Marine Insurance Other Half

1. A. Magsaysay v. Agan, Jan. 31, 1955)

4. Cathay v. CA, June 5, 1989 ( G.R 85624)
5. Cathay v. CA, June 30, 1987 (G.R 76145)
6. Cebu Shipyard v. William Lines, May 5, 1999 (G.R 132607)
7. Choa Tiek Seng v. CA, March 15, 1990 (G.R 84507)
8. Delsan Transport v. CA, Nov. q5, 2001 (G.R 127897) ///369 SCRA 24/// Not sure if q5 = Nov. 15
10. Hyopsung Maritime v. CA, Aug. 31, 1988 (G.R 77369) -> NO DIGEST
11. Intl Harvester (Russia) v. Hamburg-American, July 19, 1918 (G.R. No. 11515) -> July 29 date
15. Madrigal-Tiangco v. Hanson, Orth, April 18, 1958 (G.R. No. L-6106-07)
16. Magellan Mfg. Mktg. v. CA, Aug. 22, 1991 (G.R 95529)
19. Monarch Ins. v. CA, June 8, 2000 (G.R. 92735)
23. Pan Malayan v. CA, Sept. 5, 1991 (G.R 95070)
24. Philam Gen. v. CA, June 11, 1997 (G.R 116940)
26. Phil. Mfg. v. Union Ins., Nov. 22, 1921 (G.R. No. L-16473 ) 42 PHIL 378
27. Planters Product v. CA, Sept. 15, 1993 (G.R 101503)
28. Puromines v. CA, Mar. 22, 1993 (G.R 91228)
29. Roque v. IAC, Nov. 11, 1985 (G.R L-66935)











1. A. Magsaysay v. Agan, Jan. 31, 1955
(G.R L-6393)

FACTS: In 1949, SS San Antonio, owned by AMInc, embarked on its voyage to Batanes via Aparri. It
was carrying various cargoes, one of which was owned by Agan. One fine weather day, it accidentally ran
aground the mouth of the Cagayan River due to the sudden shifting of the sands below. SS San Antonio
then needed the services of Luzon Stevedoring Co. to tow the ship and make it afloat so that it can
continue its journey. Later, AMInc required the cargo owners to pay the expenses incurred in making the
ship afloat (P841.40 each). The expenses, AMInc claims, fall under the General Averages Rule under the
Code of Commerce, which is to be shared by ship owner and cargo owners as well.
ISSUE: Whether or not general averages exist in the case at bar.
HELD: No. General averages contemplate that the stranding of the vessel is intentionally done in order to
save the vessel itself from a certain and imminent danger. Here, the stranding was accidental and it was
made afloat for the purpose of saving the voyage and not the vessel. Note that this happened on a fine
weather day. Also, it cannot be said that the towing was made to save the cargos, for the cargos were not
in danger imminent danger.

Facts:
- October 6, 1949 The SS "San Antonio", vessel owned and operated by plaintiff, left Manila
bound for Basco, Batanes, vis Aparri, Cagayan
o the vessel was with general cargo belonging to different shippers, among them the
defendant.
- The vessel reached Aparri on the 10th of that month, and after a day's stopover in that port,
weighed anchor to proceed to Basco.
- But while still in port, it ran aground at the mouth of the Cagayan river, and, attempts to refloat it
under its own power having failed, plaintiff had it refloated by the Luzon Stevedoring Co. at
an agreed compensation.
- Once afloat the vessel returned to Manila to refuel and then proceeded to Basco, the port of
destination.
- There the cargoes were delivered to their respective owners or consignees, who, with the
exception of defendant, made a deposit or signed a bond to answer for their contribution to the
average.
- P then brought an action at the CFI to make R pay his contribution of P841
o On the theory that the expenses incurred in floating the vessel constitute general
average to which both ship and cargo should contribute
- R denies liability to his amount, alleging, among other things, that the stranding of the vessel was
due to the fault, negligence and lack of skill of its master, that the expenses incurred in putting it
afloat did not constitute general average, and that the liquidation of the average was not made in
accordance with law.
- lower court found for plaintiff and rendered judgment against the defendant for the amount of the
claim, with legal interests.
- From this judgment defendant had appealed directly to this Court.
- HOWEVER, it is important to note that it is established that the stranding of plaintiff's vessel was
due to the sudden shifting of the sandbars at the mouth of the river which the port pilot did not
anticipate. The standing may, therefore, be regarded as accidental
Issue: W/N the expenses incurred in floating a vessel so stranded should be considered general average
and shared by the cargo owners.
Ratio: NO
- Classification of Averages:
O SIMPLE OR PARTICULAR AVERAGES
A809- include all expenses and damages caused to the vessel or cargo which
have not inured to the common benef
A810- to be borne only by the owner of the property gave rise to same
O GENERAL OR GROSS AVERAGES
A811- include "all the damages and expenses which are deliberately caused in
order to save the vessel, its cargo, or both at the same time, from a real and
known risk"
A812- Being for the common benefit, gross averages are to be borne by the
owners of the articles saved
- while the expenses incurred in putting plaintiff's vessel afloat may well come under number 2 of
article 809-which refers to expenses suffered by the vessel "by reason of an accident of the sea of
the force majuere" and should therefore be classified as particular average, the said expenses
do not fit into any of the specific cases of general average enumerated in article 811.
o No. 6 of this article does mention "expenses caused in order to float a vessel," but it
specifically refers to "a vessel intentionally stranded for the purpose of saving it"
and would have no application where, as in the present case, the stranding was not
intentional.
- REQUISITES FOR GENERAL AVERAGE (Tolentino):
(1) there must be a COMMON DANGER
both the ship and the cargo, after it has been loaded, are subject to the same
danger, whether during the voyage, or in the port of loading or unloading;
that the danger arises from the accidents of the sea, dispositions of the authority,
or faults of men, provided that the circumstances producing the peril should be
ascertained and imminent or may rationally be said to be certain and imminent.
This last requirement exclude measures undertaken against a distant peril.
the evidence does not disclose that the expenses sought to be recovered from
defendant were incurred to save vessel and cargo from a common danger.
The vessel ran aground in fine weather inside the port at the mouth of a
river, a place described as "very shallow".
It would thus appear that vessel and cargo were at the time in no
imminent danger or a danger which might "rationally be sought to be
certain and imminent."
It is, of course, conceivable that, if left indefinitely at the mercy of the
elements, they would run the risk of being destroyed.
But as stated at the above quotation, "this last requirement excludes measures
undertaken against a distant peril."
It is the deliverance from an immediate, impending peril, by a common
sacrifice, that constitutes the essence of general average.
In the present case there is no proof that the vessel had to be put afloat
to save it from imminent danger.
the vessel had to be salvaged in order to enable it "to proceed to its port
of destination."
it is the safety of the property, and not of the voyage, which constitutes the true
foundation of the general average.
(2) for the common safety part of the vessel or of the cargo or both is sacrificed deliberately.
the expenses in question were not incurred for the common safety of vessel and
cargo, since they, or at least the cargo, were not in imminent peril.
The cargo could, without need of expensive salvage operation, have been
unloaded by the owners if they had been required to do so.
(3) from the expenses or damages caused follows the successful saving of the vessel and
cargo.
the salvage operation, it is true, was a success. But as the sacrifice was for the
benefit of the vessel to enable it to proceed to destination and not for the
purpose of saving the cargo, the cargo owners are not in law bound to contribute
to the expenses.
(4) the expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority
The final requisite has not been proved, for it does not appear that the expenses
here in question were incurred after following the procedure laid down in article
813




4. Cathay v. CA, June 5, 1989

CATHAY INSURANCE v. CA(LUGAY)
174 SCRA 11
GRINO-AQUINO; June 5, 1989
FACTS
- Petitioners are 6 insurance companies that issued fire insurance policies for the total sum of P4,000,000
to the Cebu Filipina Press owned by Emilia Chan Lugay. The fire policies described the insured property
as "stocks of Printing materials, papers and general merchandise usual to the Assured's trade" stored in a
one-storey building of strong materials housing the Cebu Filipina Press located at UNNO Pres. Quirino
cor. Don V. Sotto Sts., Mabolo, Cebu City. The co-insurers were indicated in each of the policies. All,
except one policy (Paramount's), were renewals of earlier policies issued for the same property.
- On December 18, 1981, the Cebu Filipina Press was razed by electrical fire together with all the stocks
and merchandise stored in the premises. On January 15, 1982, Lugay submitted sworn Statements of
Loss and Formal Claims to the insurers, through their adjusters. She claimed a total loss of P4,595,000.
- After nearly 10 months of waiting, she sued to collect on December 15, 1982. The insurance companies
denied liability, alleging violation of certain conditions of the policy, misdeclaration, and even arson
which was not seriously pressed for, come the pre-trial, the petitioners offered to pay 50% of her claim,
but she insisted on full recovery.
- Trial court rendered judgment in her favor ordering the insurers to pay her a total of P4,000,000 as
indemnity, P48,000 representing expenses of the plaintiff, a separate amount of 20% of the P4,000,000
representing fees of counsel, interests at the rate of twice the ceiling being prescribed by the Monetary
Board starting from the time when the case was filed, and finally, with costs. CA affirmed.

ISSUES
1. WON the insured's cause of action had already accrued before she filed her complaint
2. WON sufficient proofs of loss had been presented by the insured
3. WON the private respondents claim for loss was inflated
4. WON lower court erred in awarding damages to the private respondent in the form of interest
equivalent to double the interest ceiling set by the Monetary Board
5. WON attorney's fees awarded were exorbitant

HELD
1. YES
- As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and the proofs of
loss were submitted from January 15, 1982 through June 21, 1982 in compliance with the adjusters'
numerous requests for various documents, payment should have been made within 90 days thereafter (Sec
243), or on or before September 21, 1982. Hence, when the assured filed her complaint on December 15,
1982, her cause of action had already accrued.
2. YES
- There is no merit in the petitioners' contention that the proofs of loss were insufficient because Lugay
failed to comply with the adjuster's request for the submission of her bank statements. Condition No. 13
of the policy does not require the insured to produce her bank statements. Therefore, the insured was not
obligated to produce them and the insurers had no right to ask for them. Condition No. 13 was prepared
by the insurers themselves, hence, it should be taken most strongly against them.
3. NO
- Both the trial court and the CA noted that the proofs were ample and more than enough for defendant
insurers to do a just assessment supporting the 1981 fire claim for an amount exceeding four million
pesos.
4. NO
- The award of double interest on the claim is lawful and justified under Sections 243 and 244 of the
Insurance Code which provide:
Sec. 243 Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the
assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board.
Sec. 244 In case of any litigation for the enforcement of any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative
case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees
and other expenses incurred by the insured person by reason of such unreasonable denial or withholding
of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of claim
due the insured.
- The petitioners' contention that the charging of double interest was improper because no unreasonable
delay in the processing of the fire claim was proven is refuted by the trial court's explicit finding that
"there was a delay that was not reasonable in processing the claim and doing payments". Under Section
244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the
insurer to pay the claim within the time fixed in both Sec. 242 and 243 of the IC.
- In view of the not insubstantial value of the private respondent's claims and the considerable time and
effort expended by them and their counsel in prosecuting these claims for the past 8 years, attorney's fees
were properly awarded to the private respondents.

5. YES
- An award equivalent to 10% of the proceeds of the policies would be more reasonable than the 20%
awarded by the trial court and the CA.
Disposition Decision of the CA AFFIRMED with MODIFICATION.


5. Cathay v. CA, June 30, 1987
(G.R 76145)

Facts:
A complaint was filed by Remington Industrial Sales Corporation against Cathay Insurance Co. seeking
collection of the sum of P868,339.15 representing Remington's losses and damages incurred in a
shipment of seamless steel pipes under an insurance contract in favor of Remington as the insured,
consignee or importer of aforesaid merchandise while in transit from Japan to the Philippines on board
vessel SS "Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of
P7.95 to a dollar in June and July 1984, when the shipment was made. The trial court decided in favor of
Remington by ordering Cathay Insurance to pay it the sum of P866,339.15 as its recoverable insured loss
equivalent to 30% of the value of the seamless steel pipes; ordering Cathay Insurance to pay Remington
interest on the aforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary
Board per annum from 3 February 1982 or 90 days from Remington's submission of proof of loss to
Cathay Insurance until paid as provided in the settlement of claim provision of the policy; and ordering
Cathay Insurance to pay Remington certain amounts for marine surveyor's fee, attorney's fees and costs of
the suit. On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court National
Capital Region (NCR) Manila, Branch 38.
Cathay Insurance moved for reconsideration, but was denied. It thus filed the petition for review.

Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under the
insurance policy issued by Cathay Insurance is unmistakable; (2) Alleged contractual limitations
contained in insurance policies are regarded with extreme caution by courts and are to be strictly
construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the very
purpose for which the policy was procured; (3) Rust is not an inherent vice of the seamless steel pipes
without interference of external factors; (4) No matter how Cathay Insurance might want it otherwise, the
15-day clause of the policy had been foreclosed in the pre-trial order and it was not even raised in Cathay
Insurance's answer to Remington's complaint; (5) The decision was correct in not holding that the heavy
rusting of the seamless steel pipes did not occur during the voyage of 7 days from July 1 to July 7, 1981;
(6) The alleged lack of supposed bad order survey from the arrastre capitalized on by Cathay Insurance
was more than clarified by no less than 2 witnesses; (7) The placing of notation "rusty" in the way bills is
not only Remington's right but a natural and spontaneous reaction of whoever received the seamless steel
pipes in a rusty condition at Remington's bodega; (8) The Court of Appeals did not engage in any
guesswork or speculation in concluding a loss allowance of 30% in the amount of P868,339.15; and (9)
The rate of 34% per annum double the ceiling prescribed by the Monetary Board is the rate of interest
fixed by the Insurance Policy itself and the Insurance Code. Cathay Insurance however maintains that (1)
Remington does not dispute the fact that, contrary to the finding of the respondent Court (that Cathay
Insurance has failed "to present any evidence of any viable exception to the application of the policy")
there is in fact an express exception to the application of the policy; (2) As adverted to in the Petition for
Review, Remington has admitted that the questioned shipment is not covered by a "square provision of
the contract," but Remington claims implied coverage from the phrase" perils of the sea" mentioned in the
opening sentence of the policy; (3) The insistence of Remington thatrusting is a peril of the sea is
erroneous; (4) Remington inaccurately invokes the rule of strict construction against insurer under the
guise of construction in order to impart a non-existing ambiguity or doubt into the policy so as to resolve
it against the insurer; (5) Remington while impliedly admitting that a loss occasioned by an inherent
defect or vice in the insured article is not within the terms of the policy, erroneously insists that rusting is
not an inherent vice or in the nature of steel pipes; (6) Rusting is not a risk insured against, since a risk to
be insured against should be a casualty or some casualty, something which could not be foreseen as one
of the necessary incidents of adventure; (7) A fact capable of unquestionable demonstration or of public
knowledge needs no evidence. This fact of unquestionable demonstration or of public knowledge is that
heavy rusting of steel or iron pipes cannot occur within a period of a 7 day voyage. Besides, Cathay
Insurance had introduced the clear cargo receipts or tally sheets indicating that there was no damage on
the steel pipes during the voyage; and (8) The evidence of Remington betrays the fact that the account of
P868,339.15 awarded by the respondent Court is founded on speculation, surmises or conjectures and the
amount of less has not been proven by competent, satisfactory and clear evidence.
Issue: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether
rusting is a risk insured against
Held: YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the
sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot
be held accountable therefor, the Court would fail to observe a cardinal rule in the interpretation of
contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter thereof,
namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered
fruitless.

6. Cebu Shipyard v. William Lines, May 5, 1999
(G.R 132607)

Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the Prudential is in the non-life
insurance business. William Lines, Inc., the owner of M/V Manila City, a luxury passenger-cargo vessel,
which caught fire and sank. At the time of the incident, subject vessel was insured with Prudential for
P45M for hull and machinery. CSEW was insured for only Php 10 million for the
shiprepairers liability policy. They entered into a contract where negligence was the only factor that
could make CSEW liable for damages. Moreover, liability of CSEW was limited to only Php 1million for
damages. The Hull Policy included an Additional Perils (INCHMAREE) Clause covering loss of or
damage to the vessel through the negligence of, among others, ship repairmen.
William brought Manila City to the dry dock of CSEW for repairs. The officers and cabin crew stayed
at the ship while it was being repaired. After the vessel was transferred to the docking quay, it caught fire
and sank, resulting to its total loss.
William brought suit against CSEW alleging that it was through the latters negligence that the shipcaught
fire and sank. Prudential was impleaded as co-plaintiff after it had paid the value of insured items. It was
subrogated to 45 million, or the value it claimed to indemnify.
The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million for loss of
income, and more than 13 million in other damages. The CA affirmed the TC decision.
CSEW contended that the cause of the fire was due to Williams hotworks on the said portion of the
ship which they didnt ask CSEW permission for.
Prudential, on the other hand, blamed the negligence of the CSEW workers in the instance when they
didnt mind rubber insulation wire coming out of the air-conditioning unit that was already burning.
Hence this MFR.

Issue:
1. WON CSEW had management and supervisory control of the ship at the time the fire broke out
2. WON the doctrine of res ipsa loquitur applies against the crew
3. WON Prudential has the right of subrogation against its own insured
4. WON the provisions limiting CSEWs liability for negligence to a maximum of Php 1 million are valid

Held: Yes. Yes. Yes. No. Petition denied.

Ratio:
1. The that factual findings by the CA are conclusive on the parties and are not reviewable by this Court.
They are entitled to great weight and respect when the CA affirmed the factual findings arrived at by the
trial court.
The CA and the Cebu RTC are agreed that the fire which caused the total loss of subject M/V Manila City
was due to the negligence of the employees and workers of CSEW.
Furthermore, in petitions for review on certiorari, only questions of law may be put into issue. Questions
of fact cannot be entertained.
2. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur:
(1) the accident was of a kind which does not ordinarily occur unless someone is negligent; and (2) that
the instrumentality or agency which caused the injury was under the exclusive control of the person
charged with negligence.
The facts and evidence reveal the presence of these conditions. First, the fire would not have happened in
the ordinary course of things if reasonable care and diligence had been exercised.
Second, the agency charged with negligence, as found by the trial court and the CA and as shown by the
records, is CSEW, which had control over subject vessel when it was docked for annual repairs.
What is more, in the present case the trial court found direct evidence to prove that the workers didnt
exercise due diligence in the care of subject vessel. The direct evidence substantiates the conclusion that
CSEW was really negligent even without applying such doctrine.
3. Petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines, Inc.,
theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and (2) it is a co-assured
under the Marine Hull Insurance Policy. This was wrong. The one who caused the fire has already been
adjudicated by the courts as CSEW.
Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the right of the
latter to indemnification from CSEW. As aptly ruled by the Court of Appeals, the law says:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
When Prudential paid the latter the total amount covered by its insurance policy, it was subrogated to the
right of the latter to recover the insured loss from the liable party, CSEW.
Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured under the
subject insurance policy with reliance on Clause 20 of the Work Order which states:
20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during
the period the contract is in effect.
Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to maintain
insurance on the vessel during the period of dry-docking or repair. However, the fact that CSEW benefits
from the said stipulation does not automatically make it as a co-assured of William Lines. The intention
of the parties to make each other a co-assured under an insurance policy is to be read from the insurance
contract or policy itself and not from any other contract or agreement because the insurance policy
denominates the beneficiaries of the insurance. The hull and machinery insurance procured by William
Lines, Inc. from Prudential named only William Lines, Inc. as the assured. There was no manifestation
of any intention of William Lines, Inc. to constitute CSEW as a co-assured under subject policy. The
claim of CSEW that it is a co-assured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that this
insurance also covers loss of or damage to vessel directly caused by the negligence of charterers and
repairers who are not assured.
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the policy,
it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage caused by the
negligence of CSEW. Certainly, no shipowner would agree to make a shiprepairer a co-assured under
such insurance policy; otherwise, any claim for loss or damage under the policy would be invalidated.
4. Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as
binding as an ordinary contract, the Court recognizes instances when reliance on such contracts cannot be
favored especially where the facts and circumstances warrant that subject stipulations be disregarded.
Thus, in ruling on the validity and applicability of the stipulation limiting the liabilityof CSEW for
negligence to P1M only, the facts and circumstances vis-a-vis the nature of the provision sought to be
enforced should be considered, bearing in mind the principles of equity and fair play.
It is worthy to note that M/V Manila City was insured with Prudential for P45M. Upon thorough
investigation by its hull surveyor, M/V Manila City was found to be beyond economical salvage and
repair. The evaluation of the average adjuster also reported a constructive total loss. The said claim of
William Lines, Inc., was then found to be valid and compensable such that Prudential paid the latter the
total value of its insurance claim. Furthermore, it was ascertained that the replacement cost of the vessel,
amounts to P55M.
Considering the circumstances, it would unfair to limit the liability of petitioner to One Million Pesos
only. To allow CSEW to limit its liability to P1M notwithstanding the fact that the total loss suffered by
the assured and paid for by Prudential amounted to P45M would sanction the exercise of a degree of
diligence short of what is ordinarily required because, then, it would not be difficult for petitioner to
escape liability by the simple expedient of paying an amount very much lower than the actual damage
suffered by William.

CEBU SHIPYARD ENGINEERING WORKS, INC. V WILLIAM LINES, INC. and
PRUDENTIAL GUARANTEE and ASSURANCE COMPANY, INC.
[CITATION]
PURISIMA; May 5, 1999

NATURE
Petition for review on certiorari

FACTS
- Cebu Shipyard and Engineering Works, Inc. (CSEW) is engaged in the business of dry-docking and
repairing of marine vessels while the Prudential Guarantee and Assurance, Inc. (Prudential) is in the non-
life insurance business.
- William Lines, Inc. is in the shipping business. It was the owner of M/V Manila City, a luxury
passenger-cargo vessel, which caught fire and sank on Feb. 16, 1991. At the time of the unfortunate
occurrence sued upon, subject vessel was insured with Prudential for P45M for hull and machinery. The
Hull Policy included an Additional Perils (INCHMAREE) Clause covering loss of or damage to the
vessel through the negligence of, among others, ship repairmen
- Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairers Legal
Liability Insurance Policy. The policy was for P10 million only, under the limited liability clause, to wit:
- On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu Shipyard in
Lapulapu City for annual dry-docking and repair.
- On Feb. 6, 1991, an arrival conference was held between representatives of William Lines, Inc. and
CSEW to discuss the work to be undertaken on the M/V Manila City. The contracts, denominated as
Work Orders, were signed thereafter., with the following stipulations:
10. The Contractor shall replace at its own work and at its own cost any work or material which can be
shown to be defective and which is communicated in writing within one (1) month of redelivery of the
vessel or if the vessel was not in the Contractors Possession, the withdrawal of the Contractors
workmen, or at its option to pay a sum equal to the cost of such replacement at its own works. These
conditions shall apply to any such replacements.
11. Save as provided in Clause 10, the Contractor shall not be under any liability to the Customer either in
contract or for delict or quasi-delict or otherwise except for negligence and such liability shall itself be
subject to the following overriding limitations and exceptions, namely:
(a) The total liability of the Contractor to the Customer (over and above the liability to replace under
Clause 10) or of any sub-contractor shall be limited in respect of any defect or event (and a series of
accidents arising out of the same defect or event shall constitute one defect or event) to the sum of Pesos
Philippine Currency One Million only.
x x x
20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during
the period the contract is in effect.
- While the M/V Manila City was undergoing dry-docking and repairs within the premises of CSEW, the
master, officers and crew of M/V Manila City stayed in the vessel, using their cabins as living quarters.
Other employees hired by William Lines to do repairs and maintenance work on the vessel were also
present during the dry-docking.
- On February 16, 1991, after subject vessel was transferred to the docking quay, it caught fire and sank,
resulting to its eventual total loss.
- On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging that
the fire which broke out in M/V Manila City was caused by CSEWs negligence and lack of care.
- On July 15, 1991 was filed an Amended Complaint impleading Prudential as co-plaintiff, after the latter
had paid William Lines, Inc. the value of the hull and machinery insurance on the M/V Manila City. As a
result of such payment Prudential was subrogated to the claim of P45 million, representing the value of
the said insurance it paid.
On June 10, 1994, the trial court a quo came out with a judgment against CSEW:
1. To pay unto plaintiff Prudential Guarantee and Assurance, Inc., the subrogee, the amount of P45M,
with interest at the legal rate until full payment is made; the amount of P56,715,000 representing loss of
income of M/V MANILA CITY, with interest at the legal rate until full payment is made;
2. To pay unto plaintiff, William Lines, Inc. the amount of P11M as payment, in addition to what it
received from the insurance company to fully cover the injury or loss, in order to replace the M/V
MANILA CITY, with interest at the legal rate until full payment is made; the sum of P927,039 for the
loss of fuel and lub oil on board the vessel when she was completely gutted by fire at defendant, Cebu
Shipyards quay, with interest at the legal rate until full payment is made; the sum of P3,054,677.95 as
payment for the spare parts and materials used in the M/V MANILA CITY during dry-docking with
interest at the legal rate until full payment is made; P500,000 in moral damages;the amount of P10Min
attorneys fees; and to pay the costs of this suit.
- On September 3, 1997, the Court of Appeals affirmed the appealed decision of the trial court, ordering
CSEW to pay Prudential, the subrogee, the sum of P45 Million, with interest at the legal rate until full
payment is made.
CSEWs version:
On Feb. 13, 1991, the CSEW completed the drydocking of M/V Manila City at its grave dock. It was
then transferred to the docking quay of CSEW where the remaining repair to be done was the replating of
the top of Water Ballast Tank No. 12 which was subcontracted by CSEW to JNB General Services.
Tank Top No. 12 was at the rear section of the vessel, on level with the flooring of the crew cabins
located on the vessels second deck.
At around 7AM of Feb. 16, 1991, the JNB workers trimmed and cleaned the tank top framing which
involved minor hotworks (welding/cutting works). The said work was completed at about 10AM. The
JNB workers then proceeded to rig the steel plates, after which they had their lunch break. The rigging
was resumed at 1PM
While in the process of rigging the second steel plate, the JNB workers noticed smoke coming from the
passageway along the crew cabins. When one of the workers, Mr. Casas, proceeded to the passageway to
ascertain the origin of the smoke, he noticed that smoke was gathering on the ceiling of the passageway
but did not see any fire as the crew cabins on either side of the passageway were locked. He immediately
sought out the proprietor of JNB, Mr. Buenavista, and the Safety Officer of CSEW, Mr. Aves, who
sounded the fire alarm. CSEWs fire brigade immediately responded as well as the other fire fighting
units in Metro Cebu. However, there were no WLI representative, officer or crew to guide the firemen
inside the vessel.
- Despite the combined efforts of the firemen of the Lapulapu City Fire Dept., Mandaue Fire Dept.,
Cordova Fire Dept. Emergency Rescue Unit Foundation, and fire brigade of CSEW, the fire was not
controlled until 2AM of the following day.
- On the early morning of Feb. 17, 1991, gusty winds rekindled the flames on the vessel and fire again
broke out. Then the huge amounts of water pumped into the vessel, coupled with the strong current,
caused the vessel to tilt until it capsized and sank
- When M/V Manila City capsized, steel and angle bars were noticed to have been newly welded along
the port side of the hull of the vessel, at the level of the crew cabins. William Lines did not previously
apply for a permit to do hotworks on the said portion of the ship as it should have done pursuant to its
work order with CSEW.
Prudentials version
> At around 7AM of Feb. 16, 1991, the Chief Mate of M/V Manila City was inspecting the various
works being done by CSEW on the vessel, when he saw that some workers of CSEW were cropping out
steel plates on Tank Top No. 12 using acetylene, oxygen and welding torch. He also observed that the
rubber insulation wire coming out of the air-conditioning unit was already burning, prompting him to
scold the workers.
> At 2:45 PM of the same day, witnesses saw smoke coming from Tank No. 12. The vessels reeferman
reported such occurence to the Chief Mate who immediately assembled the crew members to put out the
fire. When it was too hot for them to stay on board and seeing that the fire cannot be controlled, the
vessels crew were forced to withdraw from CSEWs docking quay.
- In the morning of Feb. 17, 1991, M/V Manila City sank. As the vessel was insured with Prudential
Guarantee, William Lines filed a claim for constructive total loss, and after a thorough investigation of the
surrounding circumstances of the tragedy, Prudential found the said insurance claim to be meritorious and
issued a check in favor of William Lines in the amount of P45 million pesos representing the total value
of M/V Manila Citys hull and machinery insurance.

ISSUES
1. WON CSEW had management and supervisory control of the m/v manila city at the time the fire
broke out
2. WON the doctrine of res ipsa loquitur applies against the crew
3. WON CSEWS expert evidence is admissible or of probative value
4. WON Prudential has the right of subrogation against its own insured THE CONTRACTUAL 5. 5. 5.
5. WON the provisions limiting csews liability for negligence to a maximum of p1 million are valid

HELD
1. YES
- The that factual findings by the CA are conclusive on the parties and are not reviewable by this Court.
They are entitled to great weight and respect, even finality, especially when, as in this case, the CA
affirmed the factual findings arrived at by the trial court. When supported by sufficient evidence, findings
of fact by the CA affirming those of the trial court, are not to be disturbed on appeal. The rationale behind
this doctrine is that review of the findings of fact of the CA is not a function that the Supreme Court
normally undertakes.
- The CA and the Cebu RTC are agreed that the fire which caused the total loss of subject M/V Manila
City was due to the negligence of the employees and workers of CSEW. Both courts found that the M/V
Manila City was under the custody and control of petitioner CSEW, when the ill-fated vessel caught fire.
The decisions of both the lower court and the CA set forth clearly the evidence sustaining their finding of
actionable negligence on the part of CSEW. This factual finding is accorded great weight and is
conclusive on the parties. The court discerns no basis for disturbing such finding firmly anchored on
enough evidence.
- Furthermore, in petitions for review on certiorari, only questions of law may be put into issue.
Questions of fact cannot be entertained. The finding of negligence by the CA is a question which this
Court cannot look into as it would entail going into factual matters on which the finding of negligence
was based. Such an approach cannot be allowed by this Court in the absence of clear showing that the
case falls under any of the exceptions to the well-established principle.
The finding by the trial court and the Court of Appeals that M/V Manila City caught fire and sank by
reason of the negligence of the workers of CSEW, when the said vessel was under the exclusive custody
and control of CSEW is accordingly upheld.
2. YES
- For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur:
(1) the accident was of a kind which does not ordinarily occur unless someone is negligent; and (2) that
the instrumentality or agency which caused the injury was under the exclusive control of the person
charged with negligence.
The facts and evidence on record reveal the concurrence of said conditions in the case under scrutiny.
First, the fire that occurred and consumed M/V Manila City would not have happened in the ordinary
course of things if reasonable care and diligence had been exercised. In other words, some negligence
must have occurred. Second, the agency charged with negligence, as found by the trial court and the CA
and as shown by the records, is the herein petitioner, CSEW, which had control over subject vessel when
it was docked for annual repairs. So also, as found by the RTC, other responsible causes, including the
conduct of the plaintiff, and third persons, are sufficiently eliminated by the evidence.
What is more, in the present case the trial court found direct evidence to prove that the workers and/or
employees of CSEW were remiss in their duty of exercising due diligence in the care of subject vessel.
The direct evidence substantiates the conclusion that CSEW was really negligent. Thus, even without
applying the doctrine of res ipsa loquitur, in light of the direct evidence on record, the ineluctable
conclusion is that CSEW was negligent and consequently liable for damages to the respondent, William
Lines, Inc.
3. NO
- Petitioner maintains that the CA erred in disregarding the testimonies of the fire experts, Messrs. David
Grey and Gregory Michael Southeard, who testified on the probable origin of the fire in M/V Manila
City. Petitioner avers that since the said fire experts were one in their opinion that the fire did not
originate in the area of Tank Top No. 12 where the JNB workers were doing hotworks but on the crew
accommodation cabins on the portside No. 2 deck, the RTC and the CA should have given weight to such
finding based on the testimonies of fire experts; petitioner argues.
But courts are not bound by the testimonies of expert witnesses. Although they may have probative value,
reception in evidence of expert testimonies is within the discretion of the court, under Section 49, Rule
130 of the Revised Rules of Court. It is never mandatory for judges to give substantial weight to expert
testimonies. If from the facts and evidence on record, a conclusion is readily ascertainable, there is no
need for the judge to resort to expert opinion evidence. In the case under consideration, the testimonies of
the fire experts were not the only available evidence on the probable cause and origin of the fire. There
were witnesses who were actually on board the vessel when the fire occurred. Between the testimonies of
the fire experts who merely based their findings and opinions on interviews and the testimonies of those
present during the fire, the latter are of more probative value.
4. YES
- Petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines, Inc.,
theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and (2) it is a co-assured
under the Marine Hull Insurance Policy.
- It is petitioners submission that the loss of M/V Manila City or damage thereto is expressly excluded
from the coverage of the insurance because the same resulted from want of due diligence by the Assured,
Owners or Managers which is not included in the risks insured against. Again, this theory of petitioner is
bereft of any factual or legal basis. It proceeds from a wrong premise that the fire which gutted subject
vessel was caused by the negligence of the employees of William Lines, Inc. To repeat, the issue of who
between the parties was negligent has already been resolved against CSEW. Upon proof of payment by
Prudential to William Lines, Inc., the former was subrogated to the right of the latter to indemnification
from CSEW. As aptly ruled by the Court of Appeals, the law on the matter is succinct and clear, to wit:
- Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
- Thus, when Prudential, after due verification of the merit and validity of the insurance claim of William
Lines, Inc., paid the latter the total amount covered by its insurance policy, it was subrogated to the right
of the latter to recover the insured loss from the liable party, CSEW.
- Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured under
the subject insurance policy. To buttress its stance that it is a co-assured, petitioner placed reliance on
Clause 20 of the Work Order which states:
20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel
during the period the contract is in effect.
- According to petitioner, under the aforecited clause, William Lines, Inc., agreed to assume the risk of
loss of the vessel while under drydock or repair and to such extent, it is benefited and effectively
constituted as a co-assured under the policy.
- This theory of petitioner is devoid of sustainable merit. Clause 20 of the Work Order in question is clear
in the sense that it requires William Lines to maintain insurance on the vessel during the period of dry-
docking or repair. Concededly, such a stipulation works to the benefit of CSEW as the shiprepairer.
However, the fact that CSEW benefits from the said stipulation does not automatically make it as a co-
assured of William Lines. The intention of the parties to make each other a co-assured under an insurance
policy is to be gleaned principally from the insurance contract or policy itself and not from any other
contract or agreement because the insurance policy denominates the assured and the beneficiaries of the
insurance. The hull and machinery insurance procured by William Lines, Inc. from Prudential named
only William Lines, Inc. as the assured. There was no manifestation of any intention of William Lines,
Inc. to constitute CSEW as a co-assured under subject policy. It is axiomatic that when the terms of a
contract are clear its stipulations control.
i]
Thus, when the insurance policy involved named only William
Lines, Inc. as the assured thereunder, the claim of CSEW that it is a co-assured is unfounded.
- Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that:
Subject to the conditions of this Policy, this insurance also covers loss of or damage to vessel directly
caused by the following:
xxx
Negligence of Charterers and/or Repairers, provided such Charterers and/or Repairers are not an
Assured hereunder.
- As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the
policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage caused
by the negligence of CSEW. Certainly, no shipowner would agree to make a shiprepairer a co-assured
under such insurance policy; otherwise, any claim for loss or damage under the policy would be
invalidated. Such result could not have been intended by William Lines, Inc.
5. NO
- Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as
binding as an ordinary contract, the Court recognizes instances when reliance on such contracts cannot be
favored especially where the facts and circumstances warrant that subject stipulations be disregarded.
Thus, in ruling on the validity and applicability of the stipulation limiting the liability of CSEW for
negligence to P1M only, the facts and circumstances vis-a-vis the nature of the provision sought to be
enforced should be considered, bearing in mind the principles of equity and fair play.
- It is worthy to note that M/V Manila City was insured with Prudential for P45M. To determine the
validity and sustainability of the claim of William Lines, Inc., for a total loss, Prudential conducted its
own inquiry. Upon thorough investigation by its hull surveyor, M/V Manila City was found to be beyond
economical salvage and repair. The evaluation of the average adjuster also reported a constructive total
loss. The said claim of William Lines, Inc., was then found to be valid and compensable such that
Prudential paid the latter the total value of its insurance claim. Furthermore, it was ascertained that the
replacement cost of the vessel (the price of a vessel similar to M/V Manila City), amounts to P55M.
- Considering the aforestated circumstances, let alone the fact that negligence on the part of petitioner has
been sufficiently proven, it would indeed be unfair and inequitable to limit the liability of petitioner to
One Million Pesos only. As aptly held by the trial court, it is rather unconscionable if not overstrained.
To allow CSEW to limit its liability to P1M notwithstanding the fact that the total loss suffered by the
assured and paid for by Prudential amounted to P45M would sanction the exercise of a degree of
diligence short of what is ordinarily required because, then, it would not be difficult for petitioner to
escape liability by the simple expedient of paying an amount very much lower than the actual damage or
loss suffered by William Lines, Inc.
Disposition Petition is DENIED. Resolution of the CA is AFFIRMED.


7. Choa Tiek Seng v. CA, March 15, 1990
G.R 84507
113 CHOA TIEK SENG v CA
G.R. No. 84507 March 15, 1990
TOPIC:
PONENTE: GANCAYCO, J.
AUTHOR: Jade
NOTES: (if applicable)


FACTS:

Nature: Appeal from a decision of the CA dated Feb 18, 1988, affirming the decision of the RTC of
Manila

November 4, 1976 Choa Tiek Seng imported some lactose crystals from Holland. The importation
involved 15 metric tons packed in 600 6-ply paper bags with polythelene inner bags, each bag at 25 kilos
net.

The goods were loaded at the Rotterdam Port in sea vans on board the vessel MS Benalder as the mother
vessel, then aboard the feeder vessel Wesse Broker V-25 of respondent Ben Lines Container, Ltd.

The goods were insured by Filipino Merchants Insurance Co, Inc. for the sum of P98,882.35 (equivalent
of US$8,765.00) + 50% mark-up US$13,147.50, against all risks under the terms of the insurance cargo
policy.

Upon arrival at the port of Manila, the cargo was discharged into the custody of the arrastre operator, E.
Razon, Inc. (broker), prior to delivery to Choa Tiek Seng through his broker.

Of the 600 bags delivered to Choa Tiek Seng, 403 were in bad order suffered spillage and loss valued at
P33,117.63.

Choa Tiek Seng filed a claim for said loss on February 16, 1977 against Filipino Merchants Insurance
Co, Inc. in the amount of P33,117.63 as the insured value of the loss.

Filipino Merchants Insurance Co, Inc. rejected the claim alleging that 1) assuming that spillage took
place while the goods were in transit, Choa Tiek Seng and his agent failed to avert or minimize the loss
by failing to recover spillage from the sea van violation of the terms of the insurance policy sued upon,
and 2) assuming that the spillage did not occur while the cargo was in transit, said 400 bags were loaded
in bad order, and in any case, the van did not carry any evidence of spillage.

August 2, 1977 Petitioner filed in the RTC of Manila an action seeking payment of the sum of
P33,117.63 as damages plus attorney's fees and expenses of litigation.
Filipino Merchants denied all material allegations of the complaint
Filipino Merchants filed a 3
rd
party complaint against Ben Lines and the broker, E. Razon.
E. Razon denied liability and argued that Choa Tiek Seng had no valid cause of action against it.
Ben Lines denied liability and argued that Filipino Merchants has no connection with Ben Lines
whatsoever, thus not a proper party in interest, and that 3
rd
party complaint has prescribed under
the applicable provisions of Carriage of Goods by Sea Act.

March 31, 1986 trial court dismissed the complaint, the counterclaim and the 3
rd
party complaint with
costs against Choa Tiek Seng.

Petitioner appealed to the Court of Appeals; CA affirmed the judgment of the trial court.

ISSUE(S):
Whether or not Choa Tiek Seng can recover from the insurance company

HELD: (YES/NO, and a short explanation)
The decision of the CA is reversed and set aside. Filipinas Merchants is ordered to pay the sum of
P33117.63 as damages to the petitioner with legal interest from filing of the complaint, plus attorneys
fees and expenses of litigation in the amount of P10000 as well as the costs of the suit.

OR:
NATURE
Appeal from a decision of the Court of Appeals

FACTS
- Petitioner imported some lactose crystals from Holland.
- The importation involved fifteen (15) metric tons packed in 600 6-ply paper bags with polythelene inner
bags, each bag at 25 kilos net. The goods were loaded at the port at Rotterdam in sea vans on board the
vessel "MS Benalder' as the mother vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25"
of respondent Ben Lines Container, Ltd. (Ben Lines for short). The goods were insured by the respondent
Filipino Merchants' Insurance Co., Inc. (insurance company for short) for the sum of P98,882.35, the
equivalent of US$8,765.00 plus 50% mark-up or US $13,147.50, against all risks under the terms of the
insurance cargo policy. Upon arrival at the port of Manila, the cargo was discharged into the custody of
the arrastre operator respondent E. Razon, Inc. (broker for short), prior to the delivery to petitioner
through his broker. Of the 600 bags delivered to petitioner, 403 were in bad order. The surveys showed
that the bad order bags suffered spillage and loss later valued at P33,117.63. Petitioner filed a claim for
said loss dated February 16, 1977 against respondent insurance company in the amount of P33,117.63 as
the insured value of the loss.
- Respondent insurance company rejected the claim alleging that assuming that spillage took place while
the goods were in transit, petitioner and his agent failed to avert or minimize the loss by failing to recover
spillage from the sea van, thus violating the terms of the insurance policy sued upon; and that assuming
that the spillage did not occur while the cargo was in transit, the said 400 bags were loaded in bad order,
and that in any case, the van did not carry any evidence of spillage.
- Petitioner filed a complaint in the RTC against the insurance company seeking payment of the sum of
P33,117.63 as damages plus attorney's fees and expenses of litigation. Insurance company denied all the
material allegations of the complaint and raised several special defenses as well as a compulsory
counterclaim. Insurance company filed a third-party complaint against respondents Ben Lines and broker.
- RTC dismissed the complaint, the counterclaim and the third-party complaint with costs against the
petitioner. Appealed in CA but denied. MFR was denied as well.

ISSUE
WON insurance company should be held liable even if the technical meaning in marine insurance of an
insurance against all risk" is applied

HELD
YES
- In Gloren Inc. vs. Filipinas Cia. de Seguros, 12 it was held that an all risk insurance policy insures
against all causes of conceivable loss or damage, except as otherwise excluded in the policy or due to
fraud or intentional misconduct on the part of the insured. It covers all losses during the voyage whether
arising from a marine peril or not, including pilferage losses during the war.
- In the present case, the "all risks" clause of the policy sued upon reads as follows:
"5. This insurance is against all risks of loss or damage to the subject matter insured but shall in no
case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent
vice or nature of the subject matter insured. Claims recoverable hereunder shall be payable irrespective
of percentage."
- The terms of the policy are so clear and require no interpretation. The insurance policy covers all loss or
damage to the cargo except those caused by delay or inherent vice or nature of the cargo insured. It is the
duty of the respondent insurance company to establish that said loss or damage falls within the exceptions
provided for by law, otherwise it is liable therefor.
- An "all risks" provision of a marine policy creates a special type of insurance which extends coverage to
risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss
was due to peril falling within the policy's coverage. The insurer can avoid coverage upon demonstrating
that a specific provision expressly excludes the loss from coverage.
- In this case, the damage caused to the cargo has not been attributed to any of the exceptions provided for
nor is there any pretension to this effect. Thus, the liability of respondent insurance company is clear.
Disposition the decision appealed from is hereby REVERSED AND SET ASIDE and another judgment
is hereby rendered ordering the respondent Filipinas Merchants Insurance Company, Inc. to pay the sum
of P33,117.63 as damages to petitioner with legal interest from the filing of the complaint, plus attorney's
fees and expenses of litigation in the amount of P10,000.00 as well as the costs of the suit.



8. Delsan Transport v. CA, Nov. q5, 2001
G.R 127897
369 SCRA 24

FACTS
- Caltex entered into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc.
(petitioner), for a period of one year whereby the said common carrier agreed to transport Caltexs
industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Delsan took on
board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the
Caltex Oil Terminal in Zamboanga City. The shipment was insured by American Home Assurance
Corporation (respondent).
- August 14, 1986: MT Maysun set sail from Batangas for Zamboanga City. The vessel sank in the early
morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
- Respondent paid Caltex P5,096,635.57 representing the insured value of the lost cargo. Exercising its
right of subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the
petitioner the same amount it paid to Caltex. Delsan refused to pay, forcing American home to file a case
for collection in the RTC.
- RTC found that the vessel, MT Maysun, was seaworthy to undertake the voyage, and that the incident
was caused by an unexpected inclement weather condition or force majeure, thus exempting the common
carrier from liability for the loss of its cargo.
- CA reversed RTC decision on the basis of evidence from PAG-ASA that there were no 20 ft. waves in
the area. CA ruled that the petitioner is liable on its obligation as common carrier to respondent insurance
company as subrogee of Caltex.
Petitioners Claim
> In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject
of marine insurance there is an implied warranty by the shipper that the ship is seaworthy.
1
When private
respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit
recognition that the ill-fated vessel was seaworthy.

Respondents Comment
> American Home Assurance is entitled to payment by its right of subrogation.

ISSUES

1
Sec. 113 Insurance Code
1. WON payment made by American Home to Caltex for the insured value of the lost cargo amounted to
an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner
2. WON MT Maysun was seaworthy at the time of the voyage (outline topic)
3. WON non-presentation of the marine insurance policy bars the complaint for recovery of sum of
money for lack of cause of action

HELD
1. NO
Ratio The fact of payment grants American Home the subrogatory right which enables it to exercise legal
remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner
common carrier.
Reasoning
Art. 2207. (Civil Code)
If the plaintiffs property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or
injury.
- The right of subrogation is designed to promote and to accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay.
It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment by the insurance company of the insurance claim.
2. NO
Ratio Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the
issuance of certificates establishes seaworthiness.
Reasoning
- Common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of passengers transported by them, according to all the circumstances of each case. There is no
liability if the loss, destruction or deterioration is by force majeure.
- The tale of strong winds and big waves by the said officers of the petitioner however, was effectively
rebutted and belied by the weather report from PAG-ASA. MT Maysun sank with its entire cargo for the
reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in
the vicinity when the said vessel sank.
- Petitioner may not escape liability by presenting in evidence certificates that tend to show that at the
time of dry-docking and inspection by the Philippine Coast Guard MT Maysun, was fit for voyage. These
pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the
commencement of the voyage. At the time of dry-docking and inspection, the ship may have appeared
fit. The certificates issued, however, do not negate the presumption of unseaworthiness triggered by an
unexplained sinking.
- Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel
owners obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the
condition of the vessel or her stowage does not establish due diligence if the vessel was in fact
unseaworthy, for the cargo owner has no obligation in relation to seaworthiness.
3. NO
Ratio The presentation in evidence of the marine insurance policy is not indispensable in this case before
the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its
subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of
respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the
amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
Disposition Petition is denied, and the decision of the CA is affirmed.

OR

http://berneguerrero.files.wordpress.com/2012/08/2004hs198_transpo.pdf

Facts: Caltex Philippines entered into a contract of affreightment with Delsan Transport Lines, Inc. for a
period of 1 year whereby the said common carrier agreed to transport Caltexs industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board
its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex
Oil
Terminal in Zamboanga City. The shipment was insured with American Home Assurance Corporation.
On 14 August 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel
sank in the early morning of 16 August 1986 near Panay Gulf in the Visayas taking with it the entire
cargo of fuel oil.
Subsequently, American Home Assurance paid Caltex the sum of P5,096,635.57 representing the insured
value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code,
American Home Assurance demanded of Delsan Transport the same amount it paid to Caltex.
Due to its failure to collect from Delsan Transport despite prior demand, American Home Assurance filed
a
complaint with the RTC Makati City, Branch 137, for collection of a sum of money. After the trial and
upon
analyzing the evidence adduced, the trial court rendered a decision on 29 November 1990 dismissing the
complaint against Delsan Transport without pronouncement as to cost. The trial court found that the
vessel,
MT Maysun, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per
Survey
Certificate Report M5-016-MH upon inspection during its annual dry-docking and that the incident was
caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier
from liability for the loss of its cargo.
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals on 16 June
1996,
which gave credence to the weather report by the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA). The subsequent motion for reconsideration of Delsan Transport was
denied by the appellate court on 21 January 1997. Hence, the petition for review on certiorari.
The Supreme Court denied the instant petition, and affirmed the Decision dated 17 June 1996 of the Court
of
Appeals; with costs against Delsan Transport.

1. PAGASA Weather report for 15 August 1986
The weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA for brevity) showed that from 2:00 oclock to 8:00 oclock in the morning on
August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7
to
two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to
Delsan Transports allegation that the waves were 20 feet high.

2. Payment of insured value of lost cargo operates as waiver to enforce term of implied warranty
against Caltex, not an automatic admission of vessels seaworthiness

The payment made by American Home Assurance for the insured value of the lost cargo operates as
waiver of its right to enforce the term of the implied warranty against Caltex under the marine insurance
policy. However, the same cannot be validly interpreted as an automatic admission of the vessels
seaworthiness by American Home Assurance as to foreclose recourse against the petitioner for any
liability under its contractual obligation as a common carrier. The fact of payment grants American Home
Assurance subrogatory right which enables it to exercise legal remedies that would otherwise be available
to Caltex as owner of the lost cargo against the petitioner common carrier.

3. Right of Subrogation; Article 2207 NCC
Article 2207 of the New Civil Code provides that if the plaintiffs property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of the wrong or
breach
of contract complained of, the insurance company shall be subrogated to the rights of the insured against
the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person
causing the loss or injury.

4. Rationale for right of subrogation

The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and
good conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment by the insurance company of the
insurance claim. Herein, the payment made by the insurer to the assured operates as an equitable
assignment to the former of all the remedies which the latter may have against the common carrier.

5. Diligence required of common carriers; Liability, exception; Presumption of negligence

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

6. Claim of force majeure rebutted by PAGASA report
Herein, from the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate,
respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition
occurred in the early morning of 16 August 1986; that at around 3:15 a.m. a squall (unos) carrying
strong
winds with an approximate velocity of 30 knots per hour and big waves averaging 18 to 20 feet high,
repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. This
tale of
strong winds and big waves by the said officers of Delsan Transport however, was effectively rebutted
and
belied by the weather report from PAGASA, the independent government agency charged with
monitoring
weather and sea conditions, showing that from 2:00 to 8:00 a.m. on 16 August 1986, the wind speed
remained
at 10 to 20 knots per hour while the height of the waves ranged from 0.7 to 2 meters in the vicinity of
Cuyo
East Pass and Panay Gulf where the subject vessel sank. There was no squall or bad weather or extremely
poor sea condition in the vicinity when the said vessel sank.

7. Ship captain not expected to testify against interest of employer
Herein, Delsan Transports witnesses, Jaime Jarabe and Francisco Berina, ship captain and chiefmate,
respectively, of the said vessel, could not be expected to testify against the interest of their employer, the
common carrier.
8. Evidence certificates at time of drydocking and Coast Guard inspection not conclusive as to
condition of vessel at the time of commencement of voyage; Seaworthiness not established by
certificates
Evidence certificates, showing that at the time of dry-docking and inspection by the Philippine Coast
Guard the vessel MT Maysun was fit for voyage, do not necessarily take into account the actual condition
of the vessel at the time of the commencement of the voyage. At the time of dry-docking and inspection,
the ship may have appeared fit. The certificates issued, however, do not negate the presumption of
unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are
likewise clear as to their probative value. Seaworthiness relates to a vessels actual condition. Neither the
granting of classification or the issuance of certificates establishes seaworthiness.

9. Certificates of seaworthiness does not satisfy the vessel owners obligation
Diligence in securing certificates of seaworthiness does not satisfy the vessel owners obligation. Also
securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her
stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no
obligation in relation to seaworthiness.
10. Exoneration of officers by Board of Marine Inquiry concerns only their administrative liability,
not civil liabililty
The exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their
respective administrative liabilities. It does not in any way operate to absolve the petitioner common
carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance
over the goods it was transporting and for the negligent acts or omissions of its employees, the
determination of which properly belongs to the courts. Herein, Delsan Transport is liable for the insured
value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of
fault or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun,
while in transit.
11. Subrogation receipt merely establish relationship of parties thereto; When right of subrogation
accrues
The presentation in evidence of the marine insurance policy is not indispensable in this case before the
insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its
subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of
the insurer and the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle
the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of
the insurance claim.
12. Home Insurance Corp. vs. CA; Liability of a hauler
In the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that
occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it
cannot be held responsible for the handling of the cargo before it actually received it. The insurance
contract, which was not presented in evidence in that case would have indicated the scope of the insurers
liability, if any, since no evidence was adduced indicating at what stage in the handling process the
damage to the cargo was sustained.
13. Home Insurance Corp. vs. CA not applicable
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA
because the shipment therein (hydraulic engines) passed through several stages with different parties
involved in each stage. First, from the shipper to the port of departure; second, from the port of departure
to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor;
fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre
operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc.; and lastly, from the
hauler to the consignee. Herein, the presentation of the insurance policy is not applicable, for there is no
doubt that the cargo of industrial fuel oil belonging to Caltex was lost while on board Delsan Transports
vessel, MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the
early morning of 16 August 1986.

10. Hyopsung Maritime v. CA, Aug. 31, 1988
G.R 77639
Original:
http://www.lawphil.net/judjuris/juri1988/aug1988/gr_77369_1988.html

Digests:
Cant find any online, but its not a very long case
11. Intl Harvester (Russia) v. Hamburg-American, July 19, 1918
G.R. No. 11515
Original:
Transportation General Averages Stranding by Reason of War
IHCR, an American Company, contracted HAL to transport 852 crates of agricultural machinery from
Baltimore, MD to Hamburg, Germany and that after it reached Hamburg, the crates were to be delivered,
at the order of the consignor, to Vladivostock, Russia. The crates were delivered via the vessel Bulgaria to
Hamburg, at the expense of HAL. It was transferred to the German ship Suevia to resume journey from
Hamburg to Russia. During Suevias journey, war broke out between Russia and Germany. Suevias
captain ordered the ship to be placed on neutral ground, which happened to be the nearest port of Manila.
IHCR demanded HAL to continue the journey by transferring the cargoes to a non-German ship (as
agreed upon in the Bill of Lading in case of war). HAL declined. IHCR sued HAL in Manila. RTC
Manila issued a writ of replevin hence IHCR recovered its cargoes, it then contracted a separate ship to
continue the transport. HAL claimed that IHCR is liable for general averages for the expenses of the
Suevia while at the port of Manila. IHCR claimed that HAL is liable for the expenses incurred by ICHR
in contracting a different shipping line.

ISSUE: Whether or not IHCR is liable for general averages.

HELD: No. The cargoes were not contraband and are not in danger at war. Suevias captain merely
thought about the safety of the ship, not of the cargos hence there is no common benefit here between the
ship and the cargo; therefore, general averages do not exist. HAL is liable for the expenses incurred by
IHCR in contracting a different shipper. By the terms of the contract of affreightment HAL was bound to
forward the cargo to Vladivostock at the steamers expense, not necessarily by a steamer belonging to
HAL; and it does not by any means follow that it is not liable for the expense incurred by IHCR in
completing the unfinished portion of the voyage in another ship.


15. Madrigal-Tiangco v. Hanson, Orth, April 18, 1958
(G.R. No. L-6106-07)

Facts:
- Madrigal, Tiangco & Co. (Madrigal) owned a motor launch named Isla Verde which was rented by
Roman Mabanta to be delivered on a certain date.
- However, the delivery was delayed because the launch still had to be drydocked and repaired.
- When the launch was finally delivered to Mabanta, it sank, becoming a total loss.
- Madrigal brought this action to recover the value of the launch from Mabanta and the insurance
company that issued a policy on the launch Hanson, Orth & Stevenson.
- The lower court dismissed the case because it found that the launch was received by Mabanta
unseaworthy.
Issue:
- W/n Madrigal can claim the value of the launch from the insurance company.
Held:
- SC says NO
- The Court found a preponderance of evidence towards the conclusion that there was no delivery of the
launch in accordance with the terms of the contract. There were several certifications that were not
procured.
- Nevertheless, the fact of delivery of the launch becomes irrelevant once it is proven that the launch was
indeed unseaworthy. Here, the Court also found a preponderance of evidence towards the conclusion that
indeed the launch was delivered to Mabanta unseaworthy. The Court took note that there was neither
typhoon nor waves on the night of its sinking. Also, the launch did not hit anything on its voyage. Despite
these facts, the engine room of the launch was still filled with water which led to its sinking.
- As for the insurance company, the Court said that the finding that the motor launch was unseaworthy at
the time she sank precludes recovery by the plaintiffs of the amount for which the motor launch was
insured under the policy issued by Hanson, Orth & Stevenson.

16. Magellan Mfg. Mktg. v. CA, Aug. 22, 1991
G.R 95529
FACTS:
Choju Co., Ltd purchased from Magellan Manufacturers Marketing Corp. (MMMC) 136,000 anahaw
fans for $23,220
MMMC contracted with F.E. Zuellig, a shipping agent of Orient OverseasContainer Lines, Inc.,
(OOCL) specifying that he needed an on-board bill of lading and that transhipment is not allowed
under the letter of credit
MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was
presented to Allied Bank. The bank then credited the amount of US$23,220 covered by the letter of
credit to MMMC
When MMMC's President James Cu, went back to the bank later, he was informed that the payment
was refused by the buying for lack of bill of lading and there was a transhipment of goods
The anahaw fans were shipped back to Manila through OOCL who are demanding from
MMMC P246,043.43 (freight charges from Japan to Manila, demurrage incurred in Japan and Manila
from October 22, 1980 up to May 20, 1981 and charges for stripping the container van of the Anahaw
fans on May 20, 1981)
MMMC abandoned the whole cargo and asked OOCL for damages
OOCL: bill of lading clearly shows that there will be a transhipment and that petitioner was well
aware that MV (Pacific) Despatcher was only up to Hongkong where the subject cargo will be
transferred to another vessel for Japan
RTC: favored OOCL:
consented because the bill of lading where it is clearly indicated that there will be transhipment
MMMC was the one who ordered the reshipment of the cargo from Japan to Manila
CA: Affirmed with modification of excluding demurrage in Manila

ISSUE: W/N the bill of lading which reflected the transhipment against the letter of credit is consented by
MMMC

HELD: YES. CA Affirmed with modification
Transhipment
act of taking cargo out of one ship and loading it in another
the transfer of goods from the vessel stipulated in the contract of affreightment to another vessel
before the place of destination named in the contract has been reached
transfer for further transportation from one ship or conveyance to another
the fact of transhipment is not dependent upon the ownership of thetransporting ships or conveyances
or in the change of carriers, as the petitioner seems to suggest, but rather on the fact of actual physical
transfer of cargo from one vessel to another
appears on the face of the bill of lading the entry "Hong Kong" in the blank space labeled
"Transhipment," which can only mean that transhipment actually took place
bill of lading
operates both as a receipt and as a contract
receipt for the goods shipped
contract to transport and deliver the same as therein stipulated
names the parties, which includes the consignee, fixes the route, destination, and freight rates or
charges, and stipulates the rights and obligations assumed by the parties
law between the parties who are bound by its terms and conditions provided that these are not
contrary to law, morals, good customs, public order and public policy
GR: acceptance of the bill without dissent raises the presumption that all the terms therein were
brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake,
he is estopped from thereafter denying that he assented to such term
There clearly appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT"
an entry "HONGKONG'
On board bill of lading vs. received for shipment bill of lading:
on board bill of lading
stated that the goods have been received on board the vessel which is to carry the goods
received for shipment bill of lading
stated that the goods have been received for shipment with or without specifying the vessel by which
the goods are to be shipped
issued whenever conditions are not normal and there is insufficiency of shipping space
certification of F.E. Zuellig, Inc. cannot qualify the bill of lading, as originally issued, into an on
board bill of lading as required by the terms of the letter of credit issued in favor of petitioner - it is
a received for shipment bill of lading
issued only on July 19, 1980, way beyond the expiry date of June 30, 1980 specified in the letter of
credit for the presentation of an on board bill of lading
Demurrage
compensation provided for in the contract of affreightment for the detention of the vessel beyond the
time agreed on for loading and unloading
claim for damages for failure to accept delivery
before it could be charged for demurrage charges it should have been notified of the arrival of the
goods first
Since abandon option was communicated, the same is binding upon the parties on legal and equitable
considerations of estoppel

OR

http://berneguerrero.files.wordpress.com/2012/08/2004hs198_transpo.pdf

Facts: On 20 May 1980, Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with
Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of $23,220.00. As
payment thereof, a letter of credit was issued to MMMC by the buyer. Through its president, James Cu,
MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the
anahaw fans through Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-
board bill of lading and that transshipment is not allowed under the letter of credit. On 30 June 1980,
MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented
to Allied Bank. The bank then credited the amount of US$23 ,220.00 covered by the letter of credit to
appellants account.
However, when MMMCs president James Cu, went back to the bank later, he was informed that the
payment was refused by the buyer allegedly because there was no on-board bill of lading, and there was a
transshipment of goods. As a result of the refusal of the buyer to accept, upon MMMCs request, the
anahaw
fans were shipped back to Manila by OOCL and FE Zuellig, for which the latter demanded from MMMC
payment of P246,043.43. MMMC abandoned the whole cargo and asked OOCL and FE Zuellig for
damages. On 20 July 1981 MMMC filed the complaint in this case praying that OOCL and FE Zuellig be
ordered to pay whatever MMMC was not able to earn from Choju Co., Ltd., amounting to P174,150.00
and other damages like attorneys fees since OOCL and FE Zuellig are to blame for the refusal of Choju
Co., Ltd. To accept the Anahaw fans. In answer thereto the latter alleged that the bill of lading clearly
shows that there will be a transshipment and that MMMC was well aware that MV (Pacific) Despatcher
was only up to Hongkong where the subject cargo will be transferred to another vessel for Japan. They
this filed a counterclaim praying that MMMC be ordered to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting to P298,150.93. The lower court decided the case in
favor of OOCL and FE Zuellig. On appeal to the Court of Appeals, the finding of the lower court that
MMMC agreed to a transshipment of the goods was affirmed but the finding that petitioner is liable for
P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight charges and
demurrages incurred in Japan but not for the demurrages incurred in Manila. MMMC, dissatisfied with
the decision moved for reconsideration. Denied, it filed a petition for review on certiorari. The Supreme
Court affirmed the judgment of the Court of Appeals with the modification that MMMC is likewise
absolved of any liability, thus setting aside the award of P52,102.45 with legal interest granted by the
appellate court on OOCL and FE Zuelligs counterclaim, said counterclaim being dismissed, without
pronouncement as to costs.

1. Transshipment defined
Transshipment, in maritime law, is defined as the act of taking cargo out of one ship and loading it in
another, or the transfer of goods from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been reached, or the transfer for further
transportation from one ship or conveyance to another. Either in its ordinary or its strictly legal
acceptation, there is transshipment whether or not the same person, firm or entity owns the vessels. In
other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or
conveyances or in the change of camera, but rather on the fact of actual physical transfer of cargo from
one vessel to another.
2. Transshipment exists in present case
There was transhipment, as there unmistakably appears on the face of the bill of lading the entry Hong
Kong in the blank space labeled Transshipment, which can only mean that transshipment actually took
place. This fact is further bolstered by the certification issued by F.E. Zuellig, Inc. dated 19 July 1980,
although it carefully used the term transfer instead of transshipment. Nonetheless, no amount of
semantic juggling can mask the fact that transshipment in truth occurred in this case.
3. A bill of lading operates both as a receipt and as a contract
A bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated. As a contract, it names the parties, which
includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights
and obligations assumed by the parties. Being a contract, it is the law between the parties who are bound
by its terms and conditions provided that these are not contrary to law, morals, good customs, public
order and public policy. A bill of lading usually becomes effective upon its delivery to and acceptance by
the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads
the bill or not.
4. Claims of mistake militates against nature of bill of lading
The claim that there was a mistake in documentation on the part of OOCL and FE Zuellig militates
against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the
parties, as an exception to the parol evidence rule, and would therefore permit it to explain or present
evidence to vary or contradict the terms of the written agreement, that is, the bill of lading involved.
5. Receipt of bill lading without objection presumed to mean acceptance of contents as correct and
assent thereto
A shipper who receives a bill of lading without objection after an opportunity to inspect it, and permits
the carrier to act on it by proceeding with the shipment is presumed to have accepted it as correctly stating
the contract and to have assented to its terms. The acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge of the shipper and agreed to by him
and, in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such
terms. This rule applies with particular force where a shipper accepts a bill of lading with full knowledge
of its contents and acceptance under such circumstances makes it a binding contract.
6. Parol evidence rule vis--vis contracts
Under the parol evidence rule, the terms of a contract are rendered conclusive upon the parties, and
evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied
in a document, subject to well defined exceptions which do not obtain in this case. The parol evidence
rule is based on the consideration that when the parties have reduced their agreement on a particular
matter into writing, all their previous and contemporaneous agreements on the matter are merged therein.
Accordingly, evidence of a prior or contemporaneous verbal agreement is generally not admissible to
vary, contradict or defeat the operation of a valid instrument. The mistake contemplated as an exception
to the parol evidence rule is one which is a mistake of fact mutual to the parties. Furthermore, the rules on
evidence, as amended, require that in order that parol evidence may be admitted, said mistake must be put
in issue by the pleadings, such that if not raised inceptively in the complaint or in the answer, as the case
may be, a party can not later on be permitted to introduce parol evidence thereon.
7. Terms of contract in bill of lading clear and conclusive
The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any
interpretation. The intention of the parties which is the carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract
being conclusive upon the parties and judging from the contemporaneous and subsequent actuations of
petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there
is no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance of
the terms of the bill of lading and that it intended to be bound thereby.
8. Transshipment of freight without legal excuse is a violation of contract; No cause to suppose
shippers to be unaware of custom
It is a well-known commercial usage that transshipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is made, is a violation of the contract and an
infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost even by a
cause otherwise excepted. It is highly improbable to suppose that OOCL and FE Zuellig, having been
engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have
undertaken such transshipment without petitioners consent and unnecessarily expose themselves to a
possible liability. Verily, they could only have undertaken transshipment with the shippers permission, as
evidenced by the signature of James Cu.
9. Knowledge of difference between bill of lading and on board bill of lading expected from those
engaged in export industry for long periods
The refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was also made on the ground
that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms of
the letter of credit issued in favor of MMMC. MMMC knew from the onset that its buyer, Choju Co.,
Ltd., particularly required that there be an on board bill of lading, obviously due to the guaranty afforded
by such a bill of lading over any other kind of bill of lading. The buyer could not have insisted on such a
stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that
having an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction
between an or board and a received for shipment bill of lading. It is only to be expected that those
long engaged in the export industry should be familiar with business usages and customs.
10. On board bill of lading defined
An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without specifying the vessel by which the
goods are
to be shipped. Received for shipment bills of lading are issued whenever conditions are not normal and
there is insufficiency of shipping space. An on board bill of lading is issued when the goods have been
actually placed aboard the ship with every reasonable expectation that the shipment is as good as on its
way. It is, therefore, understandable that a party to a maritime contract would require an on board bill of
lading because
of its apparent guaranty of certainty of shipping as well as the seaworthiness of the vessel which is to
carry the goods.
11. FE Zuelligs certification cannot qualify bill of lading into an ob board bill of lading
The certification of F.E. Zuellig, Inc. cannot qualify the bill of lading, as originally issued, into an on
board bill of lading as required by the terms of the letter of credit issued in favor of MMMC. For one, the
certification was issued only on 19 July 1980, way beyond the expiry date of 30 June 1980 specified in
the letter of credit for the presentation of an on board bill of lading. Thus, even assuming that by a liberal
treatment of the certification it could have the effect of converting the received for shipment bill of lading
into an on board of bill of lading, such an effect may be achieved only as of the date of its issuance, that
is, on 19 July 1980 and onwards. The fact remains, though, that on the crucial date of 30 June 1980 no on
board bill of lading was presented by petitioner in compliance with the terms of the letter of credit and
this default consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to
operate retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it would
indubitably be stretching the concept of substantial compliance too far.
12. Claim of contract of adhesion cannot be upheld as bill of lading is clear
MMMC cannot escape liability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against OOCL
and FE Zuellig as allegedly being the parties who gave rise thereto. The bill of lading is clear on its face.
There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and conditions are
plainly worded and commonly understood by those in the business.
13. Certain contracts of adhesion, such as bill of lading, not prohibited
It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled in the
earlier case of Ong Yiu us. Court of Appeals, et al. and reiterated in Servando, et al. vs. Philippine Steam
Navigation Co., plane tickets as well as bills of lading are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.
14. Violation of letter of credit would defeat right to collect proceeds thereof
Any violation of the terms and conditions of the letter of credit as would defeat its right to collect the
proceeds thereof was, therefore, entirely of MMMCs making for which it must bear the consequences.
Whether there was a violation of the terms and conditions of the letter of credit, or whether such violation
was the cause or motive for the rejection by MMMCs Japanese buyer should not affect OOCL and FE
Zuellig since they were not privies to the terms and conditions of MMMCs letter of credit and cannot
therefore be held liable for any violation thereof by any of the parties thereto.
15. Demurrage defined
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the
claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel
may be considered a demurrage. Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term in its broader sense, damages in the
nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo
with reasonable dispatch, but only by the party to whom the duty is owed and only against one who is a
party to the shipping contract. Notice of arrival of vessels or conveyances, or of their placement for
purposes of unloading is often a condition precedent to the right to collect demurrage charges.
16. Abandonment of goods releases MMMC from liability from demurrage charges
Ordinarily, the shipper is liable for freightage due to the fact that the shipment was made for its benefit or
under its direction and, correspondingly, the carrier is entitled to collect charges for its shipping services.
By virtue of the exercise of its option to abandon the goods so as to allow OOCL and FE Zuellig to sell
the same at a public auction and to apply the proceeds thereof as payment for the shipping and demurrage
charges, MMMC was released from liability for the sum of P52,102.43 since such amount represents the
shipping and demurrage charges from which it is considered to have been released due to the
abandonment of goods.
17. OOCL offered MMMC option, cannot renege of offer unilaterally
OOCL and FE Zuellig unequivocally offered MMMC, on 20 March 1981, the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same so that
the former could sell them at public auction and thereafter apply the proceeds in payment of the shipping
and other charges. Responding thereto, in a letter dated 3 April 1981, MMMC seasonably communicated
its decision to abandon to the goods in favor of the former with the specific instruction that any excess of
the proceeds over the legal costs and charges be turned over to MMMC. Having given such option,
especially since it was accepted by MMMC, OOCL and FE Zuellig are estopped from reneging thereon.
To allow either of them to unilaterally back out on the offer and on the exercise of the option would be to
countenance abuse of rights as an order of the day, doing violence to the long entrenched principle of
mutuality of contracts.
18. Grounds for abandonment of goods
In overland transportation, an unreasonable delay in the delivery of transported goods is sufficient ground
for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further,
MMMC can properly abandon the goods, not only because of the unreasonable delay in its delivery but
because of the option which was categorically granted to and exercised by it as a means of settling its
liability for the cost and expenses of reshipment. Said choice having been duly communicated, the same is
binding upon the parties on legal and equitable considerations of estoppel.
19. Monarch Ins. v. CA, June 8, 2000
G.R 92735 + 2 more, consolidated e
FACTS:
Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the shippers and were
consequently subrogated to their rights, interests and actions against Aboitiz, the cargo carrier. Because
Aboitiz refused to compensate Monarch, it filed two complaints against Aboitiz which were consolidated
and jointly tried.

Aboitiz rejected responsibility for the claims on the ground that the sinking of its cargo vessel was due to
force majeure or an act of God. Aboitiz was subsequently declared as in default and allowed Monarch and
Tabacalera to present evidence ex-parte.

ISSUE:
Whether or not the doctrine of limited liability applies in the instant case.

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

http://www.scribd.com/doc/80533900/Digest-Monarch-Insurance-Co-et-al-vs-CA
(note: other digest link here, but as of now, di ko ma access sa scribd)

23. Pan Malayan v. CA, Sept. 5, 1991
G.R 95070
Facts:
1. LUZTEVECO offered to ship FAOs cargo of rice seeds to Kampuchea to pass through Vietnam (for
logistic reasons) which was insured by Pan Malayan in the amount of 5,250,000. The loading was
completed and LUZTEVECO issued Bill of Lading #1. FAO gave instructions to deliver the rice
seeds without delay because of the inherent risks of germination and or spoilage.
2. However, LUZTEVECO informed FAO that the shipment returned to Manila after leaving on June
16
th
before it left for Vietnam on June 21
st
with the barge being towed by a different tugboat. Since
this was an unauthorized deviation, FAO demanded an explanation.
3. On June 26, FAO was advised of the sinking of the barge in the China Sea hence it informed Pan
Malayan and later formally filed its claim under the marine insurance policy. FAO was also informed
that there was recovery of the loss shipment for which FAO formally filed its claim with
LUZTEVECO for compensation of damage to its cargo.
4. Despite repeated demands to replace the same or to pay for the total insured value, LUZTEVECO
failed and refused to do so. Pan Malayan also refused to pay for the losses
5. PAN Malayan alleged that it engaged the services of a surveying corporation and found out that 9629
bags of rice seeds were in good order, 23,510 bags sustained wattage of ten to fifteen percent and 983
bags were shortlanded or missing. Recommendation: not compensable under the policy.
6. It was later found out that the 23,510 bags of the shipment had already been sold by LUZTEVECO.
Pan Malayan also said that FAO wrote a letter to them signifying its willingness to abandon the
proceeds of the sale of the 23k bags and the remaining good order bags but that on Oct 6, Pan
Malayan rejected FAOs proposed abandonment. FAO then filed a case against LUZTEVECO and
Pan Malayan for the payment of the lost shipment.
7. TC: Pan and LUZTEVECO solidarily liable to FAO.

ISSUE: W/N there is total loss of the shipment (that would render Pan Malayan liable)
HELD: YES
Ratio:
1. The law classifies loss into total or partial. Total loss in turn may be actual or constructive. 78%
of the bags of rice seeds were lost. FAO clearly said that when the rice seed would be in contact
with water, it would germinate.
2. Under (c) and (d) of SEC130, when the thing is rendered valueless to the owner and when the
owner is dispossessed of the thing, there is already actual loss.
3. There were 27,992 bags (damaged and lost) of rice seeds out of the 34,122 bags were rendered
valueless The law states that complete physical destruction of the subject matter is not essential to
constitute an actual total lost. Such a loss may exist where the form and specie of the thing is
destroyed, although the materials of which it consisted still exists.
4. Proof that there is total loss (explained by CA)
a. There was the sinking of the barge (it had to be refloated, court said, what is the use of
refloating if it didnt sink? )
b. What is mentioned in the law as the risk or peril insured against is sinking. This is the
risk or peril covered by the Marine Insurance.
5. FAO was never compensated for this. Insurance Code states that in case of total loss in Marine
Insurance, the assured is entitled to recover from the underwriter the whole amount of the
subscription.
6. It doesnt matter whether there was a valid notice of abandonment made by FAO because theres
no constructive loss here but actual total loss. Upon actual loss, notice of abandonment isnt
necessary for payment already.


24. Philam Gen. v. CA, June 11, 1997
G.R 116940
FACTS
- Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and operated by
Felman 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to
Cebu for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.

The shipment was insured with
petitioner Philippine American General under Marine Open Policy.
- 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.
- The consignee 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, PHILAMGEN sued the shipowner for sum of money
and damages.
- PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the
vessels 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.
- 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.
- 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.
- Trial court rendered judgment in favor of FELMAN. 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
shipowners 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.
- CA ruled that MV Asilda was unseaworthy for being top- heavy as 2,500 cases of Coca-Cola
softdrink bottles were improperly stowed on deck. Nonetheless, the appellate court denied the claim of
PHILAMGEN on the ground that the assureds 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.

ISSUES
1. WON MV Asilda was seaworthy when it left the port of Zamboanga
2. WON the limited liability under Art. 587 of the Code of Commerce should apply
3. WON PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had
against FELMAN, the shipowner

HELD
1. YES
- MV Asilda was unseaworthy when it left the port of Zamboanga. 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 captains 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 ships hatches were properly secured, the empty
Coca-Cola cases recovered could have come only from the vessels 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 vessels metacentric height 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.
2. NO
- 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. The international rule is to the effect that the right of abandonment of vessels,
as a legal limitation of a shipowners liability, does not apply to cases where the injury or average was
occasioned by the shipowners own fault.
3. YES
- 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. 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.
- 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.
- 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. 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.
- PHILAMGENs action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which
provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
Disposition 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
26. Phil. Mfg. v. Union Ins., Nov. 22, 1921
G.R. No. L-16473
42 phil 378

FACTS
- The plaintiffs steel tank lighter was insured by defendant company for absolute total loss. As a result of
a typhoon, the lighter sunk in Manila Bay. The plaintiff demanded payment from the defendant insurance
company but the latter refused. The company asked the plaintiff to salvage the ship, which it was able to
do so.
- With the plaintiff able to raise the lighter, reconstruct it and placed it in commission, the defendant
insurance company claims that it was only liable for a total absolute loss and that there was no total
destruction of the lighter.
- The trial court decided in favor of the defendant, saying that the policy only covered an actual total loss,
not a constructive total loss.

ISSUES
1. WON there was an absolute total loss that can be covered by the policy
2. WON the Marine Law of Great Britain applies

HELD
1. YES
- At the time that the lighter was at the bottom of the bay, it was of no value to the owner, thus there was
an actual total loss.
- The ship was sunk in July 1, 1918. After several futile attempts, it was finally raised on Sept. 20, 1918.
It is faitr to assume that in its then condition much further time would be required to make the necessary
repairs and install the new machinery before it could again be placed in commission. During that time the
owner would be deprived of the use of its vessel or the interest on its investment. When those questions
are considered the testimony is conclusive that the cost of salvage, repair and reconstruction was more
than the original cost of the ship at the time the policy was issued. As found by the trial court, t is
difficult to see how there could have been a more complete loss of the vessel than that which actually
occurred. Upon the facts shown here, any other construction would nullify the statute and as applied to
the conditions existing in the Manila Bay, this kind of policy would be worthless, and there would not be
any consideration for the premium.
2. NO
- The defendant argues that the policy contains the provision that it shall be of as force and effect as the
surest writing or policy of insurance made in London. However, for such law to apply to our courts the
existence of such law must be proven. It cannot apply when such proof is lacking. Nevertheless, in the
English practice, a ship is a total loss when she has sustained such extensive damages that it would not be
reasonably practical to repair her.
Disposition Decision reversed


27. Planters Product v. CA, Sept. 15, 1993
G.R 101503
Original:

Facts:
Planters Products (Planters) purchased from Mitsubishi International Corporation of USA of 9,000 metric
tons of urea fertilizer which the latter shipped aboard the cargo vessel owned by private respondent
Kyosei Kisin Kabushiki Kaisha (KKKK) from America to La Union. Prior to its voyage, a time charter
party was entered into between Mitusbishi as shipper/charterer and KKKK as ship-owner. After the Urea
fertilizer was loaded in bulk by stevedores hired by the shipper, the steel hatches were closed with heavy
iron lids which remained closed during the entire journey.
Upon arrival of the vessel, the hatches were opened with the use of the vessel boom. Planters unloaded
the cargo from the holders into the steel bodied dump trucks. Each time the dump trucks were filled up,
its load of urea was covered with tarpaulin before it was transported to the consignees warehouse located
some (50) fifty meters from the wharf. It took (11) eleven days from planters to unload the cargo. The
report submitted by private marine and cargo surveyors revealed a shortage in the cargo, and some
portion in the cargo was contaminated with dirt, rendering the same unfit for commerce.
PPI filed an action for damages with the CFI 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.
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. Relying on the 1968 case of Home Insurance Co.v.
American Steamship Agencies, Inc., 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 and that the Civil Code provisions on common carriers which set forth a presumption of
negligence do not find application in the case at bar.
Issues:
1. Whether a common carrier becomes a private carrier by reason of a charter-party.
2. Whether or not the respondent is a common carrier.
3. Whether or not the respondent is liable for damages.
Held:
1. 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.
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.
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.
2. Respondent is a common carrier. The term common carrier is defined in Article 1732 of the Civil
Code. The definition refers to carriers either by land, water, or air which holds themselves out as ready to
engage in carrying goods on transporting passengers or both for compensation as a public employment
and not as a casual occupation; if the undertaking is a single transaction, not a part of the general business
or corporation, although involving the carriage of goods for a fee, then the person or corporation offering
such services is a private carrier. In the case at bar respondent carrier transports goods indiscriminately
for all persons. Being such, he is a common carrier.
3. The court ruled in the negative. While respondent is a common carrier, he has sufficiently overcome
by clear and convincing proof the prima facie presumption of negligence, due to the manner of storage of
the goods during the voyage. 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.
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.

or
http://berneguerrero.files.wordpress.com/2012/08/2004hs198_transpo.pdf
Facts:
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation of New York, USA,
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 Kyosei Kisen Kabushiki Kaisha (KKKK) from
Kenai, Alaska, USA, to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading
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 Charter
was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan.
Riders to the aforesaid charter-party starting from paragraph 16 to 40 were attached to the pre-printed
agreement. Addenda 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, 4 of her
holds were all presumably inspected by the charterers representative and found fit to take a load of urea
in bulk pursuant to paragraph 16 of the charter-party. 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 3 layers of tarpaulin, then tied with steel bonds. The hatches remained closed and
tightly sealed throughout the entire voyage. 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 vessels boom. PPI unloaded the cargo from the
holds into its steel-bodied dump trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the charter-party (which provided for an
FIOS clause). The hatches remained open throughout the duration of the discharge. Each time a dump
truck was filled up, its load of Urea was covered with tarpaulin before it was transported to the
consignees warehouse located some 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. PPIs 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 fertilizer. It took 11
days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th). 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. 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. 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. SSA
explained that they were not able to respond to the consignees 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.
On 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The court a
quo however sustained the claim of PPI against the carrier for the value of the goods lost or damaged. On
appeal, the Court of Appeals reversed the lower court and absolved the carrier from liability for the value
of the cargo that was lost or damaged. PPI appealed by way of petition for review. The Supreme Court
dismissed the petition; affirmed the assailed decision of the Court of Appeals, which reversed the trial
court; and consequently, dismissed Civil Case 98623 of the then CFI, now RTC, of Manila; with costs
against PPI.
1. Charter party defined
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; 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.
2. Types of charter parties
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.
3. Kinds of contract of affreightment
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. 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 shipowner to supply the ships stores, pay for the wages of the master and the
crew, and defray the expenses for the maintenance of the ship.
4. Common or public carrier defined; Scope of definition
The term common or public carrier is defined in Article 1732 of the Civil Code. 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.
5. Distinction between common or public carrier, and private or special carrier
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.
6. Extraordinary diligence required of common carriers (Article 1733); Ordinary diligence
required of private carriers
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. In the case of
private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
7. Common carriers presumed negligent in case of loss, etc. of goods; No presumption in private
carriers
In 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. 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.

8. Kyosei Kisen Kabushiki Kaisha a common carrier, remained as so in charter party
Kyosei Kisen Kabushiki Kaisha, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When PPI 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. 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, the
charterer is a stranger to the crew and to the ship. Thus, 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. 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.
9. When charter party converts common carrier to private carrier
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.
10. Reliance on case of Home Insurance vs. American Steamship misplaced
The carriers heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies is
misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowner from liability for loss due to the negligence of its agent, and not
the effects of a special charter on common carriers.
11. American rule as to shipper carrying special cargo not applicable in the Philippines; Stricter
interpretation of admiralty laws
The rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, does not find application in Philippine jurisdiction, for the Court has 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.
12. Observations of Raoul Colinvaux, the learned barrister-at-law
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 collussion
occur; and the same difficulty in discovering the truth as to what has taken place arises . . .
13. Burden of proof in an action for recovery of damages against a common carrier
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.
14. Carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption
of negligence
(1) 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 4 hatches of the vessel were cleaned, dried and fumigated. After
completing the loading of the cargo in bulk in the ships holds, the steel pontoon hatches were closed and
sealed with iron lids, then covered with 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 ships boom. (2) 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. 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. Verily, the presumption of negligence on the part of respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the
cargo.
15. Period which carrier was to observe degree of diligence; Limitation clause of FIOS meaning
The period during which the carrier 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 vessels holds
were duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination
and its hull was re-examined 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. 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.
15. When common carriers not liable for loss, destruction or deterioration of goods
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 character of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and deteriorations
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. 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.
16. Characteristics of urea
Urea is 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 80 degrees centigrade.
17. Expected risks of bulk shipping
(1) 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. (2) The dissipation of quantities
of fertilizer, or its deterioration 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. (3) 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.

18. Hull of vessel in good condition; Improbable that sea water seep in vessels hold
It was highly improbable for sea water to seep into the vessels 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 consignees 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 bad 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.
19. Variable weather condition a risk of loss or damage which owner or shipper of goods has to face
Herein, 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 consignees warehouse. 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. This is a risk the shipper or the owner of the goods has to face.

28. Puromines v. CA, Mar. 22, 1993
GR 91228
Original:
http://www.chanrobles.com/scdecisions/jurisprudence1993/mar1993/gr_91228_1993.php

Digests:
http://www.scribd.com/doc/169753349/Puromines-v-CA-doc
SUMMARY: A sales contract for the sale of prilled urea was entered into by Puromines and Makati
Agro and it was provided therein that any disputes arising from the contract shall be settled by arbitration
in London. The shipment covered by 3 bills of lading was undertaken by MV Liliana Dimitrova with
Philipp Brothers as charterer of said vessel. When shipment covered by Bill of Lading 2&3 were
discharged in Manila in bad order and condition, Puromines filed a complaint with TC for breach of
contract of carriage against Maritime, ship-agent and Philipp Brothers, as charterer. Philipp filed a motion
to dismiss on the basis that case should be brought to arbitration first. Puromines opposed contending that
the sales contract does not include contract of carriage, the latter not covered by agreement on arbitration.
SC: Granted Motion to Dismiss, sales contract and bill of lading provides covers arbitration clause.
Assuming the cause of action is based on contract of carriage, it must be first determined what kind of
charter party had with the shipowner to determine liability. If contract of affreightment, charterer is not
liable as possession is still with owner. If charter of demise or bareboat, then charterer is liable as it is
considered the owner and therefore would be liable for damage or loss.

FACTS:
Puromines, Inc. and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with
Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk.
Sales Contract provided an arbitration clause:
o "9. Arbitration: "Any disputes arising under this contract shall be settled by arbitration in
London in accordance with the Arbitration Act 1950 and any statutory amendment or
modification thereof. Each party is to appoint an Arbitrator, and should they be unable to
agree, the decision of an Umpire appointed by them to be final. The Arbitrators and Umpire
are all to be commercial men and resident in London. This submission may be made a rule
of the High Court of Justice in England by either party."
May 22, 88: M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a shipment of 15k metric
tons prilled Urea in bulk complete and in good order and condition for transport to Iloilo and Manila,
to be delivered to Puromines.
3 bills of lading were issued by the ship-agent, Maritime Factors Inc:
o Bill of Lading No. 1 dated May 12, 88 covering 10k metric tons for discharge to Manila;
o Bill of Lading No. 2 of even date covering 4k metric tons for unloading in Iloilo City; and
o Bill of Lading No. 3, same date, covering 1,500 metric tons likewise for discharge in Manila
Shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order
and condition. However, shipments covered by Bill of Lading Nos. 1 and 3 were discharged in
Manila in bad order and condition, caked, hardened and lumpy, discolored and contaminated with
rust and dirt.
o Damages were valued at P683, 056. 29 including additional discharging expenses.
Puromines filed a complaint with the trial court for breach of contract of carriage against Maritime
Factors Inc. (not included as respondent in this petition) as ship-agent for the owners of the vessel
MV "Liliana Dimitrova," while Philipp Brothers Oceanic Inc., was impleaded as charterer of the
said vessel
o Caking and hardening, wetting and melting, and contamination by rust and dirt of the
damaged portions of the shipment were due to the improper ventilation and inadequate
storage facilities of the vessel
o Wetting of the cargo was attributable to the failure of the crew to close the hatches before and
when it rained while the shipment was being unloaded in the Port of Manila;
o As a direct and natural consequence of the unseaworthiness and negligence of the vessel,
Puromines suffered damages in the total amount of P683, 056.29.
Maritime Factors, Inc. filed its Answer to the complaint, while Philipp filed a motion to dismiss on
the grounds that:
o the complaint states no cause of action; it was prematurely filed; and Puromines should
comply with the arbitration clause in the sales contract.
Puromines opposed motion to dismiss contending the inapplicability of the arbitration clause
inasmuch as the cause of action did not arise from a violation of the terms of the sales contract but
rather for claims of cargo damages where there is no arbitration agreement.
TC: Denied Philipp's motion to dismiss. Arbitration not applicable.
o Sales contract states in part: 'Any disputes arising under this contract shall be settled by
arbitration
o Facts alleged in the complaint show that the cause of action arose from a breach of contract of
carriage by the vessel chartered by Philipp Brothers thus; the arbitration clause cannot apply
to the dispute in the present action which concerns Puromines' claim for cargo loss/damage
arising from breach of contract of carriage.
o No merit to allegations that Philipp, not being the ship owner, is therefore not the real party in
interest as it was impleaded as charterer of the vessel, hence, a proper party
CA: Complaint Dismissed. The arbitration provision in the sales contract and/or the bills of lading is
applicable in the present case.
o Sales contract is broad enough to include the claim for damages arising from the
carriage and delivery of the goods subject-matter thereof.
o Bills of lading state: 'Any dispute arising under this Bill of Lading shall be referred to
arbitration of the Maritime Arbitration Commission xxx
Hence, this special civil action for certiorari and prohibition.
o Puromines argues that the sales contract does not include the contract of carriage which is
a different contract entered into by the carrier with the cargo owners.
o Error for CA to touch upon the arbitration provision of the bills lading in its decision
inasmuch as the same was not raised as an issue by Philipp who was not a party in the bills
of lading
ISSUES:
1) Whether the phrase "any dispute arising under this contract" in the arbitration clause of the sales
contract covers a cargo claim against the vessel (owner and/or charterers) for breach of contract of
carriage? (YES)
2) Assuming that the cause of action arises from the contract of carriage, whether Philipp, as charterer,
would be liable for the loss or damage? (Depends on type of charter, YES if charter of demise, NO if
contract of affreightment)
3) Whether arbitration provision should not have been discussed as it was not raised as a defense? (NO)

RATIO:
1) Sales contract is comprehensive enough to include claims for damages arising from carriage and
delivery of the goods.
GENERAL RULE: Seller has the obligation to transmit the goods to the buyer, and concomitant
thereto, the contracting of a carrier to deliver the same.
o Art. 1523: Where in pursuance of a contract of sale, the seller is authorized or required to
send the goods to the buyer, delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the
goods to the buyer, EXCEPT in the cases provided for in article 1503, first, second and third
paragraphs, or UNLESS a contrary intent appear.
o "Unless otherwise authorized by the buyer, the seller must take such contract with the
carrier on behalf of the buyer as may be reasonable, having regard to the nature of the
goods and the other circumstances of the case. If the seller omits so to do, and the goods are
lost or damaged in course of transit, the buyer may decline to treat the delivery to the
carrier as a delivery to himself, or may hold the seller responsible in damages."
Sales Contract provides for conditions relative to the delivery of goods, such as date of shipment,
demurrage, weight as determined by the bill of lading at load port and more particularly the
provisions in the contract. xxxx
Puromines derives his right to the cargo from the bill of lading which is the contract of
affreightment together with the sales contract. It is BOUND by the provisions and terms of said
bill of lading and of the ARBITRATION CLAUSE incorporated in the sales contract.

2) Assuming that the liability of Philipp is not based on the sales contract, but rather on the contract of
carriage, being the charterer of the vessel MV "Liliana Dimitrova," it is material to show what kind of
charter party Philipp had with owner of vessel to determine former's liability. Assuming that in the
present case, the charter party is a demise or bareboat charter, then Philipp Brothers is liable to
Puromines, Inc., subject to the terms and conditions of the sales contract. On the other hand, if the
contract between Philipp and the owner of the vessel MV "Liliana Dimitrova" was merely that of
affreightment, then it cannot be held liable for the damages caused by the breach of contract of
carriage, the evidence of which is the bill of lading.
Charter party: Definition
American jurisprudence defines charter party 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. (Ward v. Thompson)
Two Kinds of Charter Parties
o Charter of demise or bareboat AND contracts of affreightment.
Demise or Bareboat Charter of Veseel Contract of Affreightment
Charterer will generally be considered as
OWNER for the voyage or service stipulated
Owner of the vessel leases part or all of its space
to haul goods for others
The charterer mans the vessel with his own
people and becomes, in effect, the owner pro hac
vice, subject to liability to others for damages
caused by negligence. (Assistance, Inc. v.
Teledyne Industries Inc)
It is a contract for a special service to be rendered
by the owner of the vessel and under such
contract the GENERAL OWNER RETAINS the
possession, command and navigation of the ship,
the charterer or freighter merely having use of
the space in the vessel in return for his payment
of the charter hire. (US v. Shea)
To create a demise, the owner of a vessel must
completely and exclusively relinquish
possession.

Anything short of such a complete transfer is a
contract of affreightment (time or voyage charter
party) or not a charter party at all.
Responsibility to third persons for goods shipped
on board a vessel follows the vessel's possession
and employment; and if possession is transferred
to the charterer by virtue of a demise, the
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,
responsibilities of ownership rest on the owner
charterer, and not the owner, is liable as
carrier on the contract of affreightment made by
himself or by the master with third persons, and
is answerable for loss, damage or non-delivery of
goods received for transportation.
and the charterer is usually free from liability
to third persons in respect of the ship. (Leary v.
US)
An owner who retains possession of the ship,
though the hold is the property of the charterer,
remains liable as carrier and must answer for any
breach of duty as to the care, loading or
unloading of the cargo. (Gracie v. Palmer)
o In any case, whether the liability of Philipp should be based on the same contract or that of the bill of
lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales
contract and/or the bill of lading. Puromines being a signatory and party to the sales contract cannot
escape from his obligation under the arbitration clause as stated therein.
Arbitration Clauses
o Arbitration has been held valid and constitutional. Even before the enactment of RA 876, SC has
countenanced the settlement of disputes through arbitration. The rule now is that UNLESS the
agreement is such as absolutely to close the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such amicable arrangements and will only
interfere with great reluctance to anticipate or nullify the action of the arbitrator. (Arbitration as
a Means of Reducing Court Congestion, Coquia, Jorge quoting Malcolm, J.)
o Mindanao Portland Cement Corp. v. McDonough Construction Company of Florida: With a written
provision for arbitration as well as failure on respondent's part to comply, parties must proceed to
their arbitration in accordance with the terms of their agreement (Sec. 6, RA 876). Proceeding in court
is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this
case is not to resolve the merits of the parties' claims but only to determine if they should proceed
to arbitration or not. And although it has been ruled that a frivolous or patently baseless claim
should not be ordered to arbitration it is also recognized that the mere fact that a defense exist
against a claim does not make it frivolous or baseless.

3) Puromines contention that the arbitration provision in the bills of lading should not have been
discussed as an issue in the CA decision since it was not raised as a special or affirmative defense is
without merit. The 3 bills of lading were attached to the complaint as Annexes and are therefore parts
thereof and may be considered as evidence although not introduced as such. (Philippine Bank of
Communications v. CA) It was then proper for CA/TC to discuss the contents of the bills of lading,
having been made part of the record.
DISPOSITIVE: Arbitration clause stated in Sales Contract valid and applicable. CA Affirmed.


29. Roque v. IAC, Nov. 11, 1985
G.R L-66935
Facts: On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a common carrier, entered
into a contract with Isabela Roque (doing business under the name and style of Isabela Roque Timber
Enterprises) and Ong Chiong whereby the former would load and carry on board its barge Mable 10 about
422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. Roque and Ong
insured the logs against loss for P100,000.00 with the Pioneer Insurance and Surety Corporation
(Pioneer). On 29 February 1972, Roque and Ong loaded on the barge, 811 pieces of logs at Malampaya
Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never
reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in
Palawan on its way to Manila. The barge where the logs were loaded was apparently not seaworthy such
that it developed a leak. One of the hatches was left open causing water to enter the barge and because the
barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought
more water inside the barge. On 8 March 1972, Roque and Ong wrote a letter to MBLC demanding
payment of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter
ignored the demand. Another letter was sent to Pioneer claiming the full amount of P100,000.00 under the
insurance policy but Pioneer refused to pay on the ground that its liability depended upon the "Total loss
by Total Loss of Vessel only". Hence, Roque and Ong commenced Civil Case 86599 against MBLC and
Pioneer Pioneer. During the initial stages of the hearing, MBLC informed the trial court that it had
salvaged part of the logs. The court ordered them to be sold to the highest bidder with the funds to be
deposited in a bank in the name of Civil Case 86599. After hearing, the trial court found in favor of
Roque and Ong, condemning MBLC and Pioneer to pay Roque and Ong, jointly and severally, the sum of
P100,000.00; sentencing MBLC to pay Roque and Ong, in addition, the sum of P50,000.00, plus
P12,500.00, that the latter advanced to the former as down payment for transporting the logs in question;
ordering the counterclaim of Pioneer against Roque and Ong, dismissed, for lack of merit, but as to its
cross-claim against its MBLC, the latter is ordered to reimburse the former for whatever amount it may
pay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roque and Ong,
dismissed for lack of merit; dismissing Roque's and Ong's claim of not less than P100,000.00 and
P75,000.00 as exemplary damages, for lack of merit; granting Roque's and Ong's claim for attorney's fees
in the sum of P10,000.00; ordering MBLC and Pioneer to pay the costs; and holding that the sum of
P150,000.00 award to Roque and Ong, shall bear interest of 6% from 25 March 1975, until amount is
fully paid. Pioneer appealed to the Intermediate Appellate Court. MBLC did not appeal, as allegedly, the
transportation company is no longer doing business and is without funds. On 30 January 1984, the
appellate court modified the trial court's decision and absolved Pioneer from liability after finding that
there was a breach of implied warranty of seaworthiness on the part of Roque and Ong and that the loss of
the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the
loss is not covered by the marine insurance policy. After the appellate court denied their motion for
reconsideration, Roque and Ong filed the petition for certiorari.

Issue [1]: Whether there is a warranty of seaworthiness by the cargo owner in cases of marine cargo
insurance.
Held [1]: YES. There is no dispute over the liability of the common carrier MBLC. In fact, it did not
bother to appeal the questioned decision. However, Roque and Ong state that MBLC has ceased operating
as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses from the
insurer. The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides that "In every marine insurance upon a ship or freight, or freightage, or upon any thing which is
the subject of marine insurance, a warranty is implied that the ship is seaworthy." Section 99 of the same
Code also provides in part that "Marine insurance includes: (1) Insurance against loss of or damage to: (a)
Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise..." From the above-quoted
provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine insurance
and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is
insuring the cargo whether he be the shipowner or not. As ruled in the case of Go Tiaoco y Hermanos v.
Union Insurance Society of Canton (40 Phil. 40), "it is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall
be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law
(Act No. 2427, sec. 106)." Moreover, the fact that the unseaworthiness of the ship was unknown to the
insured is immaterial in ordinary marine insurance and may not be used by him as a defense in order to
recover on the marine insurance policy. As was held in Richelieu and Ontario Nav. Co. v. Boston Marine,
Inc., Co. (136 U.S. 406), "the exception of losses occasioned by unseaworthiness was in effect a warranty
that a loss should not be so occasioned, and whether the fact of unseaworthiness were known or unknown
would be immaterial." Since the law provides for an implied warranty of seaworthiness in every contract
of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the
vessel but he has full control in the choice of the common carrier that will transport his goods. Or the
cargo owner may enter into a contract of insurance which specifically provides that the insurer answers
not only for the perils of the sea but also provides for coverage of perils of the ship. The Court was
constrained to apply Section 113 of the Insurance Code to the facts of this case. "In marine cases, the risks
insured against are 'perils of the sea' (Chute v. North River Ins. Co., Minn. 214 NW 472, 55 ALR 933).
The purpose of such insurance is protection against contingencies and against possible damages and such
a policy does not cover a loss or injury which must inevitably take place in the ordinary course of things.
There is no doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the
violence of the elements, and does not embrace all losses happening at sea. They insure against losses
from extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the 'perils of the sea' referred in the policy, and not those
ordinary perils which every vessel must encounter. 'Perils of the sea' has been said to include only such
losses as are of extraordinary nature, or arise from some overwhelming power, which cannot be guarded
against by the ordinary exertion of human skill and prudence. Damage done to a vessel by perils of the
sea includes every species of damages done to a vessel at sea, as distinguished from the ordinary wear and
tear of the voyage, and distinct from injuries suffered by the vessel in consequence of her not being
seaworthy at the outset of her voyage (as in this case). It is also the general rule that everything which
happens thru the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be
reputed a peril, if not otherwise borne in the policy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia.
de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459)."

Issue [2]: Whether the loss of the cargo was due to the perils of the ship rather than the perils of the sea.
Held [2]: PERILS OF THE SHIP. At the time Mable 10 sank, there was no typhoon but ordinary strong
wind and waves, a condition which is natural and normal in the open sea. The evidence shows that the
sinking of Mable 10 was due to improper loading of the logs on one side so that the barge was tilting on
one side and for that it did not navigate on even keel; that it was no longer seaworthy that was why it
developed leak; that the personnel of the tugboat and the barge committed a mistake when it turned loose
the barge from the tugboat east of Cabuli point where it was buffeted by storm and waves, while the
tugboat proceeded to west of Cabuli point where it was protected by the mountain side from the storm and
waves coming from the east direction. In fact, in Roque's and Ong's complaint, it is alleged that the barge
Mable 10 of MBLC developed a leak which allowed water to come in and that one of the hatches of said
barge was negligently left open by the person in charge thereof causing more water to come in", and that
"he loss of their cargo was due to the fault, negligence, and/or lack of skill of MBLC and/or MBLC's
representatives on barge Mable 10. It is quite unmistakable that the loss of the cargo was due to the perils
of the ship rather than the perils of the sea. The facts clearly negate Roque's and Ong's claim under the
insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, the Court had
occasion to elaborate on the term "perils of the ship" when it ruled that "It must be considered to be
settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and
inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of
the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the 'peril of the
ship.' The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the
ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho
([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be 'some casualty, something
which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy
is to secure an indemnity against accidents which may happen, not against events which must happen.




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