THIRD DIVISION

G.R. No. 156978

May 2, 2006

ABOITIZ SHIPPING CORPORATION, Petitioner,

vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision1 dated August 29, 2002 of the Court of Appeals
in CA-G.R. CV No. 28770 and its Resolution 2 dated January 23, 2003 denying
reconsideration. The Court of Appeals affirmed the Decision 3 dated November 20, 1989
of the Regional Trial Court of Manila in Civil Case No. 82-1475, in favor of respondent
New India Assurance Company, Ltd.
This petition stemmed from the action for damages against petitioner, Aboitiz Shipping
Corporation, arising from the sinking of its vessel, M/V P. Aboitiz, on October 31, 1980.
The pertinent facts are as follows:
Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from
France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was
consigned to General Textile, Inc., in Manila and insured by respondent New India
Assurance Company, Ltd. While in Hongkong, the cargo was transferred to M/V P.
Aboitiz for transshipment to Manila.4
Before departing, the vessel was advised by the Japanese Meteorological Center that it
was safe to travel to its destination.5 But while at sea, the vessel received a report of a
typhoon moving within its general path. To avoid the typhoon, the vessel changed its
course. However, it was still at the fringe of the typhoon when its hull leaked. On
October 31, 1980, the vessel sank, but the captain and his crew were saved.
On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating
that the wind force was at 10 to 15 knots at the time the ship foundered and described
the weather as "moderate breeze, small waves, becoming longer, fairly frequent white
horses."6
Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the
vessel and all of its cargoes. General Textile, lodged a claim with respondent for the
amount of its loss. Respondent paid General Textile and was subrogated to the rights of
the latter.8

Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of
the sinking. In its report,9 the surveyor concluded that the cause was the flooding of the
holds brought about by the vessels questionable seaworthiness. Consequently,
respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian
Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that
the proximate cause of the loss of the shipment was the fault or negligence of the master
and crew of the vessel, its unseaworthiness, and the failure of defendants therein to
exercise extraordinary diligence in the transport of the goods. Hence, respondent added,
defendants therein breached their contract of carriage. 101avvphil.net
Franco-Belgian Services and Zuellig responded, claiming that they exercised
extraordinary diligence in handling the shipment while it was in their possession; its
vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous
event. They also filed a cross-claim against petitioner alleging that the loss occurred
during the transshipment with petitioner and so liability should rest with petitioner.
For its part, petitioner also raised the same defense that the ship was seaworthy. It
alleged that the sinking of M/V P. Aboitiz was due to an unforeseen event and without
fault or negligence on its part. It also alleged that in accordance with the real and
hypothecary nature of maritime law, the sinking of M/V P. Aboitiz extinguished its
liability on the loss of the cargoes.11
Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to
determine whether the captain and crew were administratively liable. However,
petitioner neither informed respondent nor the trial court of the investigation. The BMI
exonerated the captain and crew of any administrative liability; and declared the vessel
seaworthy and concluded that the sinking was due to the vessels exposure to the
approaching typhoon.
On November 20, 1989, the trial court, citing the Court of Appeals decision in General
Accident Fire and Life Assurance Corporation v. Aboitiz Shipping
Corporation12 involving the same incident, ruled in favor of respondent. It held
petitioner liable for the total value of the lost cargo plus legal interest, thus:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of
New India and against Aboitiz ordering the latter to pay unto the former the amount of
P142,401.60, plus legal interest thereon until the same is fully paid, attorneys fees
equivalent to fifteen [percent] (15%) of the total amount due and the costs of suit.
The complaint with respect to Franco and Zuellig is dismissed and their counterclaim
against New India is likewise dismissed
SO ORDERED.131avvphil.net
Petitioner elevated the case to the Court of Appeals and presented the findings of the
BMI. However, on August 29, 2002, the appellate court affirmed in toto the trial courts
decision. It held that the proceedings before the BMI was only for the administrative

liability of the captain and crew, and was unilateral in nature, hence not binding on the
courts. Petitioner moved for reconsideration but the same was denied on January 23,
2003.
Hence, this petition for review, alleging that the Court of Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON
THE APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLE 587,
590 AND 837 OF THE CODE OF COMMERCE TO CASES INVOLVING THE SINKING
OF THE M/V "P. ABOITIZ;
A.
x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE
CO., INC. ET AL. V. COURT OF APPEALS ET AL. AND ABOITIZ SHIPPING
CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD.;
B.
x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED
LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE CODE OF COMMERCE
HAD BEEN CONSIDERED AND PASSED UPON IN ITS DECISION;
II.
x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRORATA SHARES IN THE INSURANCE PROCEEDS FROM THE SINKING OF THE M/V
"P. ABOITIZ".14
Stated simply, we are asked to resolve whether the limited liability doctrine, which
limits respondents award of damages to its pro-rata share in the insurance proceeds,
applies in this case.
Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that
respondents claim for damages should only be against the insurance proceeds and
limited to its pro-rata share in view of the doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary nature of maritime law is
not applicable in the present case because petitioner was found to have been negligent.
Hence, according to respondent, petitioner should be held liable for the total value of
the lost cargo.
It bears stressing that this Court has variedly applied the doctrine of limited liability to
the same incident the sinking of M/V P. Aboitiz on October 31, 1980. Monarch, the

latest ruling, tried to settle the conflicting pronouncements of this Court relative to the
sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of the vessel was not
due to force majeure, but to its unseaworthy condition.16 Therein, we found petitioner
concurrently negligent with the captain and crew. 17 But the Court stressed that the
circumstances therein still made the doctrine of limited liability applicable. 18
Our ruling in Monarch may appear inconsistent with the exception of the limited
liability doctrine, as explicitly stated in the earlier part of the Monarch decision. An
exception to the limited liability doctrine is when the damage is due to the fault of the
shipowner or to the concurrent negligence of the shipowner and the captain. In which
case, the shipowner shall be liable to the full-extent of the damage. 19 We thus find it
necessary to clarify now the applicability here of the decision in Monarch.
From the nature of their business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence over the goods they transport according to all
the circumstances of each case.20 In the event of loss, destruction or deterioration of the
insured goods, common carriers are responsible, unless they can prove that the loss,
destruction or deterioration was brought about by the causes specified in Article 1734 of
the Civil Code.21 In all other cases, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary
diligence.22 Moreover, where the vessel is found unseaworthy, the shipowner is also
presumed to be negligent since it is tasked with the maintenance of its vessel. Though
this duty can be delegated, still, the shipowner must exercise close supervision over its
men.23
In the present case, petitioner has the burden of showing that it exercised extraordinary
diligence in the transport of the goods it had on board in order to invoke the limited
liability doctrine. Differently put, to limit its liability to the amount of the insurance
proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was
not due to its fault or negligence. Considering the evidence presented and the
circumstances obtaining in this case, we find that petitioner failed to discharge this
burden. It initially attributed the sinking to the typhoon and relied on the BMI findings
that it was not at fault. However, both the trial and the appellate courts, in this case,
found that the sinking was not due to the typhoon but to its unseaworthiness. Evidence
on record showed that the weather was moderate when the vessel sank. These factual
findings of the Court of Appeals, affirming those of the trial court are not to be disturbed
on appeal, but must be accorded great weight. These findings are conclusive not only on
the parties but on this Court as well.24
In contrast, the findings of the BMI are not deemed always binding on the
courts.25 Besides, exoneration of the vessels officers and crew by the BMI merely
concerns their respective administrative liabilities. 26 It does not in any way operate to
absolve the common carrier from its civil liabilities arising from its failure to exercise
extraordinary diligence, the determination of which properly belongs to the courts. 27
Where the shipowner fails to overcome the presumption of negligence, the doctrine of
limited liability cannot be applied.28 Therefore, we agree with the appellate court in

sustaining the trial courts ruling that petitioner is liable for the total value of the lost
cargo.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August
29, 2002 and Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R. CV
No. 28770 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
LEONARDO
Associate Justice

A.

QUISUMBING

WE CONCUR:
ANTONIO
Associate Justice
CONCHITA
Associate Justice
PRESBITERO
Associate Justice

T.
CARPIO

CARPIO

MORALES DANTE
O.
Asscociate Justice

J.

VELASCO,

TINGA
JR.

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
LEONARDO
Associate
Chairperson

A.

QUISUMBING
Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
ARTEMIO
Chief Justice

V.

PANGANIBAN

Footnotes
1

Rollo, pp. 84-97. Penned by Associate Justice Romeo J. Callejo, Sr. (now a
member of this Court), with Associate Justices Remedios Salazar-Fernando, and
Danilo B. Pine concurring.
2

Id. at 99. Penned by Associate Justice Danilo B. Pine, with Associate Justices
Godardo A. Jacinto, and Remedios Salazar-Fernando concurring.
3

Id. at 149-166.

Id. at 84-85, 150.

Id. at 65.

Id. at 163-164.

Exhibit "F-1," folder of exhibits, p. 8.

Exhibits "G, G-1, G-2," Id. at 11.

Records, pp. 562-580.

10

Id. at 5-6.

11

Id. at 18-19, 23-24.

12

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

Records, p. 859.

14

Rollo, pp. 68-69.

15

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

16

Id. at 98-99.

17

Id. at 101.

18

Id. at 103.

19

Id. at 97.

20

Civil Code, Art. 1733. Common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence in the

vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth
in articles 1755 and 1756.
21

Id. at Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
22

Id. at Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5
of the preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in article 1733.
23

Philippine American General Insurance Co., Inc. v. Court of Appeals, G.R. No.
116940, June 11, 1997, 273 SCRA 262, 272.
24

Prudential Bank v. Chonney Lim, G.R. No. 136371, November 11, 2005, p. 5.

25

See Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, August
6, 1990, 188 SCRA 387, 390-391.
26

Delsan Transport Lines, Inc. v. Court of Appeals, G.R. No. 127897, November
15, 2001, 369 SCRA 24, 33.
27

28

Id. at 33-34.

Central Shipping Company, Inc. v. Insurance Company of North America,

G.R. No. 150751, September 20, 2004, 438 SCRA 511, 523-524.