway Co. have been approved or fixed by the
Public Service Commission, and any change in such rates must be authorized
or approved by the Public Service Commission after they have been shown to
 be just and reasonable. The public service may, of course, propose new rates,
as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully
make said new rates effective without the approval of the Public Service
Commission, and the Public Service Commission itself cannot authorize a
public service to enforce new rates without the prior approval of said rates by
the commission. The commission must approve new rates when they are
submitted to it, if the evidence shows them to be just and reasonable,
otherwise it must disapprove them. Clearly, the commission cannot determine
in advance whether or not the new rates of the Philippine Railway Co. will be
just and reasonable, because it does not know what those rates will be.

In the present case the Philippine Railway Co. in effect asked for permission
to change its freight rates at will. It may change them every day or every
hour, whenever it deems it necessary to do so in order to meet competition or
whenever in its opinion it would be to its advantage. Such a procedure would
create a most unsatisfactory state of affairs and largely defeat the purposes
of the public service law.13 (Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If

transport operators will be authorized to impose and collect an additional amount equivalent
to 20% over and above the authorized fare over a period of time, this will unduly prejudice
a commuter who will be made to pay a fare that has been computed in a manner similar to
those of compounded bank interest rates.

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators
to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same
time, they were allowed to impose and collect a fare range of plus or minus 15% over the
authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos
(which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990.
Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994,
then, the base or reference for computation would have to be P0.47 centavos (which is
P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an
additional 20% over and above the authorized fare, then the fare to be collected shall
amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29).
In effect, commuters will be continuously subjected, not only to a double fare adjustment
but to a compounding fare as well. On their part, transport operators shall enjoy a bigger
chunk of the pie. Aside from fare increase applied for, they can still collect an additional
amount by virtue of the authorized fare range. Mathematically, the situation translates into
the following:

Year** LTFRB authorized Fare Range Fare to be

rate*** collected per
kilometer

1990 P0.37 15% (P0.05) P0.42

1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive
government function that requires dexterity of judgment and sound discretion with the
settled goal of arriving at a just and reasonable rate acceptable to both the public utility and
the public. Several factors, in fact, have to be taken into consideration before a balance
could be achieved. A rate should not be confiscatory as would place an operator in a
situation where he will continue to operate at a loss. Hence, the rate should enable public
utilities to generate revenues sufficient to cover operational costs and provide reasonable
return on the investments. On the other hand, a rate which is too high becomes
discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and
fair and must be affordable to the end user who will utilize the services.

Given the complexity of the nature of the function of rate-fixing and its far-reaching effects
on millions of commuters, government must not relinquish this important function in favor
of those who would benefit and profit from the industry. Neither should the requisite notice
and hearing be done away with. The people, represented by reputable oppositors, deserve
to be given full opportunity to be heard in their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and
satisfactory arrangement for all parties involved. To do away with such a procedure and
allow just one party, an interested party at that, to determine what the rate should be, will
undermine the right of the other parties to due process. The purpose of a hearing is
precisely to determine what a just and reasonable rate is.15 Discarding such procedural and
constitutional right is certainly inimical to our fundamental law and to public interest.

On the presumption of public need.

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the
operation of land transportation services for public use as required by law. Pursuant to
Section 16(a) of the Public Service Act, as amended, the following requirements must be
met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the
Philippines, or a corporation or co-partnership, association or joint-stock company
constituted and organized under the laws of the Philippines, at least 60 per centum of its
stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant
must be financially capable of undertaking the proposed service and meeting the
responsibilities incident to its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization to do business will promote
the public interest in a proper and suitable manner. It is understood that there must be
proper notice and hearing before the PSC can exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB
Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory
policy guideline on the issuance of a CPC. The guidelines states:

The issuance of a Certificate of Public Convenience is determined by public

need. The presumption of public need for a service shall be deemed in favor
of the applicant, while the burden of proving that there is no need for the
proposed service shall be the oppositor's. (Emphasis ours).

The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii)
of the Public Service Act which requires that before a CPC will be issued, the applicant must
prove by proper notice and hearing that the operation of the public service proposed will
promote public interest in a proper and suitable manner. On the contrary, the policy
guideline states that the presumption of public need for a public service shall be deemed in
favor of the applicant. In case of conflict between a statute and an administrative order, the
former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to
the public need.16 As one of the basic requirements for the grant of a CPC, public
convenience and necessity exists when the proposed facility or service meets a reasonable
want of the public and supply a need which the existing facilities do not adequately supply.
The existence or
non-existence of public convenience and necessity is therefore a question of fact that must
be established by evidence, real and/or testimonial; empirical data; statistics and such
other means necessary, in a public hearing conducted for that purpose. The object and
purpose of such procedure, among other things, is to look out for, and protect, the interests
of both the public and the existing transport operators.

Verily, the power of a regulatory body to issue a CPC is founded on the condition that after
full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for
the convenience of the public.17 Basic convenience is the primary consideration for which a
CPC is issued, and that fact alone must be consistently borne in mind. Also, existing
operators in subject routes must be given an opportunity to offer proof and oppose the
application. Therefore, an applicant must, at all times, be required to prove his capacity and
capability to furnish the service which he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that
purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses well-
settled and institutionalized judicial, quasi-judicial and administrative procedures. It allows
the party who initiates the proceedings to prove, by mere application, his affirmative
allegations. Moreover, the offending provisions of the LTFRB memorandum circular in
question would in effect amend the Rules of Court by adding another disputable
presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules
of Court. Such usurpation of this Court's authority cannot be countenanced as only this
Court is mandated by law to promulgate rules concerning pleading, practice and
procedure. 19

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our
country given the present circumstances. Advocacy of liberalized franchising and regulatory
process is tantamount to an abdication by the government of its inherent right to exercise
police power, that is, the right of government to regulate public utilities for protection of the
public and the utilities themselves.

While we recognize the authority of the DOTC and the LTFRB to issue administrative orders
to regulate the transport sector, we find that they committed grave abuse of discretion in
issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB
Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC
Department Order No. 92-587, the said administrative issuances being amendatory and
violative of the Public Service Act and the Rules of Court. Consequently, we rule that the
twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994
without the benefit of a petition and a public hearing is null and void and of no force and
effect. No grave abuse of discretion however was committed in the issuance of DOTC
Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same
being merely internal communications between administrative officers.

WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the
challenged administrative issuances and orders, namely: DOTC Department Order No. 92-
587, LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby
DECLARED contrary to law and invalid insofar as they affect provisions therein (a)
delegating to provincial bus and jeepney operators the authority to increase or decrease the
duly prescribed transportation fares; and (b) creating a presumption of public need for a
service in favor of the applicant for a certificate of public convenience and placing the
burden of proving that there is no need for the proposed service to the oppositor.

The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT
insofar as it enjoined the bus fare rate increase granted under the provisions of the
aforementioned administrative circulars, memoranda and/or orders declared invalid.

No pronouncement as to costs.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.

Tatad v. Garcia 241 SCRA 334 (1995)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,

vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION,
LTD., respondents.

QUIASON, J.:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from
further implementing and enforcing the "Revised and Restated Agreement to Build, Lease
and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the
"Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build,
Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers.
Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of
Transportation and Communications (DOTC), while private respondent EDSA LRT
Corporation, Ltd. is a private corporation organized under the laws of Hongkong.
 I

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major
thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT
III), was intended to provide a mass transit system along EDSA and alleviate the congestion
and growing transportation problem in the metropolis.

On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented
by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on
a Build-Operate-Transfer (BOT) basis.

On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the
project with DOTC.

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector,
and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the
Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.

Republic Act No. 6957 provides for two schemes for the financing, construction and
operation of government projects through private initiative and investment: Build-Operate-
Transfer (BOT) or Build-Transfer (BT).

In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project
underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos.
91-494 and 91-496, respectively creating the Prequalification Bids and Awards Committee
(PBAC) and the Technical Committee.

After its constitution, the PBAC issued guidelines for the prequalification of contractors for
the financing and implementation of the project The notice, advertising the prequalification
of bidders, was published in three newspapers of general circulation once a week for three
consecutive weeks starting February 21, 1991.

The deadline set for submission of prequalification documents was March 21, 1991, later
extended to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of
Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui
& Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic
corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd.
and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI
Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz
& co., Inc.

On the last day for submission of prequalification documents, the prequalification criteria
proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100
percent, are as follows: (a) Legal aspects — 10 percent; (b) Management/Organizational
capability — 30 percent; and (c) Financial capability — 30 percent; and (d) Technical
capability — 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.

After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991
declaring that of the five applicants, only the EDSA LRT Consortium "met the requirements
of garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an
over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to
provided that the BOT/BT contractor-applicant meet the requirements specified in the
Constitution and other pertinent laws (Rollo, p. 114).

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the
Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to
President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively
recommending the award of the EDSA LRT III project to the sole complying bidder, the
EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for the
contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT
Law (Rollo, pp. 298-302).

In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a
directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT
Consortium submitted its bid proposal to DOTC.

Finding this proposal to be in compliance with the bid requirements, DOTC and respondent
EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an
"Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the
terms of the BOT Law (Rollo, pp. 147-177).

Secretary Prado, thereafter, requested presidential approval of the contract.

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced
Executive Secretary Orbos, informed Secretary Prado that the President could not grant the
requested approval for the following reasons: (1) that DOTC failed to conduct actual public
bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public
bidding as the only mode to award BOT projects, and the prequalification proceedings was
not the public bidding contemplated under the law; (3) that Item 14 of the Implementing
Rules and Regulations of the BOT Law which authorized negotiated award of contract in
addition to public bidding was of doubtful legality; and (4) that congressional approval of
the list of priority projects under the BOT or BT Scheme provided in the law had not yet
been granted at the time the contract was awarded (Rollo, pp. 178-179).

In view of the comments of Executive Secretary Drilon, the DOTC and private respondents
re-negotiated the agreement. On April 22, 1992, the parties entered into a "Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
(Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full
authority to sign the Agreement without need of approval by the President pursuant to the
provisions of Executive Order No. 380 and that certain events [had] supervened since
November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On
May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and
private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised
and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
so as to "clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-
80).

Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his
consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993,
approved the said Agreements, (Rollo, p. 194).

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech
and Slovak Federal Republics and will have a maximum carrying capacity of 450,000
passengers a day, or 150 million a year to be achieved-through 54 such vehicles operating
simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of
EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue,
Quezon City. The system will have its own power facility (Revised and Restated Agreement,
Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in
16-hectare government property at North Avenue (Supplemental Agreement, Sec.
11; Rollo, pp. 91-92).

Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p.
58). Target completion date is 1,080 days or approximately three years from the
implementation date of the contract inclusive of mobilization, site works, initial and final
testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial
completion and viability thereof, private respondent shall deliver the use and possession of
the completed portion to DOTC which shall operate the same (Supplemental Agreement,
Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay
private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The
rentals shall be determined by an independent and internationally accredited inspection firm
to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As
agreed upon, private respondent's capital shall be recovered from the rentals to be paid by
the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and
Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have
completed payment of the rentals, ownership of the project shall be transferred to the latter
for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo,
p. 67).

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No.
6957, Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance
of Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law
by the President. The law was published in two newspapers of general circulation on May
12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly
recognizes BLT scheme and allows direct negotiation of BLT contracts.

II

In their petition, petitioners argued that:

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE

SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA
LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF
EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND,
HENCE, IS UNCONSTITUTIONAL;
 (2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS
IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING
RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R;

A. NO. 6957 AND, HENCE, IS UNLAWFUL;

(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT

CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS
ILLEGAL;

(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR

FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND
INEFFECTIVE; AND

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE

GOVERNMENT (Rollo, pp. 15-16).

Secretary Garcia and private respondent filed their comments separately and claimed that:

(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the
present petition;

(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment
of facts;

(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by
the BOT Law;

(4) The nationality requirement for public utilities mandated by the Constitution does not
apply to private respondent;

(5) The Agreements executed by and between respondents have been approved by
President Ramos and are not disadvantageous to the government;

(6) The award of the contract to private respondent through negotiation and not public
bidding is allowed by the BOT Law; and

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No.
7718 passed by the Legislature On May 12, 1994, which provides for direct negotiation as a
mode of award of infrastructure projects.

III

Respondents claimed that petitioners had no legal standing to initiate the instant action.
Petitioners, however, countered that the action was filed by them in their capacity as
Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts
entered into by the national government or government-owned or controlled corporations
allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994])
and to disallow the same when only municipal contracts are involved (Bugnay Construction
and Development Corporation v. Laron, 176 SCRA. 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice
but to follow it and uphold the legal standing of petitioners as taxpayers to institute the
present action.

IV

In the main, petitioners asserted that the Revised and Restated Agreement of April 22,
1992 and the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for
the following reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation
thereof is limited by the Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private respondent;

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not

the BOT or BT Scheme under the law;

(3) the contract to construct the EDSA LRT III was awarded to private
respondent not through public bidding which is the only mode of awarding
infrastructure projects under the BOT law; and

(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the
EDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly
incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no
dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it
over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.

The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA
LRT III; a public utility? (Rollo, p. 17).

The phrasing of the question is erroneous; it is loaded. What private respondent owns are
the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant,
not a public utility. While a franchise is needed to operate these facilities to serve the public,
they do not by themselves constitute a public utility. What constitutes a public utility is not
their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public
Service Board, 44 Phil. 551, 557 558 [1923]).

The Constitution, in no uncertain terms, requires a franchise for the operation of a public
utility. However, it does not require a franchise before one can own the facilities needed to
operate a public utility so long as it does not operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

 No franchise, certificate or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive character or for a
longer period than fifty years . . . (Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the
ownership of the facilities and equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person
is completely subjected to his will in everything not prohibited by law or the concurrence
with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code
of the Philippines 45 [1992]).

The exercise of the rights encompassed in ownership is limited by law so that a property
cannot be operated and used to serve the public as a public utility unless the operator has a
franchise. The operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at designated
places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co.
v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co.
v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).

The right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them as a
public utility, or conversely, one may operate a public utility without owning the facilities
used to serve the public. The devotion of property to serve the public may be done by the
owner or by the person in control thereof who may not necessarily be the owner thereof.

This dichotomy between the operation of a public utility and the ownership of the facilities
used to serve the public can be very well appreciated when we consider the transportation
industry. Enfranchised airline and shipping companies may lease their aircraft and vessels
instead of owning them themselves.

While private respondent is the owner of the facilities necessary to operate the EDSA. LRT
III, it admits that it is not enfranchised to operate a public utility (Revised and Restated
Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC
agreed that on completion date, private respondent will immediately deliver possession of
the LRT system by way of lease for 25 years, during which period DOTC shall operate the
same as a common carrier and private respondent shall provide technical maintenance and
repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo,
pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for routine clearing and security; and (2)
producing and distributing maintenance manuals and drawings for the entire system
(Revised and Restated Agreement, Annex F).

Private respondent shall also train DOTC personnel for familiarization with the operation,
use, maintenance and repair of the rolling stock, power plant, substations, electrical,
signaling, communications and all other equipment as supplied in the agreement (Revised
and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and
live training of DOTC operational personnel which includes actual driving of light rail vehicles
under simulated operating conditions, control of operations, dealing with emergencies,
collection, counting and securing cash from the fare collection system (Revised and
Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction
and control of private respondent only during training (Revised and Restated Agreement,
Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of
the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their
employ personnel capable of undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the
three-year construction period and upon commencement of normal revenue operation,
DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by
itself.

Fees for private respondent' s services shall be included in the rent, which likewise includes
the project cost, cost of replacement of plant equipment and spare parts, investment and
financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement,
Sec. 1; Rollo, p. 54).

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities
of a common carrier. For this purpose, DOTC shall indemnify and hold harmless private
respondent from any losses, damages, injuries or death which may be claimed in the
operation or implementation of the system, except losses, damages, injury or death due to
defects in the EDSA LRT III on account of the defective condition of equipment or facilities
or the defective maintenance of such equipment facilities (Revised and Restated Agreement,
Secs. 12.1 and 12.2; Rollo, p. 68).

In sum, private respondent will not run the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and the public will have no right to demand
any services from it.

It is well to point out that the role of private respondent as lessor during the lease period
must be distinguished from the role of the Philippine Gaming Management Corporation
(PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the
Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was
actually a collaboration or joint venture agreement prescribed under the charter of the
PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own
expense, all the facilities necessary to operate and maintain a nationwide on-line lottery
system from whom PCSO was to lease the facilities and operate the same. Upon due
examination of the contract, the Court found that PGMC's participation was not confined to
the construction and setting up of the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the pursuit, conduct, administration and
control of the highly technical and sophisticated lottery system. In effect, the PCSO leased
out its franchise to PGMC which actually operated and managed the same.

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co.
v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v.
Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036
[1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply
cars under contract to railroad companies considered as public utilities (Crystal Car Line v.
State Tax Commission, 174 p. 2d 984, 987 [1946]).

Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite
Filipino nationality is when the entity applies for a franchise, certificate or any other form of
authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its Implementing Rules and Regulations.

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme — A contractual arrangement whereby

the contractor undertakes the construction including financing, of a given
infrastructure facility, and the operation and maintenance thereof. The
contractor operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals and charges sufficient to
enable the contractor to recover its operating and maintenance expenses and
its investment in the project plus a reasonable rate of return thereon. The
contractor transfers the facility to the government agency or local
government unit concerned at the end of the fixed term which shall not
exceed fifty (50) years. For the construction stage, the contractor may obtain
financing from foreign and/or domestic sources and/or engage the services of
a foreign and/or Filipino constructor [sic]: Provided, That the ownership
structure of the contractor of an infrastructure facility whose operation
requires a public utility franchise must be in accordance with the Constitution:
Provided, however, That in the case of corporate investors in the build-
operate-and-transfer corporation, the citizenship of each stockholder in the
corporate investors shall be the basis for the computation of Filipino equity in
the said corporation: Provided, further, That, in the case of foreign
constructors [sic], Filipino labor shall be employed or hired in the different
phases of the construction where Filipino skills are available: Provided,
furthermore, that the financing of a foreign or foreign-controlled contractor
from Philippine government financing institutions shall not exceed twenty
percent (20%) of the total cost of the infrastructure facility or project:
Provided, finally, That financing from foreign sources shall not require a
guarantee by the Government or by government-owned or controlled
corporations. The build-operate-and-transfer scheme shall include a supply-
and-operate situation which is a contractual agreement whereby the supplier
of equipment and machinery for a given infrastructure facility, if the interest
of the Government so requires, operates the facility providing in the process
technology transfer and training to Filipino nationals.

(b) Build-and-transfer scheme — "A contractual arrangement whereby the

contractor undertakes the construction including financing, of a given
infrastructure facility, and its turnover after completion to the government
agency or local government unit concerned which shall pay the contractor its
total investment expended on the project, plus a reasonable rate of return
thereon. This arrangement may be employed in the construction of any
infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the
construction and financing in infrastructure facility, and operates and maintains the same.
The contractor operates the facility for a fixed period during which it may recover its
expenses and investment in the project plus a reasonable rate of return thereon. After the
expiration of the agreed term, the contractor transfers the ownership and operation of the
project to the government.

In the BT scheme, the contractor undertakes the construction and financing of the facility,
but after completion, the ownership and operation thereof are turned over to the
government. The government, in turn, shall pay the contractor its total investment on the
project in addition to a reasonable rate of return. If payment is to be effected through
amortization payments by the government infrastructure agency or local government unit
concerned, this shall be made in accordance with a scheme proposed in the bid and
incorporated in the contract (R.A. No. 6957, Sec. 6).

Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility
must comply with the citizenship requirement of the Constitution on the operation of a
public utility. No such a requirement is imposed in the BT scheme.

There is no mention in the BOT Law that the BOT and BT schemes bar any other
arrangement for the payment by the government of the project cost. The law must not be
read in such a way as to rule out or unduly restrict any variation within the context of the
two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points
and details for the multifarious and complex situations that may be encountered in
enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde,
101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).

The BLT scheme in the challenged agreements is but a variation of the BT scheme under the
law.

As a matter of fact, the burden on the government in raising funds to pay for the project is
made lighter by allowing it to amortize payments out of the income from the operation of
the LRT System.

In form and substance, the challenged agreements provide that rentals are to be paid on a
monthly basis according to a schedule of rates through and under the terms of a confirmed
Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At
the end of 25 years and when full payment shall have been made to and received by private
respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to,
rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement,
Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).

A lease is a contract where one of the parties binds himself to give to another the
enjoyment or use of a thing for a certain price and for a period which may be definite or
indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no
transfer of ownership at the end of the lease period. But if the parties stipulate that title to
the leased premises shall be transferred to the lessee at the end of the lease period upon
the payment of an agreed sum, the lease becomes a lease-purchase agreement.

Furthermore, it is of no significance that the rents shall be paid in United States currency,
not Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress
and the National Economic and Development Authority as falling under the Investment
Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application
of the Uniform Currency Act (R.A. No. 529), which reads as follows:
 Sec. 1. — Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines which
provisions purports to give the obligee the right to require payment in gold or
in a particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void, and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation
hereafter incurred. The above prohibition shall not apply to (a) . . .; (b)
transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign
funds; . . . .

3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of
National Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo,
pp. 309-312) does not suffice to invalidate the award.

Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III
projects falls, amounts to a ratification of the prior award of the EDSA LRT III contract
under the BOT Law.

Petitioners insist that the prequalifications process which led to the negotiated award of the
contract appears to have been rigged from the very beginning to do away with the usual
open international public bidding where qualified internationally known applicants could
fairly participate.

The records show that only one applicant passed the prequalification process. Since only
one was left, to conduct a public bidding in accordance with Section 5 of the BOT Law for
that lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan,
217 SCRA 49, 61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in
relation to Presidential Decree No. 1594 allows the negotiated award of government
infrastructure projects.

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects
in exceptional cases. Sections 4 of the said law reads as follows:

Bidding. — Construction projects shall generally be undertaken by contract

after competitive public bidding. Projects may be undertaken by
administration or force account or by negotiated contract only in exceptional
cases where time is of the essence, or where there is lack of qualified bidders
or contractors, or where there is conclusive evidence that greater economy
and efficiency would be achieved through this arrangement, and in
accordance with provision of laws and acts on the matter, subject to the
approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy,
as the case may be, if the project cost is less than P1 Million, and the
 President of the Philippines, upon recommendation of the Minister, if the
project cost is P1 Million or more (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the
general law on government infrastructure contracts while the BOT Law governs particular
arrangements or schemes aimed at encouraging private sector participation in government
infrastructure projects. The two laws are not inconsistent with each other but are in pari
materia and should be read together accordingly.

In the instant case, if the prequalification process was actually tainted by foul play, one
wonders why none of the competing firms ever brought the matter before the PBAC, or
intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of
Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705
[1992]).

The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits
parties to a contract from renegotiating and modifying in good faith the terms and
conditions thereof so as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the prequalification process
would just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed
because it discourages private sector participation, the "main engine" for national growth
and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer — A contractual arrangement whereby a project

proponent is authorized to finance and construct an infrastructure or
development facility and upon its completion turns it over to the government
agency or local government unit concerned on a lease arrangement for a
fixed period after which ownership of the facility is automatically transferred
to the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. — Direct negotiation shall be resorted to

when there is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification
and it meets the prequalification requirements, after which it is required to
submit a bid proposal which is subsequently found by the agency/local
government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements, after
which it submits bid/proposal which is found by the agency/local government
unit (LGU) to be complying.
 (c) If, after prequalification of more than one contractor only one submits a
bid which is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor submit bids but only
one is found by the agency/LGU to be complying. Provided, That, any of the
disqualified prospective bidder [sic] may appeal the decision of the
implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the head of the agency, in case
of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was
made known to the disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act on the appeal within forty-
five (45) working days from receipt thereof.

Petitioners' claim that the BLT scheme and direct negotiation of contracts are not
contemplated by the BOT Law has now been rendered moot and academic by R.A. No.
7718. Section 3 of this law authorizes all government infrastructure agencies, government-
owned and controlled corporations and local government units to enter into contract with
any duly prequalified proponent for the financing, construction, operation and maintenance
of any financially viable infrastructure or development facility through a BOT, BT, BLT, BOO
(Build-own-and-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-
transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate)
(R.A. No. 7718, Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the
schemes enumerated in Section 2 thereof, including a BLT arrangement, enumerated and
defined therein (Sec. 3).

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and
"a climate of minimum government regulations and procedures and specific government
undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that
which before enactment of the statute was invalid. Thus, whatever doubts and alleged
procedural lapses private respondent and DOTC may have engendered and committed in
entering into the questioned contracts, these have now been cured by R.A. No. 7718
(cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos
V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the
government because the rental rates are excessive and private respondent's development
rights over the 13 stations and the depot will rob DOTC of the best terms during the most
productive years of the project.

It must be noted that as part of the EDSA LRT III project, private respondent has been
granted, for a period of 25 years, exclusive rights over the depot and the air space above
the stations for development into commercial premises for lease, sublease, transfer, or
advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration
of these development rights, private respondent shall pay DOTC in Philippine currency
guaranteed revenues generated therefrom in the amounts set forth in the Supplemental
Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent
due private respondent for the construction of the EDSA LRT III (Supplemental Agreement,
Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the 25-year period.
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

The terms of the agreements were arrived at after a painstaking study by DOTC. The
determination by the proper administrative agencies and officials who have acquired
expertise, specialized skills and knowledge in the performance of their functions should be
accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co.
v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v.
Alfonso, 176 SCRA 304 [1989]).

Government officials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption. Petitioners have not presented evidence on
the reasonable rentals to be paid by the parties to each other. The matter of valuation is an
esoteric field which is better left to the experts and which this Court is not eager to
undertake.

That the grantee of a government contract will profit therefrom and to that extent the
government is deprived of the profits if it engages in the business itself, is not worthy of
being raised as an issue. In all cases where a party enters into a contract with the
government, he does so, not out of charity and not to lose money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of
its governmental function. DOTC is the primary policy, planning, programming, regulating
and administrative entity of the Executive branch of government in the promotion,
development and regulation of dependable and coordinated networks of transportation and
communications systems as well as in the fast, safe, efficient and reliable postal,
transportation and communications services (Administrative Code of 1987, Book IV, Title
XV, Sec. 2). It is the Executive department, DOTC in particular that has the power,
authority and technical expertise determine whether or not a specific transportation or
communication project is necessary, viable and beneficial to the people. The discretion to
award a contract is vested in the government agencies entrusted with that function (Bureau
Veritas v. Office of the President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.

Romero, J., is on leave.

PAL v. CAB 270 SCRA 538 (1997)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 119528 March 26, 1997

PHILIPPINE AIRLINES, INC., petitioner,

vs.
CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS,
INC., respondents.

TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court
seeks to prohibit respondent Civil Aeronautics Board from exercising jurisdiction over
private respondent's Application for the issuance of a Certificate of Public Convenience and
Necessity, and to annul and set aside a temporary operating permit issued by the Civil
Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing
the same to engage in scheduled domestic air transportation services, particularly the
Manila-Cebu, Manila-Davao, and converse routes.

The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition
is the fact that GrandAir does not possess a legislative franchise authorizing it to engage in
air transportation service within the Philippines or elsewhere. Such franchise is, allegedly, a
requisite for the issuance of a Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII of the Constitution.

Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a
requirement for the issuance of a Certificate of Public Convenience and Necessity or a
Temporary Operating Permit, following the Court's pronouncements in the case of Albano
vs. Reyes,1 as restated by the Court of Appeals in Avia Filipinas International vs. Civil
Aeronautics Board2 and Silangan Airways, Inc. vs. Grand International Airways, Inc., and
the Hon. Civil Aeronautics Board.3

On November 24, 1994, private respondent GrandAir applied for a Certificate of Public
Convenience and Necessity with the Board, which application was docketed as CAB Case No.
EP-12711.4 Accordingly, the Chief Hearing Officer of the CAB issued a Notice of Hearing
setting the application for initial hearing on December 16, 1994, and directing GrandAir to
serve a copy of the application and corresponding notice to all scheduled Philippine
Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and requested
for the issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative
franchise to operate air transport services, filed an Opposition to the application for a
Certificate of Public Convenience and Necessity on December 16, 1995 on the following
grounds:

A. The CAB has no jurisdiction to hear the petitioner's application until the
latter has first obtained a franchise to operate from Congress.

B. The petitioner's application is deficient in form and substance in that:

 1. The application does not indicate a route structure including
a computation of trunkline, secondary and rural available seat
kilometers (ASK) which shall always be maintained at a
monthly level at least 5% and 20% of the ASK offered into and
out of the proposed base of operations for rural and secondary,
respectively.

2. It does not contain a project/feasibility study, projected

profit and loss statements, projected balance sheet, insurance
coverage, list of personnel, list of spare parts inventory, tariff
structure, documents supportive of financial capacity, route
flight schedule, contracts on facilities (hangars, maintenance,
lot) etc.

C. Approval of petitioner's application would violate the equal protection

clause of the constitution.

D. There is no urgent need and demand for the services applied for.

E. To grant petitioner's application would only result in ruinous competition

contrary to Section 4(d) of R.A. 776. 5

At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of
the Board to hear the application because GrandAir did not possess a legislative franchise.

On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying
petitioner's Opposition. Pertinent portions of the Order read:

PAL alleges that the CAB has no jurisdiction to hear the petitioner's
application until the latter has first obtained a franchise to operate from
Congress.

The Civil Aeronautics Board has jurisdiction to hear and resolve the
application. In Avia Filipina vs. CAB, CA G.R. No. 23365, it has been ruled
that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific
power and duty.

In view thereof, the opposition of PAL on this ground is hereby denied.

SO ORDERED.

Meantime, on December 22, 1994, petitioner this time, opposed private respondent's
application for a temporary permit maintaining that:

1. The applicant does not possess the required fitness and capability of
operating the services applied for under RA 776; and,

2. Applicant has failed to prove that there is clear and urgent public need for
the services applied for.6
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the
issuance of a Temporary Operating Permit in favor of Grand Air 7 for a period of three
months, i.e., from December 22, 1994 to March 22, 1994. Petitioner moved for the
reconsideration of the issuance of the Temporary Operating Permit on January 11, 1995,
but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. 8 In the said
Resolution, the Board justified its assumption of jurisdiction over GrandAir's application.

WHEREAS , the CAB is specifically authorized under Section 10-C (1) of

Republic Act No. 776 as follows:

(c) The Board shall have the following specific powers and duties:

(1) In accordance with the provision of Chapter IV of this Act, to issue, deny,
amend revise, alter, modify, cancel, suspend or revoke, in whole or in part,
upon petitioner-complaint, or upon its own initiative, any temporary operating
permit or Certificate of Public Convenience and Necessity; Provided, however;
that in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.

WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992),
wherein the Supreme Court held that the CAB can even on its own initiative,
grant a TOP even before the presentation of evidence;

WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365),
promulgated on October 30, 1991, held that in accordance with its mandate,
the CAB can issue not only a TOP but also a Certificate of Public Convenience
and Necessity (CPCN) to a qualified applicant therefor in the absence of a
legislative franchise, citing therein as basis the decision of Albano
vs. Reyes (175 SCRA 264) which provides (inter alia) that:

a) Franchises by Congress are not required before each and every public
utility may operate when the law has granted certain administrative agencies
the power to grant licenses for or to authorize the operation of certain public
utilities;

b) The Constitutional provision in Article XII, Section 11 that the issuance of a

franchise, certificate or other form of authorization for the operation of a
public utility does not necessarily imply that only Congress has the power to
grant such authorization since our statute books are replete with laws
granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.

WHEREAS, Executive Order No. 219 which took effect on 22 January 1995,
provides in Section 2.1 that a minimum of two (2) operators in each
route/link shall be encouraged and that routes/links presently serviced by
only one (1) operator shall be open for entry to additional operators.

RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by

Philippine Airlines on January 05, 1995 on the Grant by this Board of a
Temporary Operating Permit (TOP) to Grand International Airways, Inc.
alleging among others that the CAB has no such jurisdiction, is hereby
 DENIED, as it hereby denied, in view of the foregoing and considering that
the grounds relied upon by the movant are not indubitable.

On March 21, 1995, upon motion by private respondent, the temporary permit was
extended for a period of six (6) months or up to September 22, 1995.

Hence this petition, filed on April 3, 1995.

Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in
taking cognizance of GrandAir's application for the issuance of a Certificate of Public
Convenience and Necessity, and in issuing a temporary operating permit in the meantime,
since GrandAir has not been granted and does not possess a legislative franchise to engage
in scheduled domestic air transportation. A legislative franchise is necessary before anyone
may engage in air transport services, and a franchise may only be granted by Congress.
This is the meaning given by the petitioner upon a reading of Section 11, Article XII, 9 and
Section 1, Article VI, 10 of the Constitution.

To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice,
which reads:

Dr. Arturo C. Corona

Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila

Sir:

This has reference to your request for opinion on the necessity of a legislative
franchise before the Civil Aeronautics Board ("CAB") may issue a Certificate of
Public Convenience and Necessity and/or permit to engage in air commerce or
air transportation to an individual or entity.

You state that during the hearing on the application of Cebu Air for a
congressional franchise, the House Committee on Corporations and
Franchises contended that under the present Constitution, the CAB may not
issue the abovestated certificate or permit, unless the individual or entity
concerned possesses a legislative franchise. You believe otherwise, however,
for the reason that under R.A. No. 776, as amended, the CAB is explicitly
empowered to issue operating permits or certificates of public convenience
and necessity and that this statutory provision is not inconsistent with the
current charter.

We concur with the view expressed by the House Committee on Corporations

and Franchises. In an opinion rendered in favor of your predecessor-in-office,
this Department observed that, —

. . . it is useful to note the distinction between the franchise to operate and a

permit to commence operation. The former is sovereign and legislative in
nature; it can be conferred only by the lawmaking authority (17 W and P, pp.
691-697). The latter is administrative and regulatory in character (In re
 Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted
by an administrative agency, such as the Public Service Commission [now
Board of Transportation], in the case of land transportation, and the Civil
Aeronautics Board, in case of air services. While a legislative franchise is a
pre-requisite to a grant of a certificate of public convenience and necessity to
an airline company, such franchise alone cannot constitute the authority to
commence operations, inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like rates, schedules
and routes, and which matters are resolved in the process of issuance of
permit by the administrative. (Secretary of Justice opn No. 45, s. 1981)

Indeed, authorities are agreed that a certificate of public convenience and

necessity is an authorization issued by the appropriate governmental agency
for the operation of public services for which a franchise is required by law
(Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani,
Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).

Based on the foregoing, it is clear that a franchise is the legislative

authorization to engage in a business activity or enterprise of a public nature,
whereas a certificate of public convenience and necessity is a regulatory
measure which constitutes the franchise's authority to commence operations.
It is thus logical that the grant of the former should precede the latter.

Please be guided accordingly.

(SGD.)
SEDFR
EY A.
ORDO
NEZ
Secret
ary of
Justice

Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of
Republic Act 776, which follows the pronouncements of the Court of Appeals in the cases
of Avia Filipinas vs. Civil Aeronautics Board, and Silangan Airways, Inc. vs. Grand
International Airways (supra).

In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue
the Certificate of Public Convenience and Necessity or Temporary Operating Permit to a
prospective domestic air transport operator who does not possess a legislative franchise to
operate as such. Relying on the Court's pronouncement in Albano vs. Reyes (supra), the
Court of Appeals upheld the authority of the Board to issue such authority, even in the
absence of a legislative franchise, which authority is derived from Section 10 of Republic Act
776, as amended by P.D. 1462. 11

The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary
Operating Permit. This rule has been established in the case of Philippine Air Lines
Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968. 12 The Board is expressly
authorized by Republic Act 776 to issue a temporary operating permit or Certificate of Public
Convenience and Necessity, and nothing contained in the said law negates the power to
issue said permit before the completion of the applicant's evidence and that of the oppositor
thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon
its own initiative" strongly suggests the power to exercise said authority, even before the
presentation of said evidence has begun. Assuming arguendo that a legislative franchise is
prerequisite to the issuance of a permit, the absence of the same does not affect the
jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of
the requested permit.

The power to authorize and control the operation of a public utility is admittedly a
prerogative of the legislature, since Congress is that branch of government vested with
plenary powers of legislation.

The franchise is a legislative grant, whether made directly by the legislature

itself, or by any one of its properly constituted instrumentalities. The grant,
when made, binds the public, and is, directly or indirectly, the act of the
state. 13

The issue in this petition is whether or not Congress, in enacting Republic Act 776, has
delegated the authority to authorize the operation of domestic air transport services to the
respondent Board, such that Congressional mandate for the approval of such authority is no
longer necessary.

Congress has granted certain administrative agencies the power to grant licenses for, or to
authorize the operation of certain public utilities. With the growing complexity of modern
life, the multiplication of the subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards the approval of the practice by
the courts. 14 It is generally recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the power to grant franchises
has frequently been delegated, even to agencies other than those of a legislative
nature. 15 In pursuance of this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative franchise as though the
grant had been made by an act of the Legislature. 16

The trend of modern legislation is to vest the Public Service Commissioner with the power to
regulate and control the operation of public services under reasonable rules and regulations,
and as a general rule, courts will not interfere with the exercise of that discretion when it is
just and reasonable and founded upon a legal right. 17

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the
pertinent issuances governing the Philippine Ports Authority, 18 proves that the PPA is
empowered to undertake by itself the operation and management of the Manila
International Container Terminal, or to authorize its operation and management by another
by contract or other means, at its option. The latter power having been delegated to the to
PPA, a franchise from Congress to authorize an entity other than the PPA to operate and
manage the MICP becomes unnecessary.

Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to
issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a
domestic air transport operator, who, though not possessing a legislative franchise, meets
all the other requirements prescribed by the law. Such requirements were enumerated in
Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative
franchise is an indispensable requirement for an entity to operate as a domestic air
transport operator. Although Section 11 of Article XII recognizes Congress' control over any
franchise, certificate or authority to operate a public utility, it does not mean Congress has
exclusive authority to issue the same. Franchises issued by Congress are not required
before each and every public utility may operate. 19 In many instances, Congress has seen it
fit to delegate this function to government agencies, specialized particularly in their
respective areas of public service.

A reading of Section 10 of the same reveals the clear intent of Congress to delegate the
authority to regulate the issuance of a license to operate domestic air transport services:

Sec. 10. Powers and Duties of the Board. (A) Except as otherwise provided
herein, the Board shall have the power to regulate the economic aspect of air
transportation, and shall have general supervision and regulation of, the
jurisdiction and control over air carriers, general sales agents, cargo sales
agents, and air freight forwarders as well as their property rights, equipment,
facilities and franchise, insofar as may be necessary for the purpose of
carrying out the provision of this Act.

In support of the Board's authority as stated above, it is given the following specific powers
and duties:

(C) The Board shall have the following specific powers and duties:

(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny,
amend, revise, alter, modify, cancel, suspend or revoke in whole or in part
upon petition or complaint or upon its own initiative any Temporary Operating
Permit or Certificate of Public Convenience and Necessity: Provided however,
That in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of
Public Convenience and Necessity", this, according to petitioner, means that a legislative
franchise is an absolute requirement. It cites a number of authorities supporting the view
that a Certificate of Public Convenience and Necessity is issued to a public service for which
a franchise is required by law, as distinguished from a "Certificate of Public Convenience"
which is an authorization issued for the operation of public services for which no franchise,
either municipal or legislative, is required by law. 20

This submission relies on the premise that the authority to issue a certificate of public
convenience and necessity is a regulatory measure separate and distinct from the authority
to grant a franchise for the operation of the public utility subject of this particular case,
which is exclusively lodged by petitioner in Congress.

We do not agree with the petitioner.

Many and varied are the definitions of certificates of public convenience which courts and
legal writers have drafted. Some statutes use the terms "convenience and necessity" while
others use only the words "public convenience." The terms "convenience and necessity", if
used together in a statute, are usually held not to be separable, but are construed together.
Both words modify each other and must be construed together. The word 'necessity' is so
connected, not as an additional requirement but to modify and qualify what might otherwise
be taken as the strict significance of the word necessity. Public convenience and necessity
exists when the proposed facility will meet a reasonable want of the public and supply a
need which the existing facilities do not adequately afford. It does not mean or require an
actual physical necessity or an indispensable thing. 21

The terms "convenience" and "necessity" are to be construed together,

although they are not synonymous, and effect must be given both. The
convenience of the public must not be circumscribed by according to the word
"necessity" its strict meaning or an essential requisites. 22

The use of the word "necessity", in conjunction with "public convenience" in a certificate of
authorization to a public service entity to operate, does not in any way modify the nature of
such certification, or the requirements for the issuance of the same. It is the law which
determines the requisites for the issuance of such certification, and not the title indicating
the certificate.

Congress, by giving the respondent Board the power to issue permits for the operation of
domestic transport services, has delegated to the said body the authority to determine the
capability and competence of a prospective domestic air transport operator to engage in
such venture. This is not an instance of transforming the respondent Board into a mini-
legislative body, with unbridled authority to choose who should be given authority to
operate domestic air transport services.

To be valid, the delegation itself must be circumscribed by legislative

restrictions, not a "roving commission" that will give the delegate unlimited
legislative authority. It must not be a delegation "running riot" and "not
canalized with banks that keep it from overflowing." Otherwise, the delegation
is in legal effect an abdication of legislative authority, a total surrender by the
legislature of its prerogatives in favor of the delegate. 23

Congress, in this instance, has set specific limitations on how such authority should be
exercised.

Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:

Sec. 4. Declaration of policies. In the exercise and performance of its powers

and duties under this Act, the Civil Aeronautics Board and the Civil
Aeronautics Administrator shall consider the following, among other things, as
being in the public interest, and in accordance with the public convenience
and necessity:

(a) The development and utilization of the air potential of the Philippines;

(b) The encouragement and development of an air transportation system

properly adapted to the present and future of foreign and domestic commerce
of the Philippines, of the Postal Service and of the National Defense;

(c) The regulation of air transportation in such manner as to recognize and

preserve the inherent advantages of, assure the highest degree of safety in,
 and foster sound economic condition in, such transportation, and to improve
the relations between, and coordinate transportation by, air carriers;

(d) The promotion of adequate, economical and efficient service by air

carriers at reasonable charges, without unjust discriminations, undue
preferences or advantages, or unfair or destructive competitive practices;

(e) Competition between air carriers to the extent necessary to assure the
sound development of an air transportation system properly adapted to the
need of the foreign and domestic commerce of the Philippines, of the Postal
Service, and of the National Defense;

(f) To promote safety of flight in air commerce in the Philippines; and,

(g) The encouragement and development of civil aeronautics.

More importantly, the said law has enumerated the requirements to determine the
competency of a prospective operator to engage in the public service of air transportation.

Sec. 12. Citizenship requirement. Except as otherwise provided in the

Constitution and existing treaty or treaties, a permit authorizing a person to
engage in domestic air commerce and/or air transportation shall be issued
only to citizens of the Philippines 24

Sec. 21. Issuance of permit. The Board shall issue a permit authorizing the
whole or any part of the service covered by the application, if it finds: (1) that
the applicant is fit, willing and able to perform such service properly in
conformity with the provisions of this Act and the rules, regulations, and
requirements issued thereunder; and (2) that such service is required by the
public convenience and necessity; otherwise the application shall be denied.

Furthermore, the procedure for the processing of the application of a Certificate of Public
Convenience and Necessity had been established to ensure the weeding out of those entities
that are not deserving of public service. 25

In sum, respondent Board should now be allowed to continue hearing the application of
GrandAir for the issuance of a Certificate of Public Convenience and Necessity, there being
no legal obstacle to the exercise of its jurisdiction.

ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS

the instant petition for lack of merit. The respondent Civil Aeronautics Board is hereby
DIRECTED to CONTINUE hearing the application of respondent Grand International Airways,
Inc. for the issuance of a Certificate of Public Convenience and Necessity.

SO ORDERED.

Regalado and Puno, JJ., concur.

Romero and Mendoza JJ., took no part.