FAUSTO

RUBISO
and
vs.
FLORENTINO E. RIVERA, defendant-appellant.
Francisco
Salvador Q. Araullo for appellee.

BONIFACIO

Sevilla

for

GELITO,

plaintiff-appellee,

appellant.

TORRES, J.:
This appeal by bill of exceptions was filed by counsel for Florentino E. Rivera against the judgment of September 6, 1915, in which the
defendant and appellant was ordered to place at the disposal of the plaintiff Fausto Rubiso the pilot boat in litigation. No special finding
was made for costs.
On April 10, 1915, counsel for plaintiff brought suit in the Court of the First Instance of this city and alleged in the complaint that his
clients were the owners of the pilot boat named Valentina, which had been in bad condition since the year 1914 and, on the date of the
complaint, was stranded in the place called Tingloy, of the municipality of Bauan, Batangas; that the defendant Florentino E. Rivera took
charge or possession of said vessel without the knowledge or consent of the plaintiff and refused to deliver it to them, under claim that
he was the owner thereof; and that such procedure on the defendant's part caused the plaintiffs to suffer damages, not only because
they could not proceed to repair the vessel, but also because they were unable to derive profit from the voyages for which said pilot
boat was customarily used; and that the net amount of such uncollected profit was P1,750. The complaint terminated with a petition that
judgment be rendered by ordering the defendant to deliver said pilot boat to the plaintiffs and indemnify them in the amount
aforementioned or in such amount as should be proven at trial, and to pay the costs.
Counsel for the defendant entered a general and specific denial of all the facts set forth in the complaint, with the exception of those
admitted in the special defense and consisting in that said pilot boat belonged to the concern named "Gelito and Co.," Bonifacio Gelito
being a copartner thereof to the extent of two-thirds, and the Chinaman Sy Qui, to that of the one-third, of the value of said vessel; the
subsequently Bonifacio Gelito sold his share to his copartner Sy Qui, as attested by the instrument Exhibit A, registered in the office of
the Collector of Customs and made a part of his answer; that later said Chinaman, the absolute owner of the vessel, sold it in turn to
the defendant Rivera, according to the public instrument, also attached to his answer as Exhibit B; and that, for the reason, Rivera took
possession of said pilot boat Valentina, as its sole owner. He therefore petitioned that the defendant be absolved from the complaint,
with the costs against the plaintiff.
After the hearing of the case and introduction of documentary evidence, the judgment of September 6, 1915, was rendered, from which
counsel for the defendant appealed and moved for a new trial. This motion was denied and the appellant excepted.
The record shows it to have been fully proven that Bonifacio Gelito sold his share in the pilot boat Valentina, consisting of a two-thirds
interest therein, to the Chinaman Sy Qui, the coowner of the other one-third interest in said vessel; wherefore this vendor is no longer
entitled to exercise any action whatever in respect to the boat in question. Gelito was one of the partnership owners of the Valentina, as
in fact his name appears in the certificate of protection issued by the Bureau of Customs, and the rights he held are evidenced by the
articles of partnership; but, the whole ownership in the vessel having been consolidated in behalf of the Chinaman Sy Qui, this latter, in
the use of his right as the sole owner of the Valentina, sold this boat to Florentino E. Rivera for P2,500, on January 4, 1915, which facts,
are set forth in a deed ratified on the same date before a notary. This document was registered in the Bureau of Customs on March
17th of the same year.
On the 23d of January of that year, that is, after the sale of the boat to the defendant Rivera, suit having been brought in the justice of
the peace court against the Chinaman Sy Qui to enforce payment of a certain sum of money, the latter's creditor Fausto Rubiso, the
herein plaintiff, acquired said vessel at a public auction sale and for the sum of P55.45. The certificate of sale and adjudication of the
boat in question was issued by the sheriff on behalf of Fausto Rubiso, in the office of the Collector of Customs, on January 27 of the
same year and was also entered in the commercial registry on the 14th of March, following.
So that the pilot boat Valentina was twice sold: first privately by its owner Sy Qui to the defendant Florentino E. Rivera, on January 4,
1915, and afterwards by the sheriff at public auction in conformity with the order contained in the judgment rendered by the justice of
the peace, court, on January 23 of the same year, against the Chinaman Sy Qui and in behalf of the plaintiff, Fausto Rubiso.
It is undeniable that the defendant Rivera acquired by purchase the pilot boat Valentina on a date prior to that of the purchase and
adjudication made at public auction, by and on behalf of the plaintiff Rubiso; but it is no less true that the sale of the vessel by Sy Qui to
Florentino E. Rivera, on January 4, 1915, was entered in the customs registry only on March 17, 1915, while its sale at public auction to
Fausto Rubiso on the 23d of January of the same year, 1915, was recorded in the office of the Collector of Customs on the 27th of the
same month, and in the commercial registry on the 4th of March, following; that is, the sale on behalf of the defendant Rivera was prior
to that made at public auction to Rubiso, but the registration of this latter sale was prior by many days to the sale made to the
defendant.
Article 573 of the Code of Commerce provides, in its first paragraph:

Merchant vessels constitute property which may be acquired and transferred by any of the means recognized by law. The
acquisition of a vessel must be included in a written instrument, which shall not produce any effect with regard to third persons
if not recorded in the commercial registry.
So that, pursuany to the above-quoted article, inscription in the commercial registry was indispensable, in order that said acquisition
might affect, and produce consequences with respect to third persons.
However, since the enactment of Act No. 1900, on May 18, 1909, said article of the Code of Commerce was amended, as appears by
section 2 of that Act, here below transcribed.
The documenting, registering, enrolling, and licensing of vessels in accordance with the Customs Administrative Act and
customs rules and regulations shall be deemed to be a registry of vessels within the meaning of the title two of the Code of
Commerce, unless otherwise provided in said Customs Administrative Act or in said customs rules and regulations, and the
Insular Collector of Customs shall perform the duties of commercial register concerning the registering of vessels, as defined
in title two of the Code of Commerce.
The requisite of registration in the registry, of the purchase of a vessel, is necessary and indispensable in order that the purchaser's
rights may be maintained against a claim filed by a third person. Such registration is required both by the Code of Commerce and by
Act No. 1900. The amendment solely consisted in charging the Insular Collector of Customs, as at present, with the fulfillment of the
duties of the commercial register concerning the registering of vessels; so that the registration of a bill of sale of a vessel shall be made
in the office of the insular Collector of Customs, who, since May 18, 1909, has been performing the duties of the commercial register in
place of this latter official.
In view of said legal provisions, it is undeniable that the defendant Florentino E. Rivera's rights cannot prevail over those acquired by
Fausto Rubiso in the ownership of the pilot boat Valentina, inasmuch as, though the latter's acquisition of the vessel at public auction,
on January 23, 1915, was subsequent to its purchase by the defendant Rivera, nevertheless said sale at public auction was
antecedently recorded in the office of the Collector of Customs, on January 27, and entered in the commercial registry an
unnecessary proceeding on March 4th; while the private and voluntary purchase made by Rivera on a prior date was not recorded in
the office of the Collector of Customs until many days afterwards, that is, not until March 17, 1915.
The legal rule set down in the Mercantile Code subsists, inasmuch as the amendment solely refers to the official who shall make the
entry; but, with respect to the rights of the two purchasers, whichever of them first registered his acquisition of the vessel is the one
entitled to enjoy the protection of the law, which considers him the absolute owner of the purchased boat, and this latter to be free of all
encumbrance and all claims by strangers for, pursuant to article 582 of the said code, after the bill of the judicial sale at auction has
been executed and recorded in the commercial registry, all the other liabilities of the vessel in favor of the creditors shall be considered
canceled. 1awphil.net
The purchaser at public auction, Fausto Rubiso, who was careful to record his acquisition, opportunely and on a prior date, has,
according to the law, a better right than the defendant Rivera who subsequently recorded his purchase. The latter is a third person, who
was directly affected by the registration which the plaintiff made of his acquisition.
Ships or vessels, whether moved by steam or by sail, partake, to a certain extent, of the nature and conditions of real property, on
account of their value and importance in the world commerce; and for this reason the provisions of article 573 of the Code of
Commerce are nearly identical with those of article 1473 of the Civil Code.
With respect to the indemnity for losses and damages, requested by the plaintiff, aside from the fact, as shown by the evidence, that,
subsequent to the date when the judgment appealed from was rendered, the vessel in question emerged unharmed from the place
where it was stranded, and was, at the time of the trial, anchored in the port of Maricaban, the record certainly does not furnish any
positive evidence of the losses and damages alleged to have been occasioned. On the other hand, it cannot be affirmed that the
defendant acted in bad faith specifically because he acquired the vessel on a date prior to that of its acquisition at public auction by the
plaintiff Rubiso, who, for the reason aforestated, is the true and sole owner of said pilot boat.
For the foregoing considerations, whereby the errors assigned to the judgment appealed from are deemed to have been refuted, it is
our opinion that said judgment should be, as it is hereby, affirmed, with costs against the appellant. So ordered.

NATIONAL
DEVELOPMENT
COMPANY,
petitioner-appellant
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.

vs

No. L-49469 August 19, 1988

MARITIME
COMPANY
OF
THE
PHILIPPINES,
petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents- appellees.
Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled "Development Insurance
and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendantappellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime
Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the
sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX
CENTAVOS (364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until
fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee.
On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development
Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant
Maritime Company of the Philippines the total amount that the Maritime Company of the Philippines may voluntarily
or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement entered into between defendants
NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going
vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate said
vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton
consigned to the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for
and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to
K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd.,
consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases
of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April
15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid
cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on
the authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost
(Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the
Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui
Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss
was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their
successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said
amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel.
(Rollo, L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of Manila an action
for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed on May
12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on
May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after
the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against
NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an answer to MCP's
cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was
stricken off from the record for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated August
14, 1965 allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October 16,
1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of
October 16, 1965, but the trial court denied it in its order dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision ordering the
defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus the legal rate of interest to be computed
from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial
court granted MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set aside the
decision was denied by the trial court in its order dated February 13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979, this Court
ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases were given due course
(Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a) OF
COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE
LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA
MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE INSURER,
HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for
Petitioner-Appellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE AND
SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES
AND IN NOT DISMISSING THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME
COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS EXHIBIT "H" AND IN
FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO
THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND

LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE
COMPLEMENT OF THE SS DONA NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER
APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY COPETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY
LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID
VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF 550
BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY
P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF
THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT COMPANY AND
COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE
AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT
UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT
TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE
COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to collision of
vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar and not the
Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting
from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the
ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both pilots of the
colliding vessels were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act.
Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company
for the amount the latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987]) where it was
held under similar circumstance "that the law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down
that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all
matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by
laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil
Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan
to the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of both
captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that
the collision actually occurred in foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to
all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734
thereof, the common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that it has observed
the extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be
found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal
exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the
owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant

case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own
damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt
from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the
shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the
owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia &
Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign
trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of
collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any
existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that
said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has no cause of
action against it because the latter did not prove that its alleged subrogers have either the ownership or special property right or
beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred or assigned to the alleged
subrogers; thus, they could not possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime
Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering
the shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods are the
aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed
that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo,
it is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CAG.R. No. 46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the vessel Dona Nati
not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6, Maritime)
shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was
even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R.
No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded
(Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the agent are civilly
responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of
Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero
in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the
general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code
of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since
the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz,
Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to
the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however,
to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v.
McMicking et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw cotton as
stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in determining their
liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by
invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v.
Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss was caused by its own
negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to
save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages
(Articles 806 to 818, Code of Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the Japanese
Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at variance with NDC's posture,
but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not
changing their excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the cargo, which
simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative to give allowances for such
contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo,
resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April
18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could
have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is,
long before the lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section 3,
sub-paragraph (6) of the Carriage of Goods by Sea Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent Appellate
Court is AFFIRMED.
SO ORDERED.

WILDVALLEY
SHIPPING
CO.,
vs.
COURT OF APPEALS and PHILIPPINE PRESIDENT LINES INC., respondents.

LTD.

petitioner,

DECISION
BUENA, J.:
This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals which reversed the decision of the
lower court in CA-G.R. CV No. 36821, entitled "Wildvalley Shipping Co., Ltd., plaintiff-appellant, versus Philippine President Lines, Inc.,
defendant-appellant."
The antecedent facts of the case are as follows:
Sometime in February 1988, the Philippine Roxas, a vessel owned by Philippine President Lines, Inc., private respondent herein,
arrived in Puerto Ordaz, Venezuela, to load iron ore. Upon the completion of the loading and when the vessel was ready to leave port,
Mr. Ezzar del Valle Solarzano Vasquez, an official pilot of Venezuela, was designated by the harbour authorities in Puerto Ordaz to
navigate the Philippine Roxas through the Orinoco River.1 He was asked to pilot the said vessel on February 11, 1988 2 boarding it that
night at 11:00 p.m.3
The master (captain) of the Philippine Roxas, Captain Nicandro Colon, was at the bridge together with the pilot (Vasquez), the vessel's
third mate (then the officer on watch), and a helmsman when the vessel left the port 4 at 1:40 a.m. on February 12, 1988.5 Captain Colon
left the bridge when the vessel was under way.6
The Philippine Roxas experienced some vibrations when it entered the San Roque Channel at mile 172. 7 The vessel proceeded on its
way, with the pilot assuring the watch officer that the vibration was a result of the shallowness of the channel.8
Between mile 158 and 157, the vessel again experienced some vibrations. 9 These occurred at 4:12 a.m. 10 It was then that the watch
officer called the master to the bridge.11
The master (captain) checked the position of the vessel 12 and verified that it was in the centre of the channel. 13 He then went to confirm,
or set down, the position of the vessel on the chart. 14 He ordered Simplicio A. Monis, Chief Officer of the President Roxas, to check all
the double bottom tanks.15
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco River,16 thus obstructing the ingress and egress of vessels.
As a result of the blockage, the Malandrinon, a vessel owned by herein petitioner Wildvalley Shipping Company, Ltd., was unable to sail
out of Puerto Ordaz on that day.
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the Regional Trial Court of Manila, Branch III against Philippine
President Lines, Inc. and Pioneer Insurance Company (the underwriter/insurer of Philippine Roxas) for damages in the form of
unearned profits, and interest thereon amounting to US $400,000.00 plus attorney's fees, costs, and expenses of litigation. The
complaint against Pioneer Insurance Company was dismissed in an Order dated November 7, 1988.17
At the pre-trial conference, the parties agreed on the following facts:
"1. The jurisdictional facts, as specified in their respective pleadings;
"2. That defendant PPL was the owner of the vessel Philippine Roxas at the time of the incident;
"3. That defendant Pioneer Insurance was the insurance underwriter for defendant PPL;
"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel Malandrinon, whose passage was obstructed by the
vessel Philippine Roxas at Puerto Ordaz, Venezuela, as specified in par. 4, page 2 of the complaint;
"5. That on February 12, 1988, while the Philippine Roxas was navigating the channel at Puerto Ordaz, the said vessel
grounded and as a result, obstructed navigation at the channel;
"6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;
"7. That at the time of the incident, the vessel, Philippine Roxas, was under the command of the pilot Ezzar Solarzano,
assigned by the government thereat, but plaintiff claims that it is under the command of the master;
"8. The plaintiff filed a case in Middleburg, Holland which is related to the present case;
"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by the defendant PPL;

"10. The Orinoco River is 150 miles long and it takes approximately 12 hours to navigate out of the said river;
"11. That no security for the plaintiff's claim was given until after the Philippine Collier was arrested; and
"12. That a letter of guarantee, dated 12-May-88 was issued by the Steamship Mutual Underwriters Ltd."18
The trial court rendered its decision on October 16, 1991 in favor of the petitioner, Wildvalley Shipping Co., Ltd. The dispositive portion
thereof reads as follows:
"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine President Lines, Inc. to pay to the plaintiff the sum
of U.S. $259,243.43, as actual and compensatory damages, and U.S. $162,031.53, as expenses incurred abroad for its foreign
lawyers, plus additional sum of U.S. $22,000.00, as and for attorney's fees of plaintiff's local lawyer, and to pay the cost of this suit.
"Defendant's counterclaim is dismissed for lack of merit.
"SO ORDERED."19
Both parties appealed: the petitioner appealing the non-award of interest with the private respondent questioning the decision on the
merits of the case.
After the requisite pleadings had been filed, the Court of Appeals came out with its questioned decision dated June 14, 1994, 20 the
dispositive portion of which reads as follows:
"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is hereby rendered reversing the Decision of the
lower court. Plaintiff-appellant's Complaint is dismissed and it is ordered to pay defendant-appellant the amount of Three Hundred
Twenty-three Thousand, Forty-two Pesos and Fifty-three Centavos (P323,042.53) as and for attorney's fees plus cost of suit. Plaintiffappellant's appeal is DISMISSED.
"SO ORDERED."21
Petitioner filed a motion for reconsideration22 but the same was denied for lack of merit in the resolution dated March 29, 1995.23
Hence, this petition.
The petitioner assigns the following errors to the court a quo:
1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT UNDER PHILIPPINE LAW NO FAULT OR
NEGLIGENCE CAN BE ATTRIBUTED TO THE MASTER NOR THE OWNER OF THE "PHILIPPINE ROXAS" FOR THE
GROUNDING OF SAID VESSEL RESULTING IN THE BLOCKAGE OF THE RIO ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE FINDINGS OF FACTS OF THE TRIAL
COURT CONTRARY TO EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE "PHILIPPINE ROXAS" IS
SEAWORTHY;
4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING VENEZUELAN LAW DESPITE THE
FACT THAT THE SAME HAS BEEN SUBSTANTIALLY PROVED IN THE TRIAL COURT WITHOUT ANY OBJECTION FROM
PRIVATE RESPONDENT, AND WHOSE OBJECTION WAS INTERPOSED BELATEDLY ON APPEAL;
5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN AWARDING ATTORNEY'S FEES AND COSTS TO
PRIVATE RESPONDENT WITHOUT ANY FAIR OR REASONABLE BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT PETITIONER'S CAUSE IS
MERITORIOUS HENCE, PETITIONER SHOULD BE ENTITLED TO ATTORNEY'S FEES, COSTS AND INTEREST.
The petition is without merit.
The primary issue to be determined is whether or not Venezuelan law is applicable to the case at bar.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to take judicial notice of
them. Like any other fact, they must be alleged and proved.24
A distinction is to be made as to the manner of proving a written and an unwritten law. The former falls under Section 24, Rule 132 of
the Rules of Court, as amended, the entire provision of which is quoted hereunder. Where the foreign law sought to be proved is
"unwritten," the oral testimony of expert witnesses is admissible, as are printed and published books of reports of decisions of the
courts of the country concerned if proved to be commonly admitted in such courts.25
Section 24 of Rule 132 of the Rules of Court, as amended, provides:
"Sec. 24. Proof of official record. -- The record of public documents referred to in paragraph (a) of Section 19, when admissible for any
purpose, may be evidenced by an official publication thereof or by a copy attested by the officer having the legal custody of the record,
or by his deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that such officer has the custody. If the
office in which the record is kept is in a foreign country, the certificate may be made by a secretary of the embassy or legation, consul
general, consul, vice consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign country
in which the record is kept, and authenticated by the seal of his office." (Underscoring supplied)
The court has interpreted Section 25 (now Section 24) to include competent evidence like the testimony of a witness to prove the
existence of a written foreign law.26
In the noted case of Willamette Iron & Steel Works vs. Muzzal,27 it was held that:
" Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the year 1918 under oath, quoted verbatim section 322
of the California Civil Code and stated that said section was in force at the time the obligations of defendant to the plaintiff were
incurred, i.e. on November 5, 1928 and December 22, 1928. This evidence sufficiently established the fact that the section in question
was the law of the State of California on the above dates. A reading of sections 300 and 301 of our Code of Civil Procedure will
convince one that these sections do not exclude the presentation of other competent evidence to prove the existence of a foreign law.
"`The foreign law is a matter of fact You ask the witness what the law is; he may, from his recollection, or on producing and referring
to books, say what it is.' (Lord Campbell concurring in an opinion of Lord Chief Justice Denman in a well-known English case where a
witness was called upon to prove the Roman laws of marriage and was permitted to testify, though he referred to a book containing the
decrees of the Council of Trent as controlling, Jones on Evidence, Second Edition, Volume 4, pages 3148-3152.) x x x."
We do not dispute the competency of Capt. Oscar Leon Monzon, the Assistant Harbor Master and Chief of Pilots at Puerto Ordaz,
Venezuela,28 to testify on the existence of the Reglamento General de la Ley de Pilotaje (pilotage law of Venezuela)29 and the
Reglamento Para la Zona de Pilotaje No 1 del Orinoco (rules governing the navigation of the Orinoco River). Captain Monzon has held
the aforementioned posts for eight years.30 As such he is in charge of designating the pilots for maneuvering and navigating the Orinoco
River. He is also in charge of the documents that come into the office of the harbour masters.31
Nevertheless, we take note that these written laws were not proven in the manner provided by Section 24 of Rule 132 of the Rules of
Court.
The Reglamento General de la Ley de Pilotaje was published in the Gaceta Oficial32 of the Republic of Venezuela. A photocopy of the
Gaceta Oficial was presented in evidence as an official publication of the Republic of Venezuela.
The Reglamento Para la Zona de Pilotaje N o 1 del Orinoco is published in a book issued by the Ministerio de Comunicaciones of
Venezuela.33 Only a photocopy of the said rules was likewise presented as evidence.
Both of these documents are considered in Philippine jurisprudence to be public documents for they are the written official acts, or
records of the official acts of the sovereign authority, official bodies and tribunals, and public officers of Venezuela.34
For a copy of a foreign public document to be admissible, the following requisites are mandatory: (1) It must be attested by the officer
having legal custody of the records or by his deputy; and (2) It must be accompanied by a certificate by a secretary of the embassy or
legation, consul general, consul, vice consular or consular agent or foreign service officer, and with the seal of his office. 35 The latter
requirement is not a mere technicality but is intended to justify the giving of full faith and credit to the genuineness of a document in a
foreign country.36
It is not enough that the Gaceta Oficial, or a book published by the Ministerio de Comunicaciones of Venezuela, was presented as
evidence with Captain Monzon attesting it. It is also required by Section 24 of Rule 132 of the Rules of Court that a certificate that
Captain Monzon, who attested the documents, is the officer who had legal custody of those records made by a secretary of the
embassy or legation, consul general, consul, vice consul or consular agent or by any officer in the foreign service of the Philippines
stationed in Venezuela, and authenticated by the seal of his office accompanying the copy of the public document. No such certificate
could be found in the records of the case.

With respect to proof of written laws, parol proof is objectionable, for the written law itself is the best evidence. According to the weight
of authority, when a foreign statute is involved, the best evidence rule requires that it be proved by a duly authenticated copy of the
statute.37
At this juncture, we have to point out that the Venezuelan law was not pleaded before the lower court.
A foreign law is considered to be pleaded if there is an allegation in the pleading about the existence of the foreign law, its import and
legal consequence on the event or transaction in issue.38
A review of the Complaint39 revealed that it was never alleged or invoked despite the fact that the grounding of the M/V Philippine
Roxas occurred within the territorial jurisdiction of Venezuela.
We reiterate that under the rules of private international law, a foreign law must be properly pleaded and proved as a fact. In the
absence of pleading and proof, the laws of a foreign country, or state, will be presumed to be the same as our own local or domestic
law and this is known as processual presumption.40
Having cleared this point, we now proceed to a thorough study of the errors assigned by the petitioner.
Petitioner alleges that there was negligence on the part of the private respondent that would warrant the award of damages.
There being no contractual obligation, the private respondent is obliged to give only the diligence required of a good father of a family in
accordance with the provisions of Article 1173 of the New Civil Code, thus:
"Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
"If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of
a family shall be required."
The diligence of a good father of a family requires only that diligence which an ordinary prudent man would exercise with regard to his
own property. This we have found private respondent to have exercised when the vessel sailed only after the "main engine,
machineries, and other auxiliaries" were checked and found to be in good running condition; 41 when the master left a competent officer,
the officer on watch on the bridge with a pilot who is experienced in navigating the Orinoco River; when the master ordered the
inspection of the vessel's double bottom tanks when the vibrations occurred anew.42
The Philippine rules on pilotage, embodied in Philippine Ports Authority Administrative Order No. 03-85, otherwise known as the Rules
and Regulations Governing Pilotage Services, the Conduct of Pilots and Pilotage Fees in Philippine Ports enunciate the duties and
responsibilities of a master of a vessel and its pilot, among other things.
The pertinent provisions of the said administrative order governing these persons are quoted hereunder:
"Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage grounds, the Harbor Pilot providing the service to a
vessel shall be responsible for the damage caused to a vessel or to life and property at ports due to his negligence or fault. He can be
absolved from liability if the accident is caused by force majeure or natural calamities provided he has exercised prudence and extra
diligence to prevent or minimize the damage.
"The Master shall retain overall command of the vessel even on pilotage grounds whereby he can countermand or overrule the order or
command of the Harbor Pilot on board. In such event, any damage caused to a vessel or to life and property at ports by reason of the
fault or negligence of the Master shall be the responsibility and liability of the registered owner of the vessel concerned without
prejudice to recourse against said Master.
"Such liability of the owner or Master of the vessel or its pilots shall be determined by competent authority in appropriate proceedings in
the light of the facts and circumstances of each particular case.
"x x x
"Sec. 32. Duties and Responsibilities of the Pilots or Pilots Association. -- The duties and responsibilities of the Harbor Pilot shall be as
follows:
"x x x

"f) A pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a pilot thereof until he leaves it
anchored or berthed safely; Provided, however, that his responsibility shall cease at the moment the Master neglects or refuses to carry
out his order."
The Code of Commerce likewise provides for the obligations expected of a captain of a vessel, to wit:
"Art. 612. The following obligations shall be inherent in the office of captain:
"x x x
"7. To be on deck on reaching land and to take command on entering and leaving ports, canals, roadsteads, and rivers, unless there is
a pilot on board discharging his duties. x x x."
The law is very explicit. The master remains the overall commander of the vessel even when there is a pilot on board. He remains in
control of the ship as he can still perform the duties conferred upon him by law 43 despite the presence of a pilot who is temporarily in
charge of the vessel. It is not required of him to be on the bridge while the vessel is being navigated by a pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:
"Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat, or passing through rivers or straits within a
pilotage district, as well as docking and undocking at any pier/wharf, or shifting from one berth or another, every vessel engaged in
coastwise and foreign trade shall be under compulsory pilotage.
"xxx."
The Orinoco River being a compulsory pilotage channel necessitated the engaging of a pilot who was presumed to be knowledgeable
of every shoal, bank, deep and shallow ends of the river. In his deposition, pilot Ezzar Solarzano Vasquez testified that he is an official
pilot in the Harbour at Port Ordaz, Venezuela, 44 and that he had been a pilot for twelve (12) years. 45 He also had experience in
navigating the waters of the Orinoco River.46
The law does provide that the master can countermand or overrule the order or command of the harbor pilot on board. The master of
the Philippine Roxas deemed it best not to order him (the pilot) to stop the vessel, 47 mayhap, because the latter had assured him that
they were navigating normally before the grounding of the vessel. 48 Moreover, the pilot had admitted that on account of his experience
he was very familiar with the configuration of the river as well as the course headings, and that he does not even refer to river charts
when navigating the Orinoco River.49
Based on these declarations, it comes as no surprise to us that the master chose not to regain control of the ship. Admitting his limited
knowledge of the Orinoco River, Captain Colon relied on the knowledge and experience of pilot Vasquez to guide the vessel safely.
"Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different class from ordinary employees, for they assume to
have a skill and a knowledge of navigation in the particular waters over which their licenses extend superior to that of the master; pilots
are bound to use due diligence and reasonable care and skill. A pilot's ordinary skill is in proportion to the pilot's responsibilities, and
implies a knowledge and observance of the usual rules of navigation, acquaintance with the waters piloted in their ordinary condition,
and nautical skill in avoiding all known obstructions. The character of the skill and knowledge required of a pilot in charge of a vessel on
the rivers of a country is very different from that which enables a navigator to carry a vessel safely in the ocean. On the ocean, a
knowledge of the rules of navigation, with charts that disclose the places of hidden rocks, dangerous shores, or other dangers of the
way, are the main elements of a pilot's knowledge and skill. But the pilot of a river vessel, like the harbor pilot, is selected for the
individual's personal knowledge of the topography through which the vessel is steered."50
We find that the grounding of the vessel is attributable to the pilot. When the vibrations were first felt the watch officer asked him what
was going on, and pilot Vasquez replied that "(they) were in the middle of the channel and that the vibration was as (sic) a result of the
shallowness of the channel."51
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine Roxas as well as other vessels on the Orinoco River due to
his knowledge of the same. In his experience as a pilot, he should have been aware of the portions which are shallow and which are
not. His failure to determine the depth of the said river and his decision to plod on his set course, in all probability, caused damage to
the vessel. Thus, we hold him as negligent and liable for its grounding.
In the case of Homer Ramsdell Transportation Company vs. La Compagnie Generale Transatlantique, 182 U.S. 406, it was held that:
"x x x The master of a ship, and the owner also, is liable for any injury done by the negligence of the crew employed in the ship. The
same doctrine will apply to the case of a pilot employed by the master or owner, by whose negligence any injury happens to a third
person or his property: as, for example, by a collision with another ship, occasioned by his negligence. And it will make no difference in

the case that the pilot, if any is employed, is required to be a licensed pilot; provided the master is at liberty to take a pilot, or not, at his
pleasure, for in such a case the master acts voluntarily, although he is necessarily required to select from a particular class. On the
other hand, if it is compulsive upon the master to take a pilot, and, a fortiori, if he is bound to do so under penalty, then, and in such
case, neither he nor the owner will be liable for injuries occasioned by the negligence of the pilot; for in such a case the pilot cannot be
deemed properly the servant of the master or the owner, but is forced upon them, and the maxim Qui facit per alium facit per se does
not apply." (Underscoring supplied)
Anent the river passage plan, we find that, while there was none, 52 the voyage has been sufficiently planned and monitored as shown
by the following actions undertaken by the pilot, Ezzar Solarzano Vasquez, to wit: contacting the radio marina via VHF for information
regarding the channel, river traffic,53 soundings of the river, depth of the river, bulletin on the buoys. 54 The officer on watch also
monitored the voyage.55
We, therefore, do not find the absence of a river passage plan to be the cause for the grounding of the vessel.
The doctrine of res ipsa loquitur does not apply to the case at bar because the circumstances surrounding the injury do not clearly
indicate negligence on the part of the private respondent. For the said doctrine to apply, the following conditions must be met: (1) the
accident was of such character as to warrant an inference that it would not have happened except for defendant's negligence; (2) the
accident must have been caused by an agency or instrumentality within the exclusive management or control of the person charged
with the negligence complained of; and (3) the accident must not have been due to any voluntary action or contribution on the part of
the person injured.56
As has already been held above, there was a temporary shift of control over the ship from the master of the vessel to the pilot on a
compulsory pilotage channel. Thus, two of the requisites necessary for the doctrine to apply, i.e., negligence and control, to render the
respondent liable, are absent.
As to the claim that the ship was unseaworthy, we hold that it is not.
The Lloyds Register of Shipping confirmed the vessels seaworthiness in a Confirmation of Class issued on February 16, 1988 by
finding that "the above named ship (Philippine Roxas) maintained the class "+100A1 Strengthened for Ore Cargoes, Nos. 2 and 8
Holds may be empty (CC) and +LMC" from 31/12/87 up until the time of casualty on or about 12/2/88." 57 The same would not have
been issued had not the vessel been built according to the standards set by Lloyd's.
Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified thus:
"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to the seaworthiness of the vessel?
"A Well, judging on this particular vessel, and also basing on the class record of the vessel, wherein recommendations were made on
the top side tank, and it was given sufficient time to be repaired, it means that the vessel is fit to travel even with those defects on the
ship.
"COURT
What do you mean by that? You explain. The vessel is fit to travel even with defects? Is that what you mean? Explain.
"WITNESS
"A Yes, your Honor. Because the class society which register (sic) is the third party looking into the condition of the vessel and as far as
their record states, the vessel was class or maintained, and she is fit to travel during that voyage."
"x x x
"ATTY. MISA
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class +100A1 Strengthened for Ore Cargoes', mean?
"WITNESS
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is capable of carrying ore bulk cargoes, but she is
particularly capable of carrying Ore Cargoes with No. 2 and No. 8 holds empty.
"x x x

"COURT
The vessel is classed, meaning?
"A Meaning she is fit to travel, your Honor, or seaworthy."58
It is not required that the vessel must be perfect. To be seaworthy, a ship must be reasonably fit to perform the services, and to
encounter the ordinary perils of the voyage, contemplated by the parties to the policy.59
As further evidence that the vessel was seaworthy, we quote the deposition of pilot Vasquez:
"Q Was there any instance when your orders or directions were not complied with because of the inability of the vessel to do so?
"A No.
"Q. Was the vessel able to respond to all your commands and orders?
"A. The vessel was navigating normally."60
Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an accident report wherein he stated that on February 11, 1988,
he checked and prepared the main engine, machineries and all other auxiliaries and found them all to be in good running condition and
ready for maneuvering. That same day the main engine, bridge and engine telegraph and steering gear motor were also tested. 61
Engineer Mata also prepared the fuel for consumption for maneuvering and checked the engine generators.62
Finally, we find the award of attorneys fee justified.1wphi1
Article 2208 of the New Civil Code provides that:
"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered,
except:
"x x x
"(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.
"x x x"
Due to the unfounded filing of this case, the private respondent was unjustifiably forced to litigate, thus the award of attorneys fees was
proper.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED and the decision of the Court of Appeals in CA G.R. CV No.
36821 is AFFIRMED.
SO ORDERED.

INTER-ORIENT MARITIME ENTERPRISES, INC., SEA HORSE SHIP, INC. and TRENDA WORLD SHIPPING (MANILA), INC.,
petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION and RIZALINO D. TAYONG, respondents.
Marilyn Cacho-Naoe for petitioners.
Wilfred L. Pascasio for private respondent.

FELICIANO, J.:
Private respondent Captain Rizalino Tayong, a licensed Master Mariner with experience in commanding ocean-going vessels, was
employed on 6 July 1989 by petitioners Trenda World Shipping (Manila), Inc. and Sea Horse Ship Management, Inc. through petitioner
Inter-Orient Maritime Enterprises, Inc. as Master of the vessel M/V Oceanic Mindoro, for a period of one (1) year, as evidenced by an
employment contract. On 15 July 1989, Captain Tayong assumed command of petitioners' vessel at the port of Hongkong. His
instructions were to replenish bunker and diesel fuel, to sail forthwith to Richard Bay, South Africa, and there to load 120,000 metric
tons of coal.
On 16 July 1989, while at the Port of Hongkong and in the process of unloading cargo, Captain Tayong received a weather report that a
storm code-named "Gordon" would shortly hit Hongkong. Precautionary measures were taken to secure the safety of the vessel, as
well as its crew, considering that the vessel's turbo-charger was leaking and the vessel was fourteen (14) years old.
On 21 July 1989, Captain Tayong followed-up the requisition by the former captain of the Oceanic Mindoro for supplies of oxygen and
acetylene, necessary for the welding-repair of the turbo-charger and the economizer. 1 This requisition had been made upon request of
the Chief Engineer of the vessel and had been approved by the shipowner. 2
On 25 July 1989, the vessel sailed from Hong Kong for Singapore. In the Master's sailing message, Captain Tayong reported a water
leak from M.E. Turbo Charger No. 2 Exhaust gas casing. He was subsequently instructed to blank off the cooling water and maintain
reduced RPM unless authorized by the owners. 3
On 29 July 1989, while the vessel was en route to Singapore, Captain Tayong reported that the vessel had stopped in mid-ocean for six
(6) hours and forty-five (45) minutes due to a leaking economizer. He was instructed to shut down the economizer and use the auxiliary
boiler instead. 4
On 31 July 1989 at 0607 hrs., the vessel arrived at the port of Singapore. 5 The Chief Engineer reminded Captain Tayong that the
oxygen and acetylene supplies had not been delivered. 6 Captain Tayong inquired from the ship's agent in Singapore about the
supplies. The ship agent stated that these could only be delivered at 0800 hours on August 1, 1989 as the stores had closed. 7
Captain Tayong called the shipowner, Sea Horse Ship Management, Ltd., in London and informed them that the departure of the vessel
for South Africa may be affected because of the delay in the delivery of the supplies. 8
Sea Horse advised Captain Tayong to contact its Technical Director, Mr. Clark, who was in Tokyo and who could provide a solution for
the supply of said oxygen and acetylene. 9
On the night of 31 July 1989, Mr. Clark received a call from Captain Tayong informing him that the vessel cannot sail without the oxygen
and acetylene for safety reasons due to the problems with the turbo charger and economizer. Mr. Clark responded that by shutting off
the water to the turbo chargers and using the auxiliary boiler, there should be no further problems. According to Mr. Clark, Captain
Tayong agreed with him that the vessel could sail as scheduled on 0100 hours on 1 August 1989 for South Africa. 10
According to Captain Tayong, however, he communicated to Sea Horse his reservations regarding proceeding to South Africa without
the requested supplies, 11 and was advised by Sea Horse to wait for the supplies at 0800 hrs. of 1 August 1989, which Sea Horse had
arranged to be delivered on board the Oceanic Mindoro. 12 At 0800 hours on 1 August 1989, the requisitioned supplies were delivered
and Captain Tayong immediately sailed for Richard Bay.
When the vessel arrived at the port of Richard Bay, South Africa on 16 August 1989, Captain Tayong was instructed to turn-over his
post to the new captain. He was thereafter repatriated to the Philippines, after serving petitioners for a little more than two weeks. 13 He
was not informed of the charges against him. 14
On 5 October 1989, Captain Tayong instituted a complaint for illegal dismissal before the Philippine Overseas Employment
Administration ("POEA"), claiming his unpaid salary for the unexpired portion of the written employment contract, plus attorney's fees.
Petitioners, in their answer to the complaint, denied that they had illegally dismissed Captain Tayong. Petitioners alleged that he had
refused to sail immediately to South Africa to the prejudice and damage of petitioners. According to petitioners, as a direct result of

Captain Tayong's delay, petitioners' vessel was placed "off-hire" by the charterers for twelve (12) hours. This meant that the charterers
refused to pay the charter hire or compensation corresponding to twelve (12) hours, amounting to US$15,500.00, due to time lost in the
voyage. They stated that they had dismissed private respondent for loss of trust and confidence.
The POEA dismissed Captain Tayong's complaint and held that there was valid cause for his untimely repatriation. The decision of the
POEA placed considerable weight on petitioners' assertion that all the time lost as a result of the delay was caused by Captain Tayong
and that his concern for the oxygen and acetylene was not legitimate as these supplies were not necessary or indispensable for
running the vessel. The POEA believed that the Captain had unreasonably refused to follow the instructions of petitioners and their
representative, despite petitioners' firm assurances that the vessel was seaworthy for the voyage to South Africa.
On appeal, the National Labor Relations Commission ("NLRC") reversed and set aside the decision of the POEA. The NLRC found that
Captain Tayong had not been afforded an opportunity to be heard and that no substantial evidence was adduced to establish the basis
for petitioners' loss of trust or confidence in the Captain. The NLRC declared that he had only acted in accordance with his duties to
maintain the seaworthiness of the vessel and to insure the safety of the ship and the crew. The NLRC directed petitioners to pay the
Captain (a) his salary for the unexpired portion of the contract at US$1,900.00 a month, plus one (1) month leave benefit; and (b)
attorney's fees equivalent to ten percent (10%) of the total award due.
Petitioners, before this Court, claim that the NLRC had acted with grave abuse of discretion. Petitioners allege that they had adduced
sufficient evidence to establish the basis for private respondent's discharge, contrary to the conclusion reached by the NLRC.
Petitioners insist that Captain Tayong, who must protect the interest of petitioners, had caused them unnecessary damage, and that
they, as owners of the vessel, cannot be compelled to keep in their employ a captain of a vessel in whom they have lost their trust and
confidence. Petitioners finally contend that the award to the Captain of his salary corresponding to the unexpired portion of the contract
and one (1) month leave pay, including attorney's fees, also constituted grave abuse of discretion.
The petition must fail.
We note preliminarily that petitioners failed to attach a clearly legible, properly certified, true copy of the decision of the NLRC dated 23
April 1994, in violation of requirement no. 3 of Revised Circular No. 1-88. On this ground alone, the petition could have been dismissed.
But the Court chose not to do so, in view of the nature of question here raised and instead required private respondent to file a
comment on the petition. Captain Tayong submitted his comment. The Office of the Solicitor General asked for an extension of thirty
(30) days to file its comment on behalf of the NLRC. We consider that the Solicitor General's comment may be dispensed with in this
case.
It is well settled in this jurisdiction that confidential and managerial employees cannot be arbitrarily dismissed at any time, and without
cause as reasonably established in an appropriate investigation. 15 Such employees, too, are entitled to security of tenure, fair
standards of employment and the protection of labor laws.
The captain of a vessel is a confidential and managerial employee within the meaning of the above doctrine. A master or captain, for
purposes of maritime commerce, is one who has command of a vessel. A captain commonly performs three (3) distinct roles: (1) he is a
general agent of the shipowner; (2) he is also commander and technical director of the vessel; and (3) he is a representative of the
country under whose flag he navigates. 16 Of these roles, by far the most important is the role performed by the captain as commander
of the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive Officer" [CEO] of a present-day corporate
enterprise) has to do with the operation and preservation of the vessel during its voyage and the protection of the passengers (if any)
and crew and cargo. In his role as general agent of the shipowner, the captain has authority to sign bills of lading, carry goods aboard
and deal with the freight earned, agree upon rates and decide whether to take cargo. The ship captain, as agent of the shipowner, has
legal authority to enter into contracts with respect to the vessel and the trading of the vessel, subject to applicable limitations
established by statute, contract or instructions and regulations of the shipowner. 17 To the captain is committed the governance, care
and management of the vessel. 18 Clearly, the captain is vested with both management and fiduciary functions.
It is plain from the records of the present petition that Captain Tayong was denied any opportunity to defend himself. Petitioners curtly
dismissed him from his command and summarily ordered his repatriation to the Philippines without informing him of the charge or
charges levelled against him, and much less giving him a chance to refute any such charge. In fact, it was only on 26 October 1989 that
Captain Tayong received a telegram dated 24 October 1989 from Inter-Orient requiring him to explain why he delayed sailing to South
Africa.
We also find that the principal contention of petitioners against the decision of the NLRC pertains to facts, that is, whether or not there
was actual and sufficient basis for the alleged loss of trust or confidence. We have consistently held that a question of "fact" is, as a
general rule, the concern solely of an administrative body, so long as there is substantial evidence of record to sustain its action.
The record requires us to reject petitioners' claim that the NLRC's conclusions of fact were not supported by substantial evidence.
Petitioners rely on self-serving affidavits of their own officers and employees predictably tending to support petitioners' allegation that
Captain Tayong had performed acts inimical to petitioners' interests for which, supposedly, he was discharged. The official report of Mr.
Clark, petitioners' representative, in fact supports the NLRC's conclusion that private respondent Captain did not arbitrarily and
maliciously delay the voyage to South Africa. There had been, Mr. Clark stated, a disruption in the normal functioning of the vessel's
turbo-charger 19 and economizer and that had prevented the full or regular operation of the vessel. Thus, Mr. Clark relayed to Captain

Tayong instructions to "maintain reduced RPM" during the voyage to South Africa, instead of waiting in Singapore for the supplies that
would permit shipboard repair of the malfunctioning machinery and equipment.
More importantly, a ship's captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the
ship and of its crew and cargo specifically requires on a stipulated ocean voyage. The captain is held responsible, and properly so, for
such safety. He is right there on the vessel, in command of it and (it must be presumed) knowledgeable as to the specific requirements
of seaworthiness and the particular risks and perils of the voyage he is to embark upon. The applicable principle is that the captain has
control of all departments of service in the vessel, and reasonable discretion as to its navigation. 20 It is the right and duty of the captain,
in the exercise of sound discretion and in good faith, to do all things with respect to the vessel and its equipment and conduct of the
voyage which are reasonably necessary for the protection and preservation of the interests under his charge, whether those be of the
shipowners, charterers, cargo owners or of underwriters. 21 It is a basic principle of admiralty law that in navigating a merchantman, the
master must be left free to exercise his own best judgment. The requirements of safe navigation compel us to reject any suggestion that
the judgment and discretion of the captain of a vessel may be confined within a straitjacket, even in this age of electronic
communications. 22 Indeed, if the ship captain is convinced, as a reasonably prudent and competent mariner acting in good faith that the
shipowner's or ship agent's instructions (insisted upon by radio or telefax from their offices thousands of miles away) will result, in the
very specific circumstances facing him, in imposing unacceptable risks of loss or serious danger to ship or crew, he cannot casually
seek absolution from his responsibility, if a marine casualty occurs, in such instructions. 23
Compagnie de Commerce v. Hamburg 24 is instructive in this connection. There, this Court recognized the discretionary authority of the
master of a vessel and his right to exercise his best judgment, with respect to navigating the vessel he commands. In Compagnie de
Commerce, a charter party was executed between Compagnie de Commerce and the owners of the vessel Sambia, under which the
former as charterer loaded on board the Sambia, at the port of Saigon, certain cargo destined for the Ports of Dunkirk and Hamburg in
Europe. The Sambia, flying the German flag, could not, in the judgment of its master, reach its ports of destination because war (World
War I) had been declared between Germany and France. The master of the Sambia decided to deviate from the stipulated voyage and
sailed instead for the Port of Manila. Compagnie de Commerce sued in the Philippines for damages arising from breach of the charter
party and unauthorized sale of the cargo. In affirming the decision of the trial court dismissing the complaint, our Supreme Court held
that the master of the Sambia had reasonable grounds to apprehend that the vessel was in danger of seizure or capture by the French
authorities in Saigon and was justified by necessity to elect the course which he took i.e., to flee Saigon for the Port of Manila with
the result that the shipowner was relieved from liability for the deviation from the stipulated route and from liability for damage to the
cargo. The Court said:
The danger from which the master of the Sambia fled was a real and not merely an imaginary one as counsel for
shipper contends. Seizure at the hands of an "enemy of the King" though not inevitable, was a possible outcome of a
failure to leave the port of Saigon; and we cannot say that under the conditions existing at the time when the master
elected to flee from that port, there were no grounds for a "reasonable apprehension of danger" from seizure by the
French authorities, and therefore no necessity for flight.
The word "necessity" when applied to mercantile affairs, where the judgment must in the nature of things be
exercised, cannot, of course, mean an irresistible compelling power. What is meant by it in such cases is the force of
circumstances which determine the course a man ought to take. Thus, where by the force of circumstances, a man
has the duty cast upon him of taking some action for another, and under that obligation adopts a course which, to the
judgment of a wise and prudent man, is apparently the best for the interest of the persons for whom he acts in a
given emergency, it may properly be said of the course so taken that it was in a mercantile sense necessary to take
it. 25 (Emphasis supplied)
Compagnie de Commerce contended that the shipowner should, at all events, be held responsible for the deterioration in the value of
the cargo incident to its long stay on board the vessel from the date of its arrival in Manila until the cargo was sold. The Supreme Court,
in rejecting this contention also, declared that:
But it is clear that the master could not be required to act on the very day of his arrival; or before he had a reasonable
opportunity to ascertain whether he could hope to carry out his contract and earn his freight; and that he should not
be held responsible for a reasonable delay incident to an effort to ascertain the wishes of the freighter, and upon
failure to secure prompt advice, to decide for himself as to the course which he should adopt to secure the interests
of the absent owner of the property aboard the vessel.
The master is entitled to delay for such a period as may be reasonable under the circumstances, before deciding on
the course he will adopt. He may claim a fair opportunity of carrying out a contract, and earning the freight, whether
by repairing or transhipping. Should the repair of the ship be undertaken, it must be proceeded with diligently; and if
so done, the freighter will have no ground of complaint, although the consequent delay be a long one, unless, indeed,
the cargo is perishable, and likely to be injured by the delay. Where that is the case, it ought to be forwarded, or sold,
or given up, as the case may be, without waiting for repairs.
A shipowner or shipmaster (if communication with the shipowner is impossible), will be allowed a reasonable time in
which to decide what course he will adopt in such cases as those under discussion; time must be allowed to him to
ascertain the facts, and to balance the conflicting interests involved, of shipowner, cargo owner, underwriter on ship
and freight. But once the time has elapsed, he is bound to act promptly according as he has elected either to repair,

or abandon the voyage, or tranship. If he delays, and owing to that delay a perishable cargo suffers damage, the
shipowner will be liable for that damage; he cannot escape that obligation by pleading the absence of definite
instructions from the owners of the cargo or their underwriters, since he has control of the cargo and is entitled to
elect. 26 (Emphasis supplied)
The critical question, therefore, is whether or not Captain Tayong had reasonable grounds to believe that the safety of the vessel and
the crew under his command or the possibility of substantial delay at sea required him to wait for the delivery of the supplies needed for
the repair of the turbo-charger and the economizer before embarking on the long voyage from Singapore to South Africa.
In this connection, it is specially relevant to recall that, according to the report of Mr. Robert Clark, Technical Director of petitioner Sea
Horse Ship Management, Inc., the Oceanic Mindoro had stopped in mid-ocean for six (6) hours and forty-five (45) minutes on its way to
Singapore because of its leaking economizer. 27 Equally relevant is the telex dated 2 August 1989 sent by Captain Tayong to Sea Horse
after Oceanic Mindoro had left Singapore and was en route to South Africa. In this telex, Captain Tayong explained his decision to Sea
Horse in the following terms:
I CAPT. R.D. TAYONG RE: UR PROBLEM IN SPORE (SINGAPORE) I EXPLAIN AGN TO YOU THAT WE ARE
INSECURITY/DANGER TO SAIL IN SPORE W/OUT HAVING SUPPLY OF OXY/ACET. PLS UNDERSTAND HV
PLENTY TO BE DONE REPAIR FM MAIN ENGINE LIKE TURBO CHARGER PIPELINE, ECONOMIZER LEAKAGE
N ETC WE COULD NOT FIX IT W/OUT OXY/ACET ONBOARD. I AND MR. CLARK WE CONTACTED EACH
OTHER BY PHONE IN PAPAN N HE ADVSED US TO SAIL TO RBAY N WILL SUPPLY OXY/ACET UPON ARRIVAL
RBAY HE ALSO EXPLAINED TO MY C/E HOW TO FIND THE REMEDY W/OUT OXY/ACET BUT C/E HE
DISAGREED MR. CLARK IDEA, THAT IS WHY WE URG REQUEST[ED] YR KIND OFFICE TO ARRANGE SUPPLY
OXY/ACET BEFORE SAILING TO AVOID RISK/DANGER OR DELAY AT SEA N WE TOOK PRECAUTION UR TRIP
FOR 16 DAYS FM SPORE TO RBAY. PLS. UNDERSTAND UR SITUATION. 28 (Emphasis partly in source and partly
supplied)
Under all the circumstances of this case, we, along with the NLRC, are unable to hold that Captain Tayong's decision (arrived at after
consultation with the vessel's Chief Engineer) to wait seven (7) hours in Singapore for the delivery on board the Oceanic Mindoro of the
requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and the economizer equipment of the
vessel, constituted merely arbitrary, capricious or grossly insubordinate behavior on his part. In the view of the NLRC, that decision of
Captain Tayong did not constitute a legal basis for the summary dismissal of Captain Tayong and for termination of his contract with
petitioners prior to the expiration of the term thereof. We cannot hold this conclusion of the NLRC to be a grave abuse of discretion
amounting to an excess or loss of jurisdiction; indeed, we share that conclusion and make it our own.
Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery of the needed supplies before sailing from Singapore,
and may have changed their estimate of their ability to work with him and of his capabilities as a ship captain. Assuming that to be
petitioners' management prerogative, that prerogative is nevertheless not to be exercised, in the case at bar, at the cost of loss of
Captain Tayong's rights under his contract with petitioners and under Philippine law.
ACCORDINGLY, petitioners having failed to show grave abuse of discretion amounting to loss or excess of jurisdiction on the part of
the NLRC in rendering its assailed decision, the Petition for Certiorari is hereby DISMISSED, for lack of merit. Costs against petitioners.
SO ORDERED.

MACONDRAY
&
CO.,
vs.
PROVIDENT INSURANCE CORPORATION, respondent.

INC.,

petitioner,

DECISION

PANGANIBAN, J.:
Hornbook is the doctrine that the negligence of counsel binds the client. Also settled is the rule that clients should take the initiative of
periodically checking the progress of their cases, so that they could take timely steps to protect their interest.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the February 28, 2002 Decision 2 and the
July 12, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 57077. The dispositive portion of the Decision reads as
follows:
"WHEREFORE, premises considered, the assailed Decision dated September 17, 1996 is hereby REVERSED and SET
ASIDE. Accordingly, [Petitioner] Macondray & Co., Inc., is hereby ORDERED to pay the [respondent] the amount of
P1,657,700.95."
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The CA adopted the factual antecedents narrated by the trial court, as follows:
"x x x. On February 16, 1991, at Vancouver, B.C. Canada, CANPOTEX SHIPPING SERVICES LIMITED INC., of Saskatoon,
Saskatchewan, (hereinafter the SHIPPER), shipped and loaded on board the vessel M/V 'Trade Carrier', 5000 metric tons of
Standard Grade Muriate of Potash in bulk for transportation to and delivery at the port of Sangi, Toledo City, Cebu, in favor of
ATLAS FERTILIZER CORPORATION, (hereinafter CONSIGNEE) covered by B/L Nos. VAN-SAN-1 for the 815.96 metric tons
and VAN-SAN-2 for the 4,184.04 metric tons. Subject shipments were insured with [respondent] against all risks under and by
virtue of an Open Marine Policy No. MOP-00143 and Certificate of Marine Insurance No. CMI-823-91.
"When the shipment arrived, CONSIGNEE discovered that the shipment sustained losses/shortage of 476.140 metric tons
valued at One Million Six Hundred Fifty Seven Thousand Seven Hundred Pesos and Ninety Five Centavos (P1,657,700.95),
Philippine Currency. Provident paid losses. Formal claims was then filed with Trade & Transport and Macondray but the same
refused and failed to settle the same. Hence, this complaint.
"As per Officer's Return dated 4 June 1992, summons was UNSERVED to defendant TRADE AND TRANSPORT at the given
address for reason that TRADE AND TRANSPORT is no longer connected with Macondray & Co. Inc., and is not holding office
at said address as alleged by Ms. Guadalupe Tan. For failure to effect service of summons the case against TRADE &
TRANSPORT was considered dismissed without prejudice.
"Defendant MACONDRAY filed ANSWER, denying liability over the losses, having NO absolute relation with defendant
TRADE AND TRANSPORT, the alleged operator of the vessel who transported the subject shipment; that accordingly,
MACONDRAY is the local representative of the SHIPPER; the charterer of M/V TRADE CARRIER and not party to this case;
that it has no control over the acts of the captain and crew of the Carrier and cannot be held responsible for any damage
arising from the fault or negligence of said captain and crew; that upon arrival at the port of Sangi, Toledo City, Cebu, the M/V
Trade Carrier discharged the full amount of shipment, as shown by the draft survey with a total quantity of 5,033.59 metric tons
discharged from the vessel and delivered to the CONSIGNEE.
"ISSUES: Whether or not Macondray and Co. Inc., as an agent is responsible for any loss sustained by any party from the
vessel owned by defendant Trade and Transport. "Whether or not Macondray is liable for loss which was allegedly sustained
by the plaintiff in this case.
"EVIDENCE FOR THE PLAINTIFF
"Plaintiff presented the testimonies of Marina Celerina P. Aguas and depositions of Alberto Milan and Alfonso Picson submitted
as additional witnesses for PROVIDENT to prove the material facts of the complaint are deemed admitted by defendant
MACONDRAY, on their defense that it is not an agent of TRADE AND TRANSPORT.
"EVIDENCE FOR THE DEFENDANT MACONDRAY:

"Witness Ricardo de la Cruz testified as Supercargo of MACONDRAY, that MACONDRAY was not an agent of defendant
TRADE AND TRANSPORT; that his functions as Supercargo was to prepare a notice of readiness, statement of facts, sailing
notice and custom's clearance in order to attend to the formalities and the need of the vessel; that MACONDRAY is performing
functions in behalf of CANPOTEX and was appointed as local agent of the vessel, which duty includes arrangement of the
entrance and clearance of the vessel."
The trial court, in the decision dated September 17, 1996 earlier adverted to, ruled in favor of the [petitioner] x x x, the
dispositive portion of which reads:
"WHEREFORE, PREMISES CONSIDERED, the case as against [petitioner] MACONDRAY is hereby DISMISSED.
"No pronouncement as to costs."4
Ruling of the Court of Appeals
The CA affirmed the trial court's finding that petitioner was not the agent of Trade and Transport. The appellate court ruled, however,
that petitioner could still be held liable for the shortages of the shipment, because the latter was the ship agent of Canpotex Shipping
Services Ltd. -- the shipper and charterer of the vessel M/V Trade Carrier.
All told, the CA held petitioner "liable for the losses incurred in the shipment of the subject cargoes to the [respondent], who, being the
insurer of the risk, was subrogated to the rights and causes of action which the consignee, Atlas Fertilizer Corporation, had against the
[petitioner]."5
Hence, this Petition.6
The Issues
Petitioner raises the following issues for our consideration:
"Whether or not liability attached to petitioner despite the unequivocal factual findings, that it was not a ship agent.
"Whether or not the 28 February 2002 Decision of the Court of Appeals has attained finality.
"Whether or not by filing the instant Petition for Review on Certiorari, petitioner is guilty of forum-shopping." 7
The Court's Ruling
The Petition has no merit.
First Issue:
Petitioner's Liability
As a rule, factual findings of the Court of Appeals -- when not in conflict with those of the trial court -- are not disturbed by this Court, 8 to
which only questions of law may be raised in an appeal by certiorari.9
In the present case, we find no compelling reason to overturn the Court of Appeals in its categorical finding that petitioner was the ship
agent. Such factual finding was not in conflict with the trial court's ruling, which had merely stated that petitioner was not the agent of
Trade and Transport. Indeed, although it is not an agent of Trade and Transport, petitioner can still be the ship agent of the vessel M/V
Trade Carrier.
Article 586 of the Code of Commerce states that a ship agent is "the person entrusted with provisioning or representing the vessel in
the port in which it may be found."
Hence, whether acting as agent of the owner10 of the vessel or as agent of the charterer,11 petitioner will be considered as the ship
agent12 and may be held liable as such, as long as the latter is the one that provisions or represents the vessel.
The trial court found that petitioner "was appointed as local agent of the vessel, which duty includes arrangement for the entrance and
clearance of the vessel."13 Further, the CA found and the evidence shows that petitioner represented the vessel. The latter prepared the
Notice of Readiness, the Statement of Facts, the Completion Notice, the Sailing Notice and Custom's Clearance. 14 Petitioner's
employees were present at Sangi, Toledo City, one day before the arrival of the vessel, where they stayed until it departed. They were

also present during the actual discharging of the cargo. 15 Moreover, Mr. de la Cruz, the representative of petitioner, also prepared for
the needs of the vessel, like money, provision, water and fuel.16
These acts all point to the conclusion that it was the entity that represented the vessel in the Port of Manila and was the ship agent 17
within the meaning and context of Article 586 of the Code of Commerce.
As ship agent, it may be held civilly liable in certain instances. The Code of Commerce provides:
"Article 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the obligations
contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that the amount claimed was
invested for the benefit of the same."
"Article 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the
conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipments and the freight it may have earned during the voyage."
Petitioner does not dispute the liabilities of the ship agent for the loss/shortage of 476.140 metric tons of standard-grade Muriate of
Potash valued at P1,657,700.95. Hence, we find no reason to delve further into the matter or to disturb the finding of the CA holding
petitioner, as ship agent, liable to respondent for the losses sustained by the subject shipment.
Second Issue:
Finality of the CA Decision
Petitioner claims that it picked up the February 28, 2002 Decision of the CA on May 14, 2002, after receiving the postal notice the day
before. It further attributes gross negligence to its previous counsel for not informing the CA of his change of address. It thus contends
that notice of the assailed Decision given to the previous counsel cannot be considered as notice to petitioner.
We are not persuaded. "It is well-settled that when a party is represented by counsel, notice should be made upon the counsel of
record at his given address to which notices of all kinds emanating from the court should be sent in the absence of a proper and
adequate notice to the court of a change of address."18
In the present case, service of the assailed Decision was made on petitioner's counsels of record, Attys. Moldez and Galoz, on March
6, 2002. That copy of the Decision was, however, returned to the sender for the reason that the addressee had "move[d] out." If counsel
moves to another address without informing the court of that change, such omission or neglect is inexcusable and will not stay the
finality of the decision.19 "The court cannot be expected to take judicial notice of the new address of a lawyer who has moved or to
ascertain on its own whether or not the counsel of record has been changed and who the new counsel could possibly be or where he
probably resides or holds office."20
It is unfortunate that the lawyer of petitioner neglected his duties to the latter. Be that as it may, the negligence of counsel binds the
client.21 Service made upon the present counsel of record at his given address is service to petitioner. Hence, the assailed Decision has
already become final and unappealable.
In the present case, there is no compelling reason to overturn well-settled jurisprudence or to interpret the rules liberally in favor of
petitioner, who is not entirely blameless. It should have taken the initiative of periodically keeping in touch with its counsel, checking
with the court, and inquiring about the status of its case.22 In so doing, it could have taken timely steps to neutralize the negligence of its
chosen counsel and to protect its interests. "Litigants represented by counsel should not expect that all they need to do is sit back, relax
and await the outcome of their case."23
In view of the foregoing, there is no necessity of passing upon the third issue raised by petitioner.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

CENTRAL
SHIPPING
COMPANY,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
PANGANIBAN, J.:

INC.,

petitioner,

A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its cargo, unless it
can prove that the sole and proximate cause of such event is one of the causes enumerated in Article 1734 of the Civil Code, or that it
exercised extraordinary diligence to prevent or minimize the loss. In the present case, the weather condition encountered by petitioners
vessel was not a "storm" or a natural disaster comprehended in the law. Given the known weather condition prevailing during the
voyage, the manner of stowage employed by the carrier was insufficient to secure the cargo from the rolling action of the sea. The
carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the March 23, 2001
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915. The assailed Decision disposed as follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is hereby MODIFIED
in so far as the award of attorneys fees is DELETED. The decision is AFFIRMED in all other respects."3
The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution.4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows:
"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V Central Bohol, 376
pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment to Manila for delivery to Alaska Lumber
Co., Inc.
"The cargo was insured for P3,000,000.00 against total loss under [respondents] Marine Cargo Policy No. MCPB-00170.
"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the voyage to Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboardside, due to the
shifting of logs in the hold.
"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered his men to abandon
ship and at about 0130 hours of the same day the vessel completely sank. Due to the sinking of the vessel, the cargo was
totally lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and its
captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the latter failed
and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be subrogated to all
the rights and actions of the consignee as against the [petitioner].
"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully equipped
and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessels master exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the storm.
"It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo was a
natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen."5
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso fortuito. It noted
that monsoons, which were common occurrences during the months of July to December, could have been foreseen and provided for
by an ocean-going vessel. Applying the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for
the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount of P200,000 from the principal claim of
respondent and found that the latter was entitled to be subrogated to the rights of the insured. The court a quo disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and against the [petitioner]
ordering the latter to pay the following:
1) the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same is
fully paid;

2) P80,000.00 as and for attorneys fees;

3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial courts finding that the southwestern monsoon encountered by the vessel was not unforeseeable. Given the
season of rains and monsoons, the ship captain and his crew should have anticipated the perils of the sea. The appellate court further
held that the weather disturbance was not the sole and proximate cause of the sinking of the vessel, which was also due to the
concurrent shifting of the logs in the hold that could have resulted only from improper stowage. Thus, the carrier was held responsible
for the consequent loss of or damage to the cargo, because its own negligence had contributed thereto.
The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that the Certificates of Inspection and Drydocking
were not conclusive proofs thereof. In order to consider a vessel to be seaworthy, it must be fit to meet the perils of the sea.
Found untenable was petitioners insistence that the trial court should have given greater weight to the factual findings of the Board of
Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the ship captain, Enriquito Cahatol. The CA further observed that
what petitioner had presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during the course of the
proceedings before the BMI, not the actual findings and conclusions of the agency. Citing Arada v. CA, 7 it said that findings of the BMI
were limited to the administrative liability of the owner/operator, officers and crew of the vessel. However, the determination of whether
the carrier observed extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of petitioners negligence -- particularly its improper
stowage of the logs.
Hence, this Petition.8
Issues
In its Memorandum, petitioner submits the following issues for our consideration:
"(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol was a fortuitous event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay evidence under Section
36, Rule 130 of the Rules of Court.
"(iii) Whether or not the finding of the Court of Appeals that the logs in the hold shifted and such shifting could only be due to
improper stowage has a valid and factual basis.
"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of the Board of Marine Inquiry
(BMI), an independent government agency tasked to conduct inquiries on maritime accidents.
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar."9
The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of limited liability is
applicable. These issues involve a determination of factual questions of whether the loss of the cargo was due to the occurrence of a
natural disaster; and if so, whether its sole and proximate cause was such natural disaster or whether petitioner was partly to blame for
failing to exercise due diligence in the prevention of that loss.
The Courts Ruling
The Petition is devoid of merit.
First Issue:
Liability for Lost Cargo
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.10 In the event of loss, destruction or deterioration of the
insured goods, common carriers are responsible; that is, unless they can prove that such loss, destruction or deterioration was brought

about -- among others -- by "flood, storm, earthquake, lightning or other natural disaster or calamity." 11 In all other cases not specified
under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a "storm" under Article
1734(1). It attributes the sinking of its vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July
26, 1990.
At the outset, it must be stressed that only questions of law 13 may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. Questions of fact are not proper subjects in this mode of appeal, 14 for "[t]he Supreme Court is not a trier of facts." 15
Factual findings of the CA may be reviewed on appeal 16 only under exceptional circumstances such as, among others, when the
inference is manifestly mistaken,17 the judgment is based on a misapprehension of facts,18 or the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different conclusion.19
In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that the weather
encountered by the vessel was not a "storm" as contemplated by Article 1734(1). Established is the fact that between 10:00 p.m. on
July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and his crew encountered a
southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on July 26, 1990. Even petitioner
admitted in its Answer that the sinking of M/V Central Bohol had been caused by the strong southwest monsoon. 21 Having made such
factual representation, it cannot now be allowed to retreat and claim that the southwestern monsoon was a "storm."
The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a southwestern
monsoon at the time. Normally expected on sea voyages, however, were such monsoons, during which strong winds were not unusual.
Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA),
testified that a thunderstorm might occur in the midst of a southwest monsoon. According to her, one did occur between 8:00 p.m. on
July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather Bureau.22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a "storm" within the absolutory
causes enumerated in the law. Significantly, no typhoon was observed within the Philippine area of responsibility during that period.23
According to PAGASA, a storm has a wind force of 48 to 55 knots, 24 equivalent to 55 to 63 miles per hour or 10 to 11 in the Beaufort
Scale. The second mate of the vessel stated that the wind was blowing around force 7 to 8 on the Beaufort Scale. 25 Consequently, the
strong winds accompanying the southwestern monsoon could not be classified as a "storm." Such winds are the ordinary vicissitudes of
a sea voyage.26
Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code, petitioner failed to
show that such natural disaster or calamity was the proximate and only cause of the loss. Human agency must be entirely excluded
from the cause of injury or loss. In other words, the damaging effects blamed on the event or phenomenon must not have been caused,
contributed to, or worsened by the presence of human participation. 27 The defense of fortuitous event or natural disaster cannot be
successfully made when the injury could have been avoided by human precaution.28
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of the particular case demand
-- to prevent or minimize the loss before, during and after the occurrence of the natural disaster, the carrier shall be deemed to have
been negligent. The loss or injury is not, in a legal sense, due to a natural disaster under Article 1734(1).29
We also find no reason to disturb the CAs finding that the loss of the vessel was caused not only by the southwestern monsoon, but
also by the shifting of the logs in the hold. Such shifting could been due only to improper stowage. The assailed Decision stated:
"Notably, in Master Cahatols account, the vessel encountered the first southwestern monsoon at about 1[0]:00 in the evening.
The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught. The second monsoon
attack occurred at about 12:00 midnight. During this occasion, the master felt that the logs in the hold shifted, prompting him
to order second mate Percival Dayanan to look at the bodega. Complying with the captains order, 2nd mate Percival Dayanan
found that there was seawater in the bodega. 2nd mate Dayanans account was:
14.T Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na paglubog sa
barkong M/V Central Bohol?
S Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay nagnanabegar
patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain
Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na
maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng barko; agad
bumalik ako kay Captain Enriquito Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang

bodega ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby
engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito
ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at di-nagtagal
sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanya nang talunan at languyan sa dagat
na malakas ang alon at nang ako ay lumingon sa barko ito ay di ko na nakita.
"Additionally, [petitioners] own witnesses, boatswain Eduardo Vias Castro and oiler Frederick Perena, are one in saying that
the vessel encountered two weather disturbances, one at around 10 oclock to 11 oclock in the evening and the other at
around 12 oclock midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel endured the first and
not the second. Why? The reason is plain. The vessel felt the strain during the second onslaught because the logs in the
bodega shifted and there were already seawater that seeped inside."30
The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon without any mishap,
and that it began to list only during the second monsoon immediately after the logs had shifted and seawater had entered the hold. In
the hold, the sloshing of tons of water back and forth had created pressures that eventually caused the ship to sink. Had the logs not
shifted, the ship could have survived and reached at least the port of El Nido. In fact, there was another motor launch that had been
buffeted by the same weather condition within the same area, yet it was able to arrive safely at El Nido.31
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latters Complaint "[t]hat at about 0125
hours on 26 July 1990, while enroute to Manila, the M/V Central Bohol listed about 10 degrees starboardside, due to the shifting of
logs in the hold." Further, petitioner averred that "[t]he vessel, while navigating through this second southwestern monsoon, was under
extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs therein were felt to have shifted.
The vessel thereafter immediately listed by ten (10) degrees starboardside."32
Yet, petitioner now claims that the CAs conclusion was grounded on mere speculations and conjectures. It alleges that it was
impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they had been improperly loaded.
According to the boatswains testimony, the logs were piled properly, and the entire shipment was lashed to the vessel by cable wire. 33
The ship captain testified that out of the 376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel and 16
on deck. The logs stored in the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling. However,
while they were placed side by side, there were unavoidable clearances between them owing to their round shape. Those loaded on
deck were lashed together several times across by cable wire, which had a diameter of 60 millimeters, and were secured from
starboard to port.34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure the logs in the
event the ship should roll in heavy weather. Notably, they were of different lengths ranging from 3.7 to 12.7 meters. 35 Being clearly
prone to shifting, the round logs should not have been stowed with nothing to hold them securely in place. Each pile of logs should
have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering the strong force of the wind and the
roll of the waves, the loose arrangement of the logs did not rule out the possibility of their shifting. By force of gravity, those on top of the
pile would naturally roll towards the bottom of the ship.
The adjusters Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not shifted, stated that "the
logs were still properly lashed by steel chains on deck." Parenthetically, this statement referred only to those loaded on deck and did
not mention anything about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs were still
intact clearly pertained only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences during the month of July. Thus, the officers and
crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas. They should then have taken
extra precaution in stowing the logs in the hold, in consonance with their duty of observing extraordinary diligence in safeguarding the
goods. But the carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now escape responsibility
for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce 36 is not applicable to the present case. This rule does not
apply to situations in which the loss or the injury is due to the concurrent negligence of the shipowner and the captain. 37 It has already
been established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as
shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the shipowner could have prevented this fatal
miscalculation."38 As such, the shipowner was equally negligent. It cannot escape liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.

ABOITIZ
SHIPPING
vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.
DECISION

CORPORATION,

Petitioner,

QUISUMBING, J.:
For review on certiorari are the Decision 1 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 FrancoBelgian 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 PRO-RATA 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.

ABOITIZ
vs.

SHIPPING

CORPORATION,

petitioners,

COURT OF APPEALS, MALAYAN INSURANCE COMPANY, INC., COMPAGNIE MARITIME DES CHARGEURS REUNIS, and F.E.
ZUELLIG (M), INC., respondents.
x-----------------------------------------x
G.R. No. 130752

October 17, 2008

ABOITIZ
SHIPPING
CORPORATION,
petitioners,
vs.
COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in his capacity as Presiding Judge of the RTC, Branch 20; ASIA
TRADERS INSURANCE CORPORATION, and ALLIED GUARANTEE INSURANCE CORPORATION, respondents.
x-----------------------------------------x
G.R. No. 137801

October 17, 2008

ABOITIZ
SHIPPING
vs.
EQUITABLE INSURANCE CORPORATION, respondents.

CORPORATION,

petitioners,

DECISION
TINGA, J.:
Before this Court are three consolidated Rule 45 petitions all involving the issue of whether the real and hypothecary doctrine may be
invoked by the shipowner in relation to the loss of cargoes occasioned by the sinking of M/V P. Aboitiz on 31 October 1980. The
petitions filed by Aboitiz Shipping Corporation (Aboitiz) commonly seek the computation of its liability in accordance with the Courts
pronouncement in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. 1 (hereafter referred to as
"the 1993 GAFLAC case").
The three petitions stemmed from some of the several suits filed against Aboitiz before different regional trial courts by shippers or their
successors-in-interest for the recovery of the monetary value of the cargoes lost, or by the insurers for the reimbursement of whatever
they paid. The trial courts awarded to various claimants the amounts of P639,862.02, P646,926.30, and P87,633.81 in G.R. Nos.
121833, 130752 and 137801, respectively.
ANTECEDENTS
G.R. No. 121833
Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions against several defendants for the collection of the
amounts of the cargoes allegedly paid by Malayan under various marine cargo policies 2 issued to the insurance claimants. The five civil
cases, namely, Civil Cases No. 138761, No. 139083, No. 138762, No. R-81-526 and No. 138879, were consolidated and heard before
the Regional Trial Court (RTC) of Manila, Branch 54.
The defendants in Civil Case No. 138761 and in Civil Case No. 139083 were Malayan International Shipping Corporation, a foreign
corporation based in Malaysia, its local ship agent, Litonjua Merchant Shipping Agency (Litonjua), and Aboitiz. The defendants in Civil
Case No. 138762 were Compagnie Maritime des Chargeurs Reunis (CMCR), its local ship agent, F.E. Zuellig (M), Inc. (Zuellig), and
Aboitiz. Malayan also filed Civil Case No. R-81-526 only against CMCR and Zuellig. Thus, defendants CMCR and Zuellig filed a thirdparty complaint against Aboitiz. In the fifth complaint docketed as Civil Case No. 138879, only Aboitiz was impleaded as defendant.
The shipments were supported by their respective bills of lading and insured separately by Malayan against the risk of loss or damage.
In the five consolidated cases, Malayan sought the recovery of amounts totaling P639,862.02.
Aboitiz raised the defenses of lack of jurisdiction, lack of cause of action and prescription. It also claimed that M/V P. Aboitiz was
seaworthy, that it exercised extraordinary diligence and that the loss was caused by a fortuitous event.
After trial on the merits, the RTC of Manila rendered a Decision dated 27 November 1989, adjudging Aboitiz liable on the money claims.
The decretal portion reads:
WHEREFORE, judgment is hereby rendered as follows:

1. In Civil Case No. 138072 (R-81-526-CV), the defendants are adjudged liable and ordered to pay to the plaintiffs jointly and severally
the amount of P128,896.79; the third-party defendant Aboitiz is adjudged liable to reimburse and ordered to pay the defendants or
whosoever of them paid the plaintiff up to the said amount;
2. In Civil Case No. 138761, Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred Sixty Three-Thousand
Seven Hundred Thirteen Pesos and Thirty-Eight Centavos (P163,713.38).
3. In Civil Case No. 138762, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the sum of Seventy Three Thousand Five
Hundred Sixty-Nine Pesos and Ninety-Four Centavos (P73,569.94); and Sixty-Four Thousand Seven Hundred Four Pesos and
Seventy-Seven Centavos (P64,704.77);
4. In Civil Case No. 139083, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred Fifty-Six
Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four Centavos (P156,287.64);
In Civil Case No. 138879, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of Fifty-Two Thousand Six
Hundred Eighty-Nine Pesos and Fifty Centavos (P52,689.50).
All the aforesaid award shall bear interest at the legal rate from the filing of the respective complaints. Considering that there is no clear
showing that the cases fall under Article 2208, Nos. 4 and 5, of the Civil Code, and in consonance with the basic rule that there be no
penalty (in terms of attorneys fees) imposed on the right to litigate, no damages by way of attorneys fees are awarded; however, costs
of the party/parties to whom judgment awards are made shall be made by the party ordered to pay the said judgment awards.
SO ORDERED.3
Aboitiz, CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The appeal was docketed as CA-G.R. SP No. 35975CV. During the pendency of the appeal, the Court promulgated the decision in the 1993 GAFLAC case.
On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It disregarded Aboitizs argument that the sinking of
the vessel was caused by a force majeure, in view of this Courts finding in a related case, Aboitiz Shipping Corporation v. Court of
Appeals, et al. (the 1990 GAFLAC case).4 In said case, this Court affirmed the Court of Appeals finding that the sinking of M/V P.
Aboitiz was caused by the negligence of its officers and crew. It is one of the numerous collection suits against Aboitiz, which eventually
reached this Court in connection with the sinking of M/V P. Aboitiz.
As to the computation of Aboitizs liability, the Court of Appeals again based its ruling on the 1990 GAFLAC case that Aboitizs liability
should be based on the declared value of the shipment in consonance with the exceptional rule under Section 4(5) 5 of the Carriage of
Goods by Sea Act.
Aboitiz moved for reconsideration6 to no avail. Hence, it filed this petition for review on certiorari docketed as G.R. No. 121833. 7 The
instant petition is based on the following grounds:
THE COURT OF APPEALS SHOULD HAVE LIMITED THE RECOVERABLE AMOUNT FROM ASC TO THAT AMOUNT STIPULATED
IN THE BILL OF LADING.
IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD HAVE FOUND THAT THE TOTAL LIABILITY OF ASC IS LIMITED TO
THE VALUE OF THE VESSEL OR THE INSURANCE PROCEEDS THEREOF.8
On 4 December 1995, the Court issued a Resolution 9 denying the petition. Aboitiz moved for reconsideration, arguing that the limited
liability doctrine enunciated in the 1993 GAFLAC case should be applied in the computation of its liability. In the Resolution 10 dated 6
March 1996, the Court granted the motion and ordered the reinstatement of the petition and the filing of a comment.
G.R. No. 130752
Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied Guarantee Insurance Corporation (Allied) filed separate
actions for damages against Aboitiz to recover by way of subrogation the value of the cargoes insured by them and lost in the sinking of
the vessel M/V P. Aboitiz. The two actions were consolidated and heard before the RTC of Manila, Branch 20.
Aboitiz reiterated the defense of force majeure. The trial court rendered a decision11 on 25 April 1990 ordering Aboitiz to pay damages in
the amount of P646,926.30. Aboitiz sought reconsideration, arguing that the trial court should have considered the findings of the Board
of Marine Inquiry that the sinking of the M/V P. Aboitiz was caused by a typhoon and should have applied the real and hypothecary
doctrine in limiting the monetary award in favor of the claimants. The trial court denied Aboitizs motion for reconsideration.
Aboitiz elevated the case to the Court of Appeals. While the appeal was pending, this Court promulgated the decision in the 1993
GAFLAC case. The Court of Appeals subsequently rendered a decision on 30 May 1994, affirming the RTC decision.12

Aboitiz appealed the Court of Appeals decision to this Court.13 In a Resolution dated 20 September 1995,14 the Court denied the petition
for raising factual issues and for failure to show that the Court of Appeals committed any reversible error. Aboitizs motion for
reconsideration was also denied in a Resolution dated 22 November 1995.15
The 22 November 1995 Resolution became final and executory. On 26 February 1996, Asia Traders and Allied filed a motion for
execution before the RTC of Manila, Branch 20. Aboitiz opposed the motion. On 16 August 1996, the trial court granted the motion and
issued a writ of execution.
Alleging that it had no other speedy, just or adequate remedy to prevent the execution of the judgment, Aboitiz filed with the Court of
Appeals a petition for certiorari and prohibition with an urgent prayer for preliminary injunction and/or temporary restraining order
docketed as CA-G.R. SP No. 41696.16 The petition was mainly anchored on this Courts ruling in the 1993 GAFLAC case.
On 8 August 1997, the Court of Appeals (Special Seventeenth Division) rendered the assailed decision dismissing the petition. 17 Based
on the trial courts finding that Aboitiz was actually negligent in ensuring the seaworthiness of M/V P. Aboitiz, the appellate court held
that the real and hypothecary doctrine enunciated in the 1993 GAFLAC case may not be applied in the case.
In view of the denial of its motion for reconsideration, 18 Aboitiz filed before this Court the instant petition for review on certiorari docketed
as G.R. No. 130752.19 The petition attributes the following errors to the Court of Appeals:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE LOWER COURT HAD MADE AN EXPRESS FINDING OF
THE ACTUAL NEGLIGENCE OF ABOITIZ IN THE SINKING OF THE M/V P. ABOITIZ THEREBY DEPRIVING ABOITIZ OF THE
BENEFIT OF THE DOCTRINE OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW.20
THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT TO THE GAFLAC CASE DECIDED BY THE HONORABLE COURT
WHICH SUPPORTS THE APPLICABILITY OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW IN THE PRESENT
CASE.21
G.R. No. 137801
On 27 February 1981, Equitable Insurance Corporation (Equitable) filed an action for damages against Aboitiz to recover by way of
subrogation the value of the cargoes insured by Equitable that were lost in the sinking of M/V P. Aboitiz.22 The complaint, which was
docketed as Civil Case No. 138395, was later amended to implead Seatrain Pacific Services S.A. and Citadel Lines, Inc. as party
defendants.23 The complaint against the latter defendants was subsequently dismissed upon motion in view of the amicable settlement
reached by the parties.
On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment 24 ordering Aboitiz to pay Equitable the amount of P87,633.81,
plus legal interest and attorneys fees.25 It found that Aboitiz was guilty of contributory negligence and, therefore, liable for the loss.
In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invoked the doctrine of limited liability and claimed that the typhoon was the
proximate cause of the loss. On 27 November 1998, the Court of Appeals rendered a decision, affirming the RTC decision.26
The Court of Appeals (Fifteenth Division) ruled that the loss of the cargoes and the sinking of the vessel were due to its
unseaworthiness and the failure of the crew to exercise extraordinary diligence. Said findings were anchored on the 1990 GAFLAC
case and on this Courts resolution dated November 13, 1989 in G.R. No. 88159, dismissing Aboitizs petition and affirming the findings
of the appellate court on the vessels unseaworthiness and the crews negligence.
Its motion for reconsideration27 having been denied,28 Aboitiz filed before this Court a petition for review on certiorari, docketed as G.R.
No. 137801,29 raising this sole issue, to wit:
WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF MARITIME LAW (ALSO KNOWN AS THE
"LIMITED LIABILITY RULE") APPLIES.30
ISSUES
The principal issue common to all three petitions is whether Aboitiz can avail limited liability on the basis of the real and hypothecary
doctrine of maritime law. Corollary to this issue is the determination of actual negligence on the part of Aboitiz.
These consolidated petitions similarly posit that Aboitizs liability to respondents should be limited to the value of the insurance
proceeds of the lost vessel plus pending freightage and not correspond to the full insurable value of the cargoes paid by respondents,
based on the Courts ruling in the 1993 GAFLAC case.
Respondents in G.R. No. 121833 counter that the limited liability rule should not be applied because there was a finding of negligence
in the care of the goods on the part of Aboitiz based on this Courts Resolution dated 4 December 1995 in G.R. No. 121833, which

affirmed the trial courts finding of negligence on the part of the vessels captain. Likewise, respondent in G.R. No. 137801 relies on the
finding of the trial court, as affirmed by the appellate court, that Aboitiz was guilty of negligence.
Respondents in G.R No. 130752 argue that this Court had already affirmed in toto the appellate courts finding that the vessel was not
seaworthy and that Aboitiz failed to exercise extraordinary diligence in the handling of the cargoes. This being the law of the case,
Aboitiz should not be entitled to the limited liability rule as far as this petition is concerned, respondents contend.
RULING of the COURT
These consolidated petitions are just among the many others elevated to this Court involving Aboitizs liability to shippers and insurers
as a result of the sinking of its vessel, M/V P. Aboitiz, on 31 October 1980 in the South China Sea. One of those petitions is the 1993
GAFLAC case, docketed as G.R. No. 100446.31
The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in the 1990 GAFLAC case, where the General
Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment obligee therein, sought the execution of the monetary
award against Aboitiz. The trial court granted GAFLACs prayer for execution of the full judgment award. The appellate court dismissed
Aboitizs petition to nullify the order of execution, prompting Aboitiz to file a petition with this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted the immediate stay of execution of
judgment to prevent the impairment of the other creditors shares. Invoking the rule on the law of the case, private respondent therein
countered that the 1990 GAFLAC case had already settled the extent of Aboitizs liability.
Following the doctrine of limited liability, however, the Court declared in the 1993 GAFLAC case that claims against Aboitiz arising from
the sinking of M/V P. Aboitiz should be limited only to the extent of the value of the vessel. Thus, the Court held that the execution of
judgments in cases already resolved with finality must be stayed pending the resolution of all the other similar claims arising from the
sinking of M/V P. Aboitiz. Considering that the claims against Aboitiz had reached more than 100, the Court found it necessary to collate
all these claims before their payment from the insurance proceeds of the vessel and its pending freightage. As a result, the Court
exhorted the trial courts before whom similar cases remained pending to proceed with trial and adjudicate these claims so that the prorated share of each claim could be determined after all the cases shall have been decided.32
In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz based on the trial courts finding therein that
Aboitiz was not negligent. The Court explained, thus:
x x x In the few instances when the matter was considered by this Court, we have been consistent in this jurisdiction in holding that the
only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or
agent x x x. The pivotal question, thus, is whether there is finding of such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 as well as the entirety of the records in the instant
case will show that there has been no actual finding of negligence on the part of petitioner. x x x
The same is true of the decision of this Court in G.R. No. 89757 affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609
since both decisions did not make any new and additional finding of fact. Both merely affirmed the factual findings of the trial court,
adding that the cause of the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to
exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion that
petitioner shipowner itself was negligent, and no tribunal, including this Court, will add or subtract to such evidence to justify a
conclusion to the contrary.33 (Citations entitled) (Emphasis supplied)
The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in maritime law that the shipowner or agents liability is
merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no liability"
expresses in a nutshell the limited liability rule.34
In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code of Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all
her equipment and the freight it may have earned during the voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the
acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the
vessel with all its appurtenances and freightage served during the voyage.
These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage
earned in the voyage, provided that the owner or agent abandons the vessel.35 When the vessel is totally lost in which case there is no
vessel to abandon, abandonment is not required. Because of such total loss the liability of the shipowner or agent for damages is
extinguished.36 However, despite the total loss of the vessel, its insurance answers for the damages for which a shipowner or agent
may be held liable.37
Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment of
the vessel, 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. 38 Likewise, the shipowner may be held liable for injuries to passengers notwithstanding
the exclusively real and hypothecary nature of maritime law if fault can be attributed to the shipowner.39
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the Court applied the doctrine of limited liability in view of
the absence of an express finding that Aboitizs negligence was the direct cause of the sinking of the vessel. The circumstances in the
1993 GAFLAC case, however, are not obtaining in the instant petitions.
A perusal of the decisions of the courts below in all three petitions reveals that there is a categorical finding of negligence on the part of
Aboitiz. For instance, in G.R. No. 121833, the RTC therein expressly stated that the captain of M/V P. Aboitiz was negligent in failing to
take a course of action that would prevent the vessel from sailing into the typhoon. In G.R. No. 130752, the RTC concluded that Aboitiz
failed to show that it had exercised the required extraordinary diligence in steering the vessel before, during and after the storm. In G.R.
No. 137801, the RTC categorically stated that the sinking of M/V P. Aboitiz was attributable to the negligence or fault of Aboitiz. In all
instances, the Court of Appeals affirmed the factual findings of the trial courts.
The finding of actual fault on the part of Aboitiz is central to the issue of its liability to the respondents. Aboitizs contention, that with the
sinking of M/V P. Aboitiz, its liability to the cargo shippers and shippers should be limited only to the insurance proceeds of the vessel
absent any finding of fault on the part of Aboitiz, is not supported by the record. Thus, Aboitiz is not entitled to the limited liability rule
and is, therefore, liable for the value of the lost cargoes as so duly alleged and proven during trial.
Events have supervened during the pendency of the instant petitions. On two other occasions, the Court ruled on separate petitions
involving monetary claims against Aboitiz as a result of the 1980 sinking
of the vessel M/V P. Aboitiz. One of them is the consolidated petitions of Monarch Ins. Co., Inc v. Court of Appeals,40 Allied Guarantee
Insurance Company v. Court of Appeals 41 and Equitable Insurance Corporation v. Court of Appeals 42 (hereafter collectively referred to
as Monarch Insurance) promulgated on 08 June 2000. This time, the petitioners consisted of claimants against Aboitiz because either
the execution of the judgment awarding full indemnification of their claims was stayed or set aside or the lower courts awarded
damages only to the extent of the claimants proportionate share in the insurance proceeds of the vessel.
In Monarch Insurance, the Court deemed it fit to settle once and for all this factual issue by declaring that the sinking of M/V P. Aboitiz
was caused by the concurrence of the unseaworthiness of the vessel and the negligence of both Aboitiz and the vessels crew and
master and not because of force majeure. Notwithstanding this finding, the Court did not reverse but reiterated instead the
pronouncement in GAFLAC to the effect that the claimants be treated as "creditors in an insolvent corporation whose assets are not
enough to satisfy the totality of claims against it."43 The Court explained that the peculiar circumstances warranted that procedural rules
of evidence be set aside to prevent frustrating the just claims of shippers/insurers. Thus, the Court in Monarch Insurance ordered
Aboitiz to institute the necessary limitation and distribution action before the proper RTC and to deposit with the said court the
insurance proceeds of and the freightage earned by the ill-fated ship.
However, on 02 May 2006, the Court rendered a decision in Aboitiz Shipping Corporation v. New India Assurance Company, Ltd. 44
(New India), reiterating the well-settled principle that the exception to the limited liability doctrine applies when the damage is due to the
fault of the shipowner or to the concurrent negligence of the shipowner and the captain. Where the shipowner fails to overcome the
presumption of negligence, the doctrine of limited liability cannot be applied. 45 In New India, the Court clarified that the earlier
pronouncement in Monarch Insurance was not an abandonment of the doctrine of limited liability and that the circumstances therein still
made the doctrine applicable.46
In New India, the Court declared that Aboitiz failed to discharge its 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. Thus, the Court rejected Aboitizs argument that the
award of damages to respondent therein should be limited to its pro rata share in the insurance proceeds from the sinking of M/V P.
Aboitiz.
The instant petitions provide another occasion for the Court to reiterate the well-settled doctrine of the real and hypothecary nature of
maritime law. As a general rule, a ship owners liability is merely co-extensive with his interest in the vessel, except where actual fault is
attributable to the shipowner. Thus, as an exception to the limited

liability doctrine, a shipowner or ship agent may be held liable for damages when the sinking of the vessel is attributable to the actual
fault or negligence of the shipowner or its failure to ensure the seaworthiness of the vessel. The instant petitions cannot be spared from
the application of the exception to the doctrine of limited liability in view of the unanimous findings of the courts below that both Aboitiz
and the crew failed to ensure the seaworthiness of the M/V P. Aboitiz.
WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and 137801 are DENIED. The decisions of the Court of Appeals in CA-G.R.
SP No. 35975-CV, CA-G.R. SP No. 41696 and CA-G.R. CV No. 43458 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

NEW
ZEALAND
INSURANCE
vs.
ADRIANO CHOA JOY, ETC., defendant-appellee.
Nicodemus
Alberto M. K. Jamir for appellee.

L.

CO.,

Dasig

LTD.,

plaintiff-appellant,

for

appellant.

BAUTISTA ANGELO, J.:

This is an action for the recovery of the sum of P5,196.20 with legal interest thereon from the date of the filing of the complaint.
On May 20, 1950, the ship "Jupiter", on her voyage No. 149, received on board at Carangian, Samar, in good order and condition, 107
bundles of first class loose weight hemp weighing 8,273 kilos, of 130.80 piculs, valued at P6,736.20, from Lee Teh & Co., Inc., for
transportation and delivery to Manila, under a bill of lading issued by the carrier to the shipper. The ship was owned by Adriano Choa
Joy, doing business under the name of South Sea Shipping Line, while the cargo was shipped by the branch office of Lee Teh & Co.,
Inc. at Carangian, Samar, for transportation and delivery to its main office at Manila.
The cargo failed to arrive in Manila because the vessel ran aground while entering the Laoang Bay, Samar, on May 20, 1950, due to the
negligence of its captain, Jose Molina, who, in the investigation conducted by the Marine Board of Inquiry, was found negligent of his
duties and was suspended from office for a period of three months. Of the cargo, only 7,590 kilos, or 120 piculs of hemp, were saved
and because of their damaged condition, they were sold for the sum of P2,040, the consignor having spent P500 for their salvage,
thereby causing Lee Teh & Co., Inc. losses in the sum of P5,196.20.
The cargo was insured by the New Zealand Insurance Co., Ltd., and because of the damage caused to said cargo while in transit, the
losses were paid by said company to the shipper. The carrier having refused to reimburse these damages despite demands made to
that effect, the insurance company, as subrogee of the shipper instituted the present action before the Court of First Instance of Manila.
After the parties had presented their evidence, the court found that, while the shipper had suffered damages because of the inability of
the carrier to transport the cargo as agreed upon, however, the liability of the carrier did not attach because of the failure of the shipper
or of the consignee to file its claim for damages within 24 hours from receipt of the cargo as required by law. Consequently, the court
dismissed the case, with costs against the plaintiff. Plaintiff brought this case on appeal directly to this Court.
Appellant poses in this appeal the following issue: "Whether Lee Teh & Co., Inc, of Manila, as consignee, or Lee Teh & Co., Inc. of
Catarman, Samar, as consignor, should have filed its claim for damages to the cargo with the shipping company, herein defendant,
within twenty four hours from the date the said cargo was salvaged by the consignor, in accordance with Article 366 of the Code of
Commerce for this action to prosper, or that neither the said consignee nor the said consignor was under the obligation to file the said
claim within the said period, as they are not bound by the provisions of Article 366 of the Code of Commerce."
Article 366 of the Code of Commerce, which was applied by the court, provides:
Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average which
may be found therein upon opening the packages, may be made, provided that the indications of the damage or average
which gives rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be
admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against
the carrier with regard to the condition in which the goods transported were delivered.
It would appear from the above that in order that the condition therein provided may be demanded there should be a consignment of
goods, through a common carrier, by a consignor in one place to a consignee in another place. And said article provides that the claim
for damages must be made "within twenty-four hours following the receipt of the merchandise" by the consignee from the carrier. In
other words, there must be delivery of the merchandise by the carrier to the consignee at the place of destination. In the instant case,
the consignor is the branch office of Lee Teh & Co., Inc., at Catarman, Samar, which placed the cargo on board the ship Jupiter, and the
consignee, its main office at Manila. The lower court found that the cargo never reached Manila, its destination, nor was it ever
delivered to the consignee, the office of the shipper in Manila, because the ship ran aground upon entering Laoang Bay, Samar on the
same day of the shipment. Such being the case, it follows that the aforesaid article 366 does not have application because the cargo
was never received by the consignee. Moreover, under the bill of lading issued by the carrier (Exhibit C), it was the letter's undertaking
to bring the cargo to its destinationManila,and deliver it to consignee, which undertaking was never complied with. The carrier,
therefore, breached its contract, and, as such, it forfeited its right to invoke in its favor the conditions required by article 366.
One case parallel to the present is Roldan vs. Lim Ponzo & Co., 37 Phil., 285. In that case, plaintiff sought to recover damages for
failure of defendant to transport 2,244 packages of sugar from plaintiff's hacienda to Iloilo. It was proven that the cargo did not reach its
destination because the lorcha carrying it was wrecked in the river Jalaud through the negligence and lack of skill of the master of the
lorcha. And of the total cargo of 2,244 packages of sugar, only 1,022 were saved in damaged condition through the efforts made by the

shipper. Because plaintiff failed to comply with the requirement of article 366 of the Code of Commerce, the lower court found for
defendant and dismissed the case. But this Court held that said article "is limited to cases of claims for damages to goods actually
received by the consignee; it has no application in cases wherein the goods entrusted to the carrier are not delivered to the consignee
by the carrier in pursuance of the terms of the carriage contract." Elaborating on this point, this Court commented:
Article 366 of the Commercial Code is limited to cases of claims for damages to goods actually turned over by the carrier and
received by the consignee, whether those damages be apparent from an examination of the packages in which the goods are
delivered, or of such character that the nature and extend of the damage is not apparent until the packages are opened and
the contents examined. Clearly it has no application in cases wherein the goods entrusted to the carrier are not delivered by
the carrier to the consignee. In such cases there can be no question of a claim for damages suffered by the goods while in
transport, since the claim for damages arises exclusively out of the failure to make delivery. . . .
We are of opinion, however, that the necessity for making the claim in accordance with that article did not arise if, as it is
alleged, these 1,022 packages, of sugar were recovered from the wreck by the plaintiff, himself, in an effort, by his own
activities, to save his property from total loss. The measures to be taken under the terms of Article 367 of the Code when the
parties are unable to arrive at an amicable settlement of claims for damages set up in accordance with Article 366, quite
clearly indicate that the necessity for the presentation of claims under this article arises only in those cases wherein the carrier
makes delivery and the consignee receives the goods in pursuance of the terms of the contract.
It is true that in the instant case there is some disagreement as to whether the salvage of the portion of the cargo that was saved was
due to the efforts of the carrier itself or to the combined efforts of the latter and the shipper as a result of which the salvaged cargo was
placed in possession of the shipper who sold it and deducted its proceeds from the liability of the carrier. But this discrepancy, in our
opinion, would seem to be immaterial because the law as well as the contract contemplates delivery of the cargo to the consignee at its
port of destination in order that the benefit of the law may be availed of. The liability of the carrier must be determined in the light of the
carriage contract, and since that contract calls for reciprocal obligations, the carrier cannot demand fulfillment of its part from the
shipper or consignee unless it first complies with its own obligation. (Article 1100, old Civil Code.) The fact that the consignor is but the
branch office of the company that shipped the goods, and the consignee is the main office at Manila, is of no moment, because the
duties of each party under the law are different. Moreover, even if the consignor and the consignee be considered as one and the same
party, still the carrier cannot disclaim responsibility under its contract for the simple reason that it failed to comply with its obligation to
bring the cargo to its destination. This breach alone justifies its liability under the carriage contract.
Wherefore, the decision appealed from is hereby reversed, and another one will be entered ordering the defendant to pay the plaintiff
the sum of P5,196.20, with legal interest thereon from the filing of the complaint, with costs against appellee.1wphl.nt

LORENZO
SHIPPING
CORP.,
petitioner,
vs.
CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC., respondents.
DECISION
PUNO, J.:
On appeal is the Court of Appeals August 14, 2000 Decision 1 in CA-G.R. CV No. 61334 and March 28, 2001 Resolution 2 affirming the
March 19, 1998 Decision3 of the Regional Trial Court of Manila which found petitioner liable to pay respondent Chubb and Sons, Inc.
attorney's fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic corporation engaged in coastwise shipping, was the
carrier of 581 bundles of black steel pipes, the subject shipment, from Manila to Davao City. From Davao City, respondent Gearbulk,
Ltd., a foreign corporation licensed as a common carrier under the laws of Norway and doing business in the Philippines through its
agent, respondent Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short), a domestic corporation, carried the goods on
board its vessel M/V San Mateo Victory to the United States, for the account of Sumitomo Corporation. The latter, the consignee, is a
foreign corporation organized under the laws of the United States of America. It insured the shipment with respondent Chubb and Sons,
Inc., a foreign corporation organized and licensed to engage in insurance business under the laws of the United States of America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of ERW black steel pipes
worth US$137,912.844 on board the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment to Davao City.
Petitioner Lorenzo Shipping issued a clean bill of lading designated as Bill of Lading No. T-3 5 for the account of the consignee,
Sumitomo Corporation of San Francisco, California, USA, which in turn, insured the goods with respondent Chubb and Sons,
Inc.6
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987. Respondent Transmarine Carriers received the
subject shipment which was discharged on December 4, 1987, evidenced by Delivery Cargo Receipt No. 115090.7 It discovered
seawater in the hatch of M/V Lorcon IV, and found the steel pipes submerged in it. The consignee Sumitomo then hired the services of
R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to discharge. Del Pans Survey Report 8 dated December 4,
1987 showed that the subject shipment was no longer in good condition, as in fact, the pipes were found with rust formation on top
and/or at the sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top
was "rusty, thinning, and with several holes at different places." The rusty condition of the cargo was noted on the mates receipts and
the checker of M/V Lorcon IV signed his conforme thereon.9
After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory, for carriage to the United
States. It issued Bills of Lading Nos. DAV/OAK 1 to 7,10 covering 364 bundles of steel pipes to be discharged at Oakland, U.S.A., and
Bills of Lading Nos. DAV/SEA 1 to 6, 11 covering 217 bundles of steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills
of lading were marked "ALL UNITS HEAVILY RUSTED."
While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter 12 of intent dated December 7, 1987, to
petitioner Lorenzo Shipping, which the latter received on December 9, 1987. Sumitomo informed petitioner Lorenzo Shipping that it will
be filing a claim based on the damaged cargo once such damage had been ascertained. The letter reads:
Please be advised that the merchandise herein below noted has been landed in bad order ex-Manila voyage No. 87-19 under
B/L No. T-3 which arrived at the port of Davao City on December 2, 1987.
The extent of the loss and/or damage has not yet been determined but apparently all bundles are corroded. We reserve the right to
claim as soon as the amount of claim is determined and the necessary supporting documents are available.
Please find herewith a copy of the survey report which we had arranged for after unloading of our cargo from your vessel in Davao.
We trust that you shall make everything in order.
On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded 364 bundles of the subject steel
pipes. It then sailed to Vancouver, Washington on January 23, 1988 where it unloaded the remaining 217 bundles. Toplis and Harding,
Inc. of San Franciso, California, surveyed the steel pipes, and also discovered the latter heavily rusted. When the steel pipes were
tested with a silver nitrate solution, Toplis and Harding found that they had come in contact with salt water. The survey report, 13 dated
January 28, 1988 states:
xxx

We entered the hold for a close examination of the pipe, which revealed moderate to heavy amounts of patchy and streaked
dark red/orange rust on all lifts which were visible. Samples of the shipment were tested with a solution of silver nitrate
revealing both positive and occasional negative chloride reactions, indicating pipe had come in contact with salt water. In
addition, all tension applied metal straps were very heavily rusted, and also exhibited chloride reactions on testing with silver
nitrate.
xxx
It should be noted that subject bills of lading bore the following remarks as to conditions of goods: "ALL UNITS HEAVILY
RUSTED." Attached herein is a copy of a survey report issued by Del Pan Surveyors of Davao City, Philippines dated,
December 4, 1987 at Davao City, Philippines, which describes conditions of the cargo as sighted aboard the vessel "LORCON
IV," prior to and subsequent to discharge at Davao City. Evidently, the aforementioned rust damages were apparently
sustained while the shipment was in the custody of the vessel "LORCON IV," prior to being laden on board the vessel "SAN
MATEO VICTORY" in Davao.
Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and declared them unfit for the
purpose they were intended.14 It then filed a marine insurance claim with respondent Chubb and Sons, Inc. which the latter
settled in the amount of US$104,151.00.15
On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint 16 for collection of a sum of money, docketed as Civil Case
No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and Transmarine. Respondent Chubb and Sons, Inc. alleged that it is
not doing business in the Philippines, and that it is suing under an isolated transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed their answer17 with counterclaim and cross-claim against petitioner
Lorenzo Shipping denying liability on the following grounds: (a) respondent Chubb and Sons, Inc. has no capacity to sue before
Philippine courts; (b) the action should be dismissed on the ground of forum non conveniens; (c) damage to the steel pipes was due to
the inherent nature of the goods or to the insufficiency of packing thereof; (d) damage to the steel pipes was not due to their fault or
negligence; and, (e) the law of the country of destination, U.S.A., governs the contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989, and amended it on May 24, 1989. It denied
liability, alleging, among others: (a) that rust easily forms on steel by mere exposure to air, moisture and other marine elements; (b) that
it made a disclaimer in the bill of lading; (c) that the goods were improperly packed; and, (d) prescription, laches, and extinguishment of
obligations and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding that: (1) respondent Chubb and Sons, Inc. has
the right to institute this action; and, (2) petitioner Lorenzo Shipping was negligent in the performance of its obligations as a carrier. The
dispositive portion of its Decision states:
WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo Shipping Corporation to pay the plaintiff the sum
of US$104,151.00 or its equivalent in Philippine peso at the current rate of exchange with interest thereon at the legal rate
from the date of the institution of this case until fully paid, the attorneys fees in the sum of P50,000.00, plus the costs of the
suit, and dismissing the plaintiffs complaint against defendants Gearbulk, Ltd. and Philippine Transmarine Carriers, Inc., for
lack of merit, and the two defendants counterclaim, there being no showing that the plaintiff had filed this case against said
defendants in bad faith, as well as the two defendants cross-claim against Defendant Lorenzo Shipping Corporation, for lack
of factual basis.18
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a) respondent Chubb and Sons does not have capacity to
sue before Philippine courts; and, (b) petitioner Lorenzo Shipping was not negligent in the performance of its obligations as carrier of
the goods. The appellate court denied the petition and affirmed the decision of the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shippings Motion for Reconsideration 19 dated September 3, 2000, in a
Resolution20 promulgated on March 28, 2001.
Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for resolution:
(1) Whether or not the prohibition provided under Art. 133 of the Corporation Code applies to respondent Chubb, it being a
mere subrogee or assignee of the rights of Sumitomo Corporation, likewise a foreign corporation admittedly doing business in
the Philippines without a license;
(2) Whether or not Sumitomo, Chubbs predecessor-in-interest, validly made a claim for damages against Lorenzo Shipping
within the period prescribed by the Code of Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of damages or defects in the shipment, which created a
prima facie presumption that the carrier received the shipment in good condition, has been overcome by convincing evidence;

(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting the steel pipes, whether or not Gearbulk and
Transmarine, as common carriers, are to share liability for their separate negligence in handling the cargo.21
In brief, we resolve the following issues:
(1) whether respondent Chubb and Sons has capacity to sue before the Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject cargo.
Petitioner argues that respondent Chubb and Sons is a foreign corporation not licensed to do business in the Philippines, and is not
suing on an isolated transaction. It contends that because the respondent Chubb and Sons is an insurance company, it was merely
subrogated to the rights of its insured, the consignee Sumitomo, after paying the latters policy claim. Sumitomo, however, is a foreign
corporation doing business in the Philippines without a license and does not have capacity to sue before Philippine courts. Since
Sumitomo does not have capacity to sue, petitioner then concludes that, neither the subrogee-respondent Chubb and Sons could sue
before Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo is a foreign corporation doing business in the Philippines without a
license. It is therefore estopped from litigating the issue on appeal especially because it involves a question of fact which this Court
cannot resolve. Secondly, assuming arguendo that Sumitomo cannot sue in the Philippines, it does not follow that respondent, as
subrogee, has also no capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. 22 The principle covers
the situation under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to
the insured against a third party with respect to any loss covered by the policy. 23 It contemplates full substitution such that it places the
party subrogated in the shoes of the creditor, and he may use all means which the creditor could employ to enforce payment.24
The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted he
cannot acquire any claim, security, or remedy the subrogor did not have. 25 In other words, a subrogee cannot succeed to a right not
possessed by the subrogor.26 A subrogee in effect steps into the shoes of the insured and can recover only if insured likewise could
have recovered.
However, when the insurer succeeds to the rights of the insured, he does so only in relation to the debt. The person substituted (the
insurer) will succeed to all the rights of the creditor (the insured), having reference to the debt due the latter. 27 In the instant case, the
rights inherited by the insurer, respondent Chubb and Sons, pertain only to the payment it made to the insured Sumitomo as stipulated
in the insurance contract between them, and which amount it now seeks to recover from petitioner Lorenzo Shipping which caused the
loss sustained by the insured Sumitomo. The capacity to sue of respondent Chubb and Sons could not perchance belong to the group
of rights, remedies or securities pertaining to the payment respondent insurer made for the loss which was sustained by the insured
Sumitomo and covered by the contract of insurance. Capacity to sue is a right personal to its holder. It is conferred by law and not by
the parties. Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary
qualification to appear in the case, or does not have the character or representation he claims. It refers to a plaintiffs general disability
to sue, such as on account of minority, insanity, incompetence, lack of juridical personality, or any other disqualifications of a party. 28
Respondent Chubb and Sons who was plaintiff in the trial court does not possess any of these disabilities. On the contrary, respondent
Chubb and Sons has satisfactorily proven its capacity to sue, after having shown that it is not doing business in the Philippines, but is
suing only under an isolated transaction, i.e., under the one (1) marine insurance policy issued in favor of the consignee Sumitomo
covering the damaged steel pipes.
The law on corporations is clear in depriving foreign corporations which are doing business in the Philippines without a license from
bringing or maintaining actions before, or intervening in Philippine courts. Art. 133 of the Corporation Code states:
Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single acts of business. A foreign corporation needs no license to sue
before Philippine courts on an isolated transaction. 29 As held by this Court in the case of Marshall-Wells Company vs. Elser &
Company:30
The object of the statute (Secs. 68 and 69, Corporation Law) was not to prevent the foreign corporation from performing single
acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it
amenable to suit in the local courts . . . the implication of the law (being) that it was never the purpose of the legislature to

exclude a foreign corporation which happens to obtain an isolated order for business for the Philippines, from seeking redress
in the Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate Appellate Court31 that:
. . . The private respondent may sue in the Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country, for it is not
the lack of the prescribed license (to do business in the Philippines) but doing business without such license, which bars a
foreign corporation from access to our courts.
We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons is not suing under an isolated transaction because
the steel pipes, subject of this case, are covered by two (2) bills of lading; hence, two transactions. The stubborn fact remains that these
two (2) bills of lading spawned from the single marine insurance policy that respondent Chubb and Sons issued in favor of the
consignee Sumitomo, covering the damaged steel pipes. The execution of the policy is a single act, an isolated transaction. This Court
has not construed the term "isolated transaction" to literally mean "one" or a mere single act. In Eriks Pte. Ltd. vs. Court of Appeals, this
Court held that:32
. . . What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly,
the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of
such intention. The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions
set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive
pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not
necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions.
[Emphasis supplied.]
In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three transactions were challenged as void on the ground that the
three American corporations which are parties to the contracts are not licensed to do business in the Philippines. This Court held that
"one single or isolated business transaction does not constitute doing business within the meaning of the law. Transactions which are
occasional, incidental, and casual not of a character to indicate a purpose to engage in business do not constitute the doing or
engaging in business as contemplated by law. Where the three transactions indicate no intent by the foreign corporation to engage in a
continuity of transactions, they do not constitute doing business in the Philippines."
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation provided for in the policy of insurance, 34 is the
real party in interest in the action for damages before the court a quo against the carrier Lorenzo Shipping to recover for the loss
sustained by its insured. Rule 3, Section 2 of the 1997 Rules of Civil Procedure defines a real party in interest as one who is entitled to
the avails of any judgment rendered in a suit, or who stands to be benefited or injured by it. Where an insurance company as subrogee
pays the insured of the entire loss it suffered, the insurer-subrogee is the only real party in interest and must sue in its own name 35 to
enforce its right of subrogation against the third party which caused the loss. This is because the insurer in such case having fully
compensated its insured, which payment covers the loss in full, is subrogated to the insureds claims arising from such loss. The
subrogated insurer becomes the owner of the claim and, thus entitled to the entire fruits of the action. 36 It then, thus possesses the right
to enforce the claim and the significant interest in the litigation. 37 In the case at bar, it is clear that respondent insurer was suing on its
own behalf in order to enforce its right of subrogation.
On the second issue, we affirm the findings of the lower courts that petitioner Lorenzo Shipping was negligent in its care and custody of
the consignees goods.
The steel pipes, subject of this case, were in good condition when they were loaded at the port of origin (Manila) on board petitioner
Lorenzo Shippings M/V Lorcon IV en route to Davao City. Petitioner Lorenzo Shipping issued clean bills of lading covering the subject
shipment. A bill of lading, aside from being a contract 38 and a receipt,39 is also a symbol40 of the goods covered by it. A bill of lading
which has no notation of any defect or damage in the goods is called a "clean bill of lading." 41 A clean bill of lading constitutes prima
facie evidence of the receipt by the carrier of the goods as therein described.42
The case law teaches us that mere proof of delivery of goods in good order to a carrier and the subsequent arrival in damaged
condition at the place of destination raises a prima facie case against the carrier.43 In the case at bar, M/V Lorcon IV of petitioner
Lorenzo Shipping received the steel pipes in good order and condition, evidenced by the clean bills of lading it issued. When the cargo
was unloaded from petitioner Lorenzo Shippings vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all over. M/V San
Mateo Victory of respondent Gearbulk, Ltd, which received the cargo, issued Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1
to 6 covering the entire shipment, all of which were marked "ALL UNITS HEAVILY RUSTED." R.J. Del Pan Surveyors found that the
cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was rusty, thinning and perforated, thereby exposing the
cargo to sea water. There can be no other conclusion than that the cargo was damaged while on board the vessel of petitioner Lorenzo
Shipping, and that the damage was due to the latters negligence. In the case at bar, not only did the legal presumption of negligence
attach to petitioner Lorenzo Shipping upon the occurrence of damage to the cargo. 44 More so, the negligence of petitioner was
sufficiently established. Petitioner Lorenzo Shipping failed to keep its vessel in seaworthy condition. R.J. Del Pan Surveyors found the
tank top of M/V Lorcon IV to be "rusty, thinning, and with several holes at different places." Witness Captain Pablo Fernan, Operations
Manager of respondent Transmarine Carriers, likewise observed the presence of holes at the deck of M/V Lorcon IV. 45 The unpatched
holes allowed seawater, reaching up to three (3) inches deep, to enter the flooring of the hatch of the vessel where the steel pipes were

stowed, submerging the latter in sea water.46 The contact with sea water caused the steel pipes to rust. The silver nitrate test, which
Toplis and Harding employed, further verified this conclusion.47 Significantly, petitioner Lorenzo Shipping did not even attempt to present
any contrary evidence. Neither did it offer any proof to establish any of the causes that would exempt it from liability for such damage. 48
It merely alleged that the: (1) packaging of the goods was defective; and (2) claim for damages has prescribed.
To be sure, there is evidence that the goods were packed in a superior condition. John M. Graff, marine surveyor of Toplis and Harding,
examined the condition of the cargo on board the vessel San Mateo Victory. He testified that the shipment had superior packing
"because the ends were covered with plastic, woven plastic. Whereas typically they would not go to that bother ... Typically, they come
in with no plastic on the ends. They might just be banded, no plastic on the ends ..."49
On the issue of prescription of respondent Chubb and Sons claim for damages, we rule that it has not yet prescribed at the time it was
made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average,
which may be found therein upon the opening of the packages, may be made, provided that the indications of the damage or
average which gives rise to the claim cannot be ascertained from the outside part of such package, in which case the claim
shall be admitted only at the time of the receipt.
After the periods mentioned have elapsed, or transportation charges have been paid, no claim shall be admitted against the
carrier with regard to the condition in which the goods transported were delivered.
A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads:50
NOTE: No claim for damage or loss shall be honored twenty-four (24) hours after delivery.
(Ref. Art. 366 C Com.)
The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be presented does not begin to
run until the consignee has received such possession of the merchandise that he may exercise over it the ordinary control pertinent to
ownership.51 In other words, there must be delivery of the cargo by the carrier to the consignee at the place of destination. 52 In the case
at bar, consignee Sumitomo has not received possession of the cargo, and has not physically inspected the same at the time the
shipment was discharged from M/V Lorcon IV in Davao City. Petitioner Lorenzo Shipping failed to establish that an authorized agent of
the consignee Sumitomo received the cargo at Sasa Wharf in Davao City. Respondent Transmarine Carriers as agent of respondent
Gearbulk, Ltd., which carried the goods from Davao City to the United States, and the principal, respondent Gearbulk, Ltd. itself, are not
the authorized agents as contemplated by law. What is clear from the evidence is that the consignee received and took possession of
the entire shipment only when the latter reached the United States shore. Only then was delivery made and completed. And only then
did the 24-hour prescriptive period start to run.
Finally, we find no merit to the contention of respondents Gearbulk and Transmarine that American law governs the contract of carriage
because the U.S.A. is the country of destination. Petitioner Lorenzo Shipping, through its M/V Lorcon IV, carried the goods from Manila
to Davao City. Thus, as against petitioner Lorenzo Shipping, the place of destination is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and
its Resolution dated March 28, 2001 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

PHILIPPINE CHARTER INSURANCE CORPORATION

VS
CHEMOIL LIGHTERAGE
Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance.
Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods.
On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06 metric tons of the liquid
chemical DIOCTYL PHTHALATE (DOP) on board MT "TACHIBANA" which was valued at US$90,201.57 under Bill of Lading No.
ULS/MNL-13 and another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No. ULS/MNL-2 4 to the Philippines.
The consignee was Plastic Group Phils., Inc. (PGP) in Manila.
PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks. The insurance was under
Marine Policies No. MRN-307215 dated 06 February 1991 for P31,757,969.19 and No. MRN-307226 for P4,514,881.00. Marine
Endorsement No. 27867 dated 11 May 1991 was attached and formed part of MRN-30721, amending the latters insured value to
P24,667,422.03, and reduced the premium accordingly.
The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of respondent Chemoil Lighterage Corporation,
which shall transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload the cargo to tanker trucks, also
owned by the respondent, and haul it by land to PGPs storage tanks in Calamba, Laguna.
Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to amber, demonstrating that it was
damaged, as DOP is colorless and water clear. PGP then sent a letter to the petitioner dated 18 February 1991 8 where it formally made
an insurance claim for the loss it sustained due to the contamination.
The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and
Condition Survey of the shipment. On 22 February 1991, GIT issued a Report,9 part of which states:
As unloading progressed, it was observed on February 14, 1991 that DOP samples taken were discolored from yellowish to amber.
Inspection of cargo tanks showed manhole covers of ballast tanks ceilings loosely secured. Furthermore, it was noted that the rubber
gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo
ingress to the rusty ballast tanks10
On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.0011 as full and final payment for the loss. PGP issued a
Subrogation Receipt to the petitioner.
Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full payment for the latters services, as
evidenced by Official Receipt No. 1274.12
On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Branch 16,
City of Manila, docketed as Civil Case No. 91-57923. 13 The petitioner prayed for actual damages in the amount of P5,000,000.00,
attorneys fees in the amount of no less than P1,000,000.00, and costs of suit.
An Answer with Compulsory Counterclaim 14 was filed by the respondent on 05 September 1991. The respondent admitted it undertook
to transport the consignees shipment from MT "TACHIBANA" to the Del Pan Bridge, Pasig River, where it was transferred to its tanker
trucks for hauling to PGPs storage tanks in Calamba, Laguna. The respondent alleged that before the DOP was loaded into its barge
(LB-1011), the surveyor/representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for
loading. The entire loading and unloading of the shipment were also done under the control and supervision of PGPs
surveyor/representative. It was also mentioned by the respondent that the contract between it and PGP expressly stipulated that it shall
be free from any and all claims arising from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without
any protest or notice; and that the cargo shall be insured by its owner sans recourse against all risks. As subrogee, the petitioner was
bound by this stipulation. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence
in handling the cargo.15
After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff ordering defendant to pay plaintiffs claim
of P5,000,000.00 with legal interest from the date of the filing of the complaint. The counterclaims are DISMISSED.16
Aggrieved by the trial courts decision, the respondent sought relief with the Court of Appeals where it alleged in the main that PGP
failed to file any notice, claim or protest within the period required by Article 366 of the Code of Commerce, which is a condition
precedent to the accrual of a right of action against the carrier. 17 A telephone call which was supposedly made by a certain Alfred Chan,
an employee of PGP, to one of the Vice Presidents of the respondent, informing the latter of the discoloration, is not the notice required
by Article 366 of the Code of Commerce.18

On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a new one is entered dismissing the
complaint.19
A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the decision of the trial court be affirmed.
After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court issued a Resolution23 on 18 August 1999,
giving due course to the petition.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
I
THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN THE REQUIRED
PERIOD.
II
THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR
NEGLIGENCE OF RESPONDENT CHEMOIL.
III
THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURTS DECISION AND IN DISMISSING THE
COMPLAINT.24
ISSUES
Synthesized, the issues that must be addressed by this Court are:
I
WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the answer is in the affirmative,
II
WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF THE RESPONDENT.
THE COURTS RULINGS
Article 366 of the Code of Commerce has profound application in the case at bar. This provision of law imparts:
Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of
damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim
cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of
the packages.
After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted
against the carrier with regard to the condition in which the goods transported were delivered.
As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan, an employee of PGP, to Ms.
Encarnacion Abastillas, Vice President for Administration and Operations of the respondent, at the time of the delivery of the cargo, and
therefore, within the required period.25 This was done by telephone.
The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. Between the
testimonies of Alfredo Chan and Encarnacion Abastillas, the latters testimony is purportedly more credible because it would be quite
unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal notice of claim that involves millions of
pesos.26

On this point, the Court of Appeals declared:

. . . We are inclined to sustain the view that a telephone call made to defendant-company could constitute substantial compliance with
the requirement of notice considering that the notice was given to a responsible official, the Vice-President, who promptly replied that
she will look into the matter. However, it must be pointed out that compliance with the period for filing notice is an essential part of the
requirement, i.e.. immediately if the damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the clear
import being that prompt examination of the goods must be made to ascertain damage if this is not immediately apparent. We have
examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the
right of action against the carrier.27
The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the Court of Appeals, the former
allegedly holding that the period to file the notice had been complied with, while the latter held otherwise.
We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of the Code of Commerce, the
finding of fact of the Court of Appeals does not actually contradict the finding of fact of the trial court. Both courts held that, indeed, a
telephone call was made by Alfredo Chan to Encarnacion Abastillas, informing the latter of the contamination. However, nothing in the
trial courts decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of
twenty-four hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire
records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim
was timely relayed or filed.
The allegation of the petitioner that not only the Vice President of the respondent was informed, but also its drivers, as testified by
Alfredo Chan, during the time that the delivery was actually being made, cannot be given great weight as no driver was presented to
the witness stand to prove this. Part of the testimony of Alfredo Chan is revealing:
Q:
Mr. Witness, were you in your plant site at the time these various cargoes were delivered?
A: No, sir.

Q: So, do you have a first hand knowledge that your plant representative informed the driver of the alleged contamination?
A: What do you mean by that?
Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver?
A: No, sir.28
From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal knowledge that the drivers of the
respondent were informed of the contamination.
The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty
or worthless proviso. In a case, we held:
The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee
of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so
that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four hours thereafter, and if necessary fix
responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the
minds of the parties.29
In another case, we ruled, thus:
More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to the goods,
the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carriers liability. Such
requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just
liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore, and to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.30

The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right
of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the
condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a
reasonable condition precedent; it does not constitute a limitation of action.31
The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the period to make a claim has
elapsed that no claim whatsoever shall be admitted, as no claim may similarly be admitted after the transportation charges have been
paid.
In this case, there is no question that the transportation charges have been paid, as admitted by the petitioner, and the corresponding
official receipt32 duly issued. But the petitioner is of the view that the payment for services does not invalidate its claim. It contends that
under the second paragraph of Article 366 of the Code of Commerce, it is clear that if notice or protest has been made prior to payment
of services, claim against the bad order condition of the cargo is allowed.
We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period
provided for under Article 366 of the Code of Commerce. Petitioners contention proceeds from a false presupposition that the notice of
claim was timely filed.
Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue.
WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December 1998, which reversed and set
aside the decision of the trial court, is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

ABOITIZ
SHIPPING
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

CORPORATION,

petitioner,

DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the insurer
steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who caused
the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which reversed the Decision 2 of the
Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and
attorney's fees in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine
insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and
workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City,
Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure
for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if any,
payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S Katsuragi. A clean
bill of lading6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship
arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26, 1993, the
cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz
Transport System. The bill of lading7 issued by Aboitiz contained the notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the
Stuffing/Stripping Report.8 On August 1, 1993, the container van was loaded on board petitioner's vessel, MV Super Concarrier I. The
vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then
brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report 9 dated
August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP)
and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13,
1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained water
damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container and
other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and
showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no
water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the
"grounded outside warehouse" notation in the bill of lading referred only to the container van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo. 12 The letter stated that the
crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have been
completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the inside
with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that apparently, the
damage was caused by water entering through the broken parts of the crate.

The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment
Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water
damage, molds, and corrosion which were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim 14 with Aboitiz in the amount of P276,540.00 for the damaged condition of
the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993, 15 CAC reported to ICNA that based on official weather report from the Philippine
Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused
water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila
when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading
issued by Aboitiz which contained the notation "grounded outside warehouse." It was only on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt was
duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups,
however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and attorney's
fees.16 ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the fault and negligence
of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no
cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature there
being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being
baseless and without merit. The complaint is hereby DISMISSED. The defendant's counterclaims are, likewise, DISMISSED
for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court noted that
Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA.
However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK
assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee
must fail because the subrogation receipt had no probative value for being hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA
UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that
ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office
address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK assigned
the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature below the name
MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff's
witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic) the
deposition of the person who made that signature. Hence, the claim that there was an endorsement of the marine policy has
no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as
shown by the Subrogation Form (Exhibit "K") allegedly signed by a representative of Science Teaching Improvement Project.

Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has
no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the
Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized to do
business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March
1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under
Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in the
Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of Investments
and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing business in the
Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of
subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the
dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the period
required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation receipt should
have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial
Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered
ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America
the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and
attorney's fees in the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As
subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that
the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming
reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by
Philippine courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the
claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and recover the full
amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing
evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence on record and relevant
provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.
Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE
OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE
ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A
WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT
OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").

(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS
PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO
INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT
ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE
AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A
REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND
KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF
ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest that possesses
the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required
under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only
when that foreign corporation is "transacting" or "doing business" in the country will a license be necessary before it can institute suits. 24
It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law.25 Thus, this Court has held
that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of
engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to
our courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present
suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought the suit and not the
foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the
foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper, in
favor of STIP of Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company who
issued the insurance, or against any of its listed agents worldwide. 27 MSAS accepted said provision when it signed and accepted the
policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the
agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure
MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any,
payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This is
in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the
owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment . The right of
subrogation springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by the insurer to the assured
operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage.

Subrogation 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 of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation equipped it with a
cause of action against petitioner in case of a contractual breach or negligence. 30 This right of subrogation, however, has its limitations.
First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading. 31 Second, the insurer can be
subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the
insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the carrier's liability.
Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. As held in the case of
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement protects the carrier by affording it an
opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard the
carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage is
not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made
immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or
average which may be found therein upon opening the packages, may be made, provided that the indications of the damage
or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim
shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against
the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract
between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading
issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated August 15, 1993,
that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But petitioner admits that even
before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone sometime in
August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery site to inspect the goods in behalf of
petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35 the notice was allegedly made by
the consignee through telephone. The claim for damages was denied. This Court ruled that such a notice did not comply with the notice
requirement under the law. There was no evidence presented that the notice was timely given. Neither was there evidence presented
that the notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the PCIC case,
albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be given a
reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their application is limited to
cases falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered goods were
discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able
to investigate the claims himself and he confirmed that the goods were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather
than a strict construction.37 We give due consideration to the fact that the final destination of the damaged cargo was a school institution
where authorities are bound by rules and regulations governing their actions. Understandably, when the goods were delivered, the
necessary clearance had to be made before the package was opened. Upon opening and discovery of the damaged condition of the
goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by the institution to the
claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded
instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately
inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus,
there was substantial compliance with the notice requirement in this case.

To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim for
damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the Civil Code is
that in cases where 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 required by law. 38 Extraordinary diligence is that extreme
measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own
property rights.39 This standard is intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have
been entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that petitioner failed to
overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo Arrastre,
and the crates opened, it was discovered that the workbenches and work tools suffered damage due to "wettage" although by
then they were already physically dry. Appellee carrier having failed to discharge the burden of proving that it exercised
extraordinary diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its
part from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time the same were
delivered to the consignee (August 11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day, it was
stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On August 1, 1993, it
was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the shipment was outside a container
van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse," suggesting that from July
26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during the same period, We
can conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could
be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature and characteristic of the goods
tendered for transport and that it exercised due care in handling them.42 Extraordinary diligence must include safeguarding the shipment
from damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment but only to the carrier van,
petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that the crate was
properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped into the
cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31,
1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the time it was
delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other
inevitable conclusion can be deduced from the foregoing established facts that damage from "wettage" suffered by the subject
cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing rainwater to seep into the
cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject goods by claiming that the
notation "GROUNDED OUTSIDE WHSE." actually refers to the container and not the contents thereof or the cargoes. And yet
it presented no evidence to explain where did they place or store the subject goods from the time it accepted the same for
shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container van to another container
and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on August 2, 1993 . x x x If
the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided no explanation as to where said
cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was stripped from
the container van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the appellee's
vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila port did not indicate
any such defect or damage, but when the container was stripped upon arrival in Cebu City port after being discharged from
appellee's vessel, it was noted that only one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit
"F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised the
extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.SO ORDERED.

MAERSK
LINE,
petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of Ethegal Laboratories, respondents.
Bito, Lozada, Ortega & Castillo for petitioner.
Humberto A. Jambora for private respondent.

BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines through its general agent
Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm engaged in the manutacture of
pharmaceutical products.
On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly, Inc.'s) agent in the
Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The capsules were
placed in six (6) drums of 100,000 capsules each valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc. of Puerto
Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six (6) drums of 100,000 capsules each, were
already shipped on board MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland, California. In
said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then transported back
Oakland, Califorilia. The goods finally arrived in the Philippines on June 10, 1977 or after two (2) months from the date specified in the
memorandum. As a consequence, private respondent as consignee refused to take delivery of the goods on account of its failure to
arrive on time.
Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an action before the court a quo for
rescission of contract with damages against petitioner and Eli Lilly, Inc. as defendants.
Denying that it committed breach of contract, petitioner alleged in its that answer that the subject shipment was transported in
accordance with the provisions of the covering bill of lading and that its liability under the law on transportation of good attaches only in
case of loss, destruction or deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its cross-claim, it alleged that the delay
in the arrival of the the subject merchandise was due solely to the gross negligence of petitioner Maersk Line.
The issues having been joined, private respondent moved for the dismissal of the complaint against Eli Lilly, Inc.on the ground that the
evidence on record shows that the delay in the delivery of the shipment was attributable solely to petitioner.
Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc. Correspondingly, the latter withdraw
its cross-claim against petitioner in a joint motion dated December 3, 1979.
After trial held between respondent and petitioner, the court a quo rendered judgment dated January 8, 1982 in favor of respondent
Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a breach in the performance
of their obligation by the defendant Maersk Line consisting of their negligence to ship the 6 drums of empty Gelatin
Capsules which under their own memorandum shipment would arrive in the Philippines on April 3, 1977 which under
Art. 1170 of the New Civil Code, they stood liable for damages.
Considering that the only evidence presented by the defendant Maersk line thru its agent the Compania de Tabacos
de Filipinas is the testimony of Rolando Ramirez who testified on Exhs. "1" to "5" which this Court believe ( sic) did not
change the findings of this Court in its decision rendered on September 4, 1980, this Court hereby renders judgment
in favor of the plaintiff Efren Castillo as against the defendant Maersk Line thru its agent, the COMPANIA GENERAL
DE TABACOS DE FILIPINAS and ordering:

(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY NINE THOUSAND
PESOS, (P369,000.00) as unrealized profit;.
(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), as moral damages;
(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as exemplary damages;
(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY PESOS AND NINETY
SEVEN CENTAVOS (P11,680.97) as cost of credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as attorney's fees and to pay the
costs of suit.
That the above sums due to the plaintiff will bear the legal rate of interest until they are fully paid from the time the
case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications the lower court's decision as
follows:
WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified, the judgment in this case
should read as follows:
Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-appellee (1) compensatory
damages of P11,680.97 at 6% annual interest from filing of the complaint until fully paid, (2) moral damages of
P50,000.00, (3) exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses
of P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following "issues" for resolution of the court :
I
Whether or not the respondent Court of Appeals committed an error when it ruled that a defendant's cross-claim
against a co-defendant survives or subsists even after the dismissal of the complaint against defendant-cross
claimant.
II
Whether or not respondent Castillo is entitled to damages resulting from delay in the delivery of the shipment in the
absence in the bill of lading of a stipulation on the period of delivery.
III
Whether or not the respondent appellate court erred in awarding actual, moral and exemplary damages and
attorney's fees despite the absence of factual findings and/or legal bases in the text of the decision as support for
such awards.
IV
Whether or not the respondent Court of Appeals committed an error when it rendered an ambiguous and unexplained
award in the dispositive portion of the decision which is not supported by the body or the text of the decision. (Rollo,
pp.94-95).
With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against co-defendant (petitioner herein)
survives or subsists even after the dismissal of the complaint against defendant-cross-claimant (petitioner herein), we rule in the
negative.
Apparently this issue was raised by reason of the declaration made by respondent court in its questioned decision, as follows:

Re the first assigned error: What should be rescinded in this case is not the "Memorandum of Shipment" but the
contract between appellee and defendant Eli Lilly (embodied in three documents, namely: Exhs. A, A-1 and A-2)
whereby the former agreed to buy and the latter to sell those six drums of gelatin capsules. It is by virtue of the crossclaim by appellant Eli Lilly against defendant Maersk Line for the latter's gross negligence in diverting the shipment
thus causing the delay and damage to appellee that the trial court found appellant Maersk Line liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause of action against it and
appellant Eli Lilly because the shipment was delivered in good order and condition, and the bill of lading in question
contains "stipulations, exceptions and conditions" Maersk Line's liability only to the "loss, destruction or deterioration,"
indeed, this issue of lack of cause of action has already been considered in our foregoing discussion on the second
assigned error, and our resolution here is still that appellee has a cause of action against appellant Eli Lilly. Since the
latter had filed a cross-claim against appellant Maersk Line, the trial court committed no error, therefore, in holding
the latter appellant ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-claim filed its co-defendant Eli Lilly,
Inc. which cross-claim has been dismissed, the original complaint against it should likewise be dismissed. We disagree. It should be
recalled that the complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier. Petitioner being an
original party defendant upon whom the delayed shipment is imputed cannot claim that the dismissal of the complaint against Eli Lilly,
Inc. inured to its benefit.
Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim of Eli Lilly, Inc. As borne out by the
record, the trial court anchored its decision on petitioner's delay or negligence to deliver the six (6) drums of gelatin capsules within a
reasonable time on the basis of which petitioner was held liable for damages under Article 1170 of the New Civil Code which provides
that those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene
the tenor thereof, are liable for damages.
Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the delivery of the 600,000 empty gelatin
capsules since it acted in good faith and there was no special contract under which the carrier undertook to deliver the shipment on or
before a specific date (Rollo, p. 103).
On the other hand, private respondent claims that during the period before the specified date of arrival of the goods, he had made
several commitments and contract of adhesion. Therefore, petitioner can be held liable for the damages suffered by private respondent
for the cancellation of the contracts he entered into.
We have carefully reviewed the decisions of respondent court and the trial court and both of them show that, in finding petitioner liable
for damages for the delay in the delivery of goods, reliance was made on the rule that contracts of adhesion are void. Added to this, the
lower court stated that the exemption against liability for delay is against public policy and is thus, void. Besides, private respondent's
action is anchored on Article 1170 of the New Civil Code and not under the law on Admiralty (AC-GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among others, reads:
6. GENERAL
(1) The Carrier does not undertake that the goods shall arive at the port of discharge or the place of delivery at any
particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier shall in no
circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If the Carrier should
nevertheless be held legally liable for any such direct or indirect or consequential loss or damage caused by delay,
such liability shall in no event exceed the freight paid for the transport covered by this Bill of Lading. (Exh. "1-A"; ACG.R. CV No. 10340, Folder of Exhibits, p. 41)
It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a contract of adhesion. Generally,
contracts of adhesion are considered void since almost all the provisions of these types of contracts are prepared and drafted only by
one party, usually the carrier (Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the other party in such a
contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit Corporation v. Court of Appeals, 204 SCRA 601
[1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v. Court of Appeals, et al., 91 SCRA 223
[1979]; Servando, et al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]). One who adheres to the contract is in reality free to
reject it in its entirety; if he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court of Appeals, et al.,
201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as contract to transport and
deliver the same a 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. (Emphasis supplied)
However, the aforequoted ruling applies only if such contracts will not create an absurd situation as in the case at bar. The questioned
provision in the subject bill of lading has the effect of practically leaving the date of arrival of the subject shipment on the sole
determination and will of the carrier.
While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and persons are not vested with the
right to prompt delivery, unless such common carriers previously assume the obligation to deliver at a given date or time (Mendoza v.
Philippine Air Lines, Inc., 90 Phil. 836 [1952]), delivery of shipment or cargo should at least be made within a reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not
an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law
implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any
agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver
properly within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it
may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or charge,
and the default in himself, and has no remedy over, then his own contract creates a duty or charge upon himself, he
is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have
provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier is to be
determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation
of contracts.
An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41) shows that the subject shipment
was estimated to arrive in Manila on April 3, 1977. While there was no special contract entered into by the parties indicating the date of
arrival of the subject shipment, petitioner nevertheless, was very well aware of the specific date when the goods were expected to
arrive as indicated in the bill of lading itself. In this regard, there arises no need to execute another contract for the purpose as it would
be a mere superfluity.
In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2) months and seven (7) days falls was
beyond the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject shipment was
delivered to, and left in, the possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But through
petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it cannot be held liable for the delay finds no
merit.
Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not valid since there are no factual
findings or legal bases stated in the text of the trial court's decision to support the award thereof.
Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v. Macasaet. 189 SCRA 561 [1990]). In
the case at bar, private respondent was able to sufficiently prove through an invoice (Exh. 'A-1'), certification from the issuer of the letter
of credit (Exh.'A-2') and the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit line for the subject goods.
Therefore, respondent court acted correctly in affirming the award of eleven thousand six hundred eighty pesos and ninety seven
centavos (P11,680.97) as costs of said credit line.
As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral damages may be awarded in
"breaches of contract where the defendant acted fraudulently or in bad faith" (Pan American World Airways v. Intermediate Appellate
Court, 186 SCRA 687 [1990]).
In the case before us, we that the only evidence presented by petitioner was the testimony of Mr. Rolando Ramirez, a claims manager
of its agent Compania General de Tabacos de Filipinas, who merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and nothing
else. Petitioner never even bothered to explain the course for the delay, i.e. more than two (2) months, in the delivery of subject
shipment. Under the circumstances of the case, we hold that petitioner is liable for breach of contract of carriage through gross
negligence amounting to bad faith. Thus, the award of moral damages if therefore proper in this case.
In line with this pronouncement, we hold that exemplary damages may be awarded to the private respondent. In contracts, exemplary
damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppresive or malevolent manner. There was gross
negligence on the part of the petitioner in mishiping the subject goods destined for Manila but was inexplicably shipped to Richmond,

Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct, hence, exemplary damages may be awarded to the
aggrieved party (Radio Communication of the Phils., Inc. v. Court of Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary damages are awarded (Artice
2208, New Civil Code). In the case at bar, we hold that private respondent is entitled to reasonable attorney`s fees since petitioner acte
with gross negligence amounting to bad faith.
However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty (30) percent of the total damages
awarded except item 3 regarding attorney`s fees and litigation expenses in favor of private respondent, to be unconsionable, the same
should be deleted.
WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision, the appealed decision is is hereby
AFFIRMED in all respects.
SO ORDERED.

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.

PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their destination constitutes prima
facie fault or negligence on the part of the carrier. If no adequate explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998 Decision 1 and the May 2, 2000
Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads as follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and SET ASIDE.
Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following:
'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual damages,
representing the value of the damaged cargo, plus interest at the legal rate from the time of filing of the complaint on
July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit.'"4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as defendant's
counterclaim."5
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of various
Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. On July 28,
1990, M/V Anangel Sky arrived at the port of Manila and, within the subsequent days, discharged the subject cargo. Four (4)
coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to be unfit for
the intended purpose, the consignee Philippine Steel Trading Corporation declared the same as total loss.1wphi1.nt
"Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee's claim. Consequently, plaintiffappellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the
latter's rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant instituted this complaint for
recovery of the amount paid by them, to the consignee as insured.
"Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss was due to preshipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the sea, or to
insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their representatives. In addition
thereto, defendants-appellees argued that their liability, if there be any, should not exceed the limitations of liability provided for
in the bill of lading and other pertinent laws. Finally, defendants-appellees averred that, in any event, they exercised due
diligence and foresight required by law to prevent any damage/loss to said shipment."6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of proof required by law.7
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous or primarily intended to harass
them.8
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods shipped, because they had
failed to overcome the presumption of negligence imposed on common carriers.

The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the goods was due to pre-shipment
damage.9 It likewise opined that the notation "metal envelopes rust stained and slightly dented" placed on the Bill of Lading had not
been the proximate cause of the damage to the four (4) coils.10
As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not applicable, because the words
"L/C No. 90/02447" indicated that a higher valuation of the cargo had been declared by the shipper. The CA, however, affirmed the
award of attorney's fees.
Hence, this Petition.11
Issues
In their Memorandum, petitioners raise the following issues for the Court's consideration:
I
"Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and whose testimony is
purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage and to exempt
herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is applicable to the case at bar." 12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the basis of the lone testimony
offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they transport. 13 Thus, common
carriers are required to render service with the greatest skill and foresight and "to use all reason[a]ble means to ascertain the nature
and characteristics of the goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods
as their nature requires."14 The extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of
and received for transportation by the carrier until they are delivered, actually or constructively, to the consignee or to the person who
has a right to receive them.15

This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such contract, the riding public enters
into a contract of transportation with common carriers. 16 Even if it wants to, it cannot submit its own stipulations for their approval. 17
Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed. 18 That is, unless they prove that they exercised
extraordinary diligence in transporting the goods.19 In order to avoid responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such diligence.20
However, the presumption of fault or negligence will not arise21 if the loss is due to any of the following causes: (1) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act
or omission of the shipper or owner of the goods; (4) the character of the goods or defects in the packing or the container; or (5) an
order or act of competent public authority.22 This is a closed list. If the cause of destruction, loss or deterioration is other than the
enumerated circumstances, then the carrier is liable therefor.23
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, the loss or the destruction of the goods happened, the transporter shall be held responsible.24
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a review of the records and
more so by the evidence adduced by respondent.25
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in Hamburg, Germany.26
Second, prior to the unloading of the cargo, an Inspection Report 27 prepared and signed by representatives of both parties showed the
steel bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979 28 issued by Jardine Davies Transport Services, Inc., stated that the four coils were in bad
order and condition. Normally, a request for a bad order survey is made in case there is an apparent or a presumed loss or damage.29
Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested, the steel sheets found in bad order were wet
with fresh water.
Fifth, petitioners -- in a letter31 addressed to the Philippine Steel Coating Corporation and dated October 12, 1990 -- admitted that they
were aware of the condition of the four coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent portions of his testimony are
reproduce hereunder:
"Q.
Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what company you
are connected?
A.

BM Santos Checkers Agency, sir.

Q.

How is BM Santos checkers Agency related or connected with defendant Jardine Davies Transport Services?

A.

It is the company who contracts the checkers, sir.

Q.

You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and responsibilities?

A.

I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.

xxx

xxx

xxx

Q.

On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker?

A.

Yes, sir.

Q.
And, on or about that date, do you recall having attended the discharging and inspection of cold steel sheets in coil on
board the MV/AN ANGEL SKY?
A.

Yes, sir, I was there.

xxx

xxx

xxx

Q.
Based on your inspection since you were also present at that time, will you inform this Honorable Court the condition or
the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the best evidence
is the document itself, Your Honor that shows the condition of the steel sheets.
COURT:
Let the witness answer.
A.

The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides."32

All these conclusively prove the fact of shipment in good order and condition and the consequent damage to the four coils while in the
possession of petitioner,33 who notably failed to explain why.34
Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the law requires a common
carrier to know and to follow to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.35
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the loss. 36 Having been in the service for several years, the master of the
vessel should have known at the outset that metal envelopes in the said state would eventually deteriorate when not properly stored
while in transit.37 Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of transporting them,
the master of the vessel and his crew should have undertaken precautionary measures to avoid possible deterioration of the cargo. But
none of these measures was taken. 38 Having failed to discharge the burden of proving that they have exercised the extraordinary
diligence required by law, petitioners cannot escape liability for the damage to the four coils.39
In their attempt to escape liability, petitioners further contend that they are exempted from liability under Article 1734(4) of the Civil
Code. They cite the notation "metal envelopes rust stained and slightly dented" printed on the Bill of Lading as evidence that the
character of the goods or defect in the packing or the containers was the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to the condition noted on
the Bill of Lading.40 The aforecited exception refers to cases when goods are lost or damaged while in transit as a result of the natural
decay of perishable goods or the fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods in
transport, defects in packages in which they are shipped, or the natural propensities of animals.41 None of these is present in the instant
case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary observation, it is not
relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding such condition. 42 Thus, petitioners
have not successfully proven the application of any of the aforecited exceptions in the present case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act 44 (COGSA), respondent should have filed
its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent filed
its Notice of Claim only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be given if the state of the
goods, at the time of their receipt, has been the subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an
Inspection Report46 as to the condition of the goods was prepared and signed by representatives of both parties.47
Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar recovery if it is nonetheless filed
within one year.48 This one-year prescriptive period also applies to the shipper, the consignee, the insurer of the goods or any legal
holder of the bill of lading.49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by prescription as long as the one-year period
has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:

"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit--may be applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint 51 was filed by respondent on July 25, 1991, within
the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability should be limited to US$500 per
package as provided in the Bill of Lading and by Section 4(5)52 of COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the subject shipment was
declared by petitioners beforehand, as evidenced by the reference to and the insertion of the Letter of Credit or "L/C No. 90/02447" in
the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a contract by which three parties -namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and assume stipulated obligations. 56 In a
nutshell, the acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that it constituted a perfected and binding contract.57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or destruction of a cargo -- unless
the shipper or owner declares a greater value 58 -- is sanctioned by law.59 There are, however, two conditions to be satisfied: (1) the
contract is reasonable and just under the circumstances, and (2) it has been fairly and freely agreed upon by the parties. 60 The rationale
for this rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods. 61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per package. 62 In all
matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce
and special laws.63 Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a
statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading. 64 The
provisions on limited liability are as much a part of the bill of lading as though physically in it and as though placed there by agreement
of the parties.65
In the case before us, there was no stipulation in the Bill of Lading 66 limiting the carrier's liability. Neither did the shipper declare a higher
valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the basis for
petitioners' liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the importation of
steel sheets did not effect a declaration of the value of the goods as required by the bill. 67 That notation was made only for the
convenience of the shipper and the bank processing the Letter of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate from the Other Letter of Credit
arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract
of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount of goods
described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the
validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go
beyond the representations of the shipper in the bill of lading and to verify their accuracy vis--vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of
lading cannot negate petitioner's obligation to private respondent arising from the contract of transportation."70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per package and not on the per metric ton price
declared in the Letter of Credit. 71 In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,72 we explained the meaning of
packages:
"When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of
such units is disclosed in the shipping documents, each of those units and not the container constitutes the 'package' referred
to in the liability limitation provision of Carriage of Goods by Sea Act."

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the contents of the
containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should be considered as the shipping
unit subject to the US$500 limitation.1wphi1.nt
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners' liability is reduced to US$2,000 plus
interest at the legal rate of six percent from the time of the filing of the Complaint on July 25, 1991 until the finality of this Decision, and
12 percent thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.

IRON
BULK
SHIPPING
PHILIPPINES,
vs.
REMINGTON INDUSTRIAL SALES CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:

CO.,

LTD.,

petitioner,

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the August 28, 1998 Decision 1 and the
December 24, 1998 Resolution of the Court of Appeals in CA-G.R. CV No. 49725, 2 affirming in toto the decision of the Regional Trial
Court of Manila (Branch 9).
The factual background of the case is summarized by the appellate court, thus:
Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation (hereafter Remington for short) ordered from
defendant Wangs Company, Inc. (hereafter Wangs for short) 194 packages of hot rolled steel sheets, weighing 686.565 metric tons,
with a total value of $219,380.00, then equivalent to P6,469,759.17. Wangs forwarded the order to its supplier, Burwill (Agencies) Ltd.,
in Hongkong. On or about November 26, 1991, the 194 packages were loaded on board the vessel MV Indian Reliance at the Port of
Gdynia, Poland, for transportation to the Philippines, under Bill of Lading No. 27 (Exh. C). The vessels owner/charterer is represented
in the Philippines by defendant Iron Bulk Shipping Phils., Inc. (hereafter Iron Bulk for short).
Remington had the cargo insured for P6,469,759.17 during the voyage by Marine Insurance Policy No. 7741 issued by defendant
Pioneer Asia Insurance Corporation (hereafter Pioneer for short).
On or about January 3, 1992, the MV Indian Reliance arrived in the Port of Manila, and the 194 packages of hot rolled steel sheets
were discharged from the vessel. The cargo was inspected twice by SGS Far East Ltd. and found to be wet (with slight trace of salt)
and rusty, extending from 50% to 80% of each plate. Plaintiff filed formal claims for loss amounting to P544,875.17 with Pioneer, Iron
Bulk, Manila Port Services, Inc. (MPS) and ESE Brokerage Corporation (ESE). No one honored such claims.
Thus, plaintiff filed an action for collection, plus attorneys fees, against Wangs, Pioneer and Iron Bulk. . . ."3
and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit:

The evidence on record shows that the direct and immediate cause of the rusting of the goods imported by the plaintiff was the water
found inside the cargo hold of M/V Indian Reliance wherein those goods were stored during the voyage, particularly the water found on
the surface of the merchandise and on the floor of the vessel hatch. And even at the time the cargoes were being unloaded by crane at
the Pier of Manila, Iron Bulks witnesses noticed that water was dripping from the cargoes. (TSN dated July 20, 1993, pp. 13-14; TSN
dated May 30, 1994, pp. 8-9, 14, 24-25; TSN dated June 3, 1994, pp. 31-32; TSN dated July 14, 1994, pp. 10-11).
SGS Far East Limited, an inspection agency hired by defendant Wangs, issued Certificate of Inspection and Analysis No 6401/35071
stating the following findings:
Results of tests indicated that a very slight trace of salt was present in the sample as confirmed by the test of Sodium. The results
however does not necessarily indicate that the rusty condition of the material was caused by seawater.
Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer, submitted a Report (Exh. 10-Pioneer) dated
February 20, 1992 to Pioneer which pertinently reads as follows:
All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of cotton were rubbed by us on different rusty steel
sheets and submitted to Precision Analytical Services, Inc. to determine the cause of wetting. Result thereof as per Laboratory Report
No. 077-92 of this firm showed that: The sample was wetted/contaminated by fresh water.
After considering the foregoing test results and the other evidence on record, the Court found no clear and sufficient proof showing that
the water which stayed in the cargo hold of the vessel and which contaminated the merchandise was seawater. The Court, however, is
convinced that the subject goods were exposed to salt conditions as evidenced by the presence of about 17% Sodium on the rust
sample tested by SGS.
As to the source of the water found in the cargo hold, there is also no concrete and competent evidence on record establishing that
such water leaked from the pipe installed in Hatch No. 1 of M/V Indian Reliance, as claimed by plaintiff. Indeed, the plaintiff based
such claim only from information it allegedly received from its supplier, as stated in its letter to defendant Iron Bulk dated March 28,
1992 (Exh. K-3). And no one took the witness stand to confirm or establish the alleged leakage.
Nevertheless, since Iron Bulks own evidence shows that there was water inside the cargo hold of the vessel and that the goods stored
therein were wet and full of rust, without sufficient explanation on its part as to when and how water found its way into the vessel holds,
the Court finds and so holds that Iron Bulk failed to exercise the extraordinary diligence required by law in the handling and transporting
of the goods.
.....

Iron Bulk did not even exercise due diligence because admittedly, water was dripping from the cargoes at the time they were being
discharged from the vessel. Had Iron Bulk done so, it could have discovered by ordinary inspection that the cargo holds and the
cargoes themselves were affected by water and it could have provided some remedial measures to prevent or minimize the damage to
the cargoes. But it did not, showing its lack of care and diligence over the goods.
Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to establish by any clear and convincing evidence any of
the exempting causes provided for in Article 1734 of the Civil Code, it is presumed to have been at fault or to have acted negligently.
.....
WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby renders judgment in favor of it and against all the
defendants herein as follows:
1. Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the following amounts:
a) P544,875.17 representing the loss allowance for the goods insured, plus interest at the legal rate (6% p.a.)
reckoned from the time of filing of this case until full payment is made;
b) P50,000.00 for and as attorneys fees; and
c) the cost of suit.
2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by defendant Pioneer of the foregoing award to the
plaintiff, to reimburse defendant Pioneer the total amount it paid to the plaintiff, in respect to its right of subrogation.
3. Denying the counterclaims of all the defendants and the cross-claim of defendant Wangs Company, Incorporated and Iron Bulk
Shipping Co., Inc. for lack of merit.
4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against defendant Iron Bulk by virtue of its right of
subrogation.
5. Dismissing the case against defendant Wangs Company, Inc.
SO ORDERED.4
Only Iron Bulk filed the present petition raising the following Assignment of Errors:
FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of Lading to establish the condition of the
cargo upon loading;
SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo was not contaminated during the time the
same was in possession of the vessel, as evidenced by the express finding of the lower court that the contamination and
rusting was chemically established to have been caused by fresh water;
THRIDLY, the Court of Appeals erred in making a sweeping finding that the petitioner as carrier failed to exercise the requisite
diligence under the law, which is contrary to what is demonstrated by the evidence adduced; and
FINALLY, the Court of Appeals erred in affirming the amount of damages adjudicated by the Court below, which is at best
speculative and not supported by damages.5
The general rule is that only questions of law are entertained in petitions for review by certiorari under Rule 45 of the Rules of Court.
The trial courts findings of fact, which the Court of Appeals affirmed, are generally binding and conclusive upon this court. 6 There are
recognized exceptions to this rule, among which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of specific evidence on which the factual
findings are based; (7) the finding of absence of facts is contradicted by the presence of evidence on record; (8) the findings of the CA
are contrary to the findings of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings
are contrary to the admissions of both parties.7 Petitioner failed to demonstrate that its petition falls under any one of the above
exceptions, except as to damages which will be discussed forthwith.

Anent the first assigned error: That the Court of Appeals erred in relying on the pro forma Bills of Lading to establish the condition of the
cargo upon landing.
There is no merit to petitioners contention that the Bill of Lading covering the subject cargo cannot be relied upon to indicate the
condition of the cargo upon loading. It is settled that a bill of lading has a two-fold character. In Phoenix Assurance Co., Ltd. vs. United
States Lines, we held that:
[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 receipt, it recites the date and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks and condition, quality and value. As a contract, it names the contracting parties, which include the
consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed by the parties.8
We find no error in the findings of the appellate court that the questioned bill of lading is a clean bill of lading, i.e., it does not indicate
any defect in the goods covered by it, as shown by the notation, "CLEAN ON BOARD" 9 and "Shipped at the Port of Loading in apparent
good condition on board the vessel for carriage to Port of Discharge".10
Petitioner presented evidence to prove that, contrary to the recitals contained in the subject bill of lading, the cargo therein described as
clean on board is actually wet and covered with rust. Indeed, having the nature of a receipt, or an acknowledgement of the quantity and
condition of the goods delivered, the bill of lading, like any other receipts, may be explained, varied or even contradicted. 11 However, we
agree with the Court of Appeals that far from contradicting the recitals contained in the said bill, petitioners own evidence shows that
the cargo covered by the subject bill of lading, although it was partially wet and covered with rust was, nevertheless, found to be in a
"fair, usually accepted condition" when it was accepted for shipment.12
The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading is not truly reflective of the true condition of the
cargo at the time of loading to the effect that the said cargo was indeed in a damaged state, the carrier could have refused to accept it,
or at the least, made a marginal note in the bill of lading indicating the true condition of the merchandise. But it did not. On the contrary,
it accepted the subject cargo and even agreed to the issuance of a clean bill of lading without taking any exceptions with respect to the
recitals contained therein. Since the carrier failed to annotate in the bill of lading the alleged damaged condition of the cargo when it
was loaded, said carrier and the petitioner, as its representative, are bound by the description appearing therein and they are now
estopped from denying the contents of the said bill.
Petitioner presented in evidence the Mates Receipts 13 and a Survey Report 14 to prove the damaged condition of the cargo. However,
contrary to the asseveration of petitioner, the Mates Receipts and the Survey Report which were both dated November 6, 1991, are
unreliable evidence of the true condition of the shipment at the time of loading since said receipts and report were issued twenty days
prior to loading and before the issuance of the clean bill of lading covering the subject cargo on November 26, 1991. Moreover, while
the surveyor, commissioned by the carrier to inspect the subject cargo, found the inspected steel goods to be contaminated with rust
he, nonetheless, estimated the merchandise to be in a fair and usually accepted condition.
Anent the second and third assigned errors: That the Court of Appeals erred in not finding that the contamination and rusting was
chemically to have been caused by fresh water; and that the appellate court erred in finding that petitioner failed to exercise the
requisite diligence under the law.
Petitioners arguments in support of the assigned errors are not plausible. Even granting, for the sake of argument, that the subject
cargo was already in a damaged condition at the time it was accepted for transportation, the carrier is not relieved from its responsibility
to exercise due care in handling the merchandise and in employing the necessary precautions to prevent the cargo from further
deteriorating. It is settled that the extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for safe carriage
and delivery.15 It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means to
ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including
such methods as their nature requires.16 Under Article 1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods
should be caused, among others, by the character of the goods, the common carrier must exercise due diligence to forestall or lessen
the loss. This extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of, and received by
the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them. 17 In the instant case, if the carrier indeed found the steel sheets to have been covered by rust at the time
that it accepted the same for transportation, such finding should have prompted it to apply additional safety measures to make sure that
the cargo is protected from corrosion. This, the carrier failed to do.
Article 1734 of the Civil Code states that:
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.
Except in the cases mentioned under Article 1734, 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 under the
law.18 The Court of Appeals did not err in finding that no competent evidence was presented to prove that the deterioration of the
subject cargo was brought about by any of the causes enumerated under the aforequoted Article 1734 of the said Code. We likewise
agree with appellate courts finding that the carrier failed to present proof that it exercised extraordinary diligence in its vigilance over
the goods. The presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming the amount of damages awarded by the trial court.
We agree with the contention of the petitioner in its last assigned error that the amount of damages adjudicated by the trial court and
affirmed by the appellate court is not in consonance with the evidence presented by the parties. The judgments of both lower courts are
based on misapprehension of facts as we find no competent evidence to prove the actual damages sustained by respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the steel sheets, the cargo consigned to Remington
consisted of hot rolled steel sheets with lengths of eight feet and twenty feet. The eight-foot length steel sheets contained in 142
packages had a weight of 491.54 metric tons while the twenty-foot steel sheets which were contained in 52 packages weighed 194.25
metric tons.19 The goods were valued at $320.00 per metric ton.20
It is not disputed that at the time of inspection of the subject merchandise conducted by SGS Far East Limited on January 21-24, 1992
and January 27-28, 1992, only 30% of said goods originally consigned to Remington was available for examination at Remingtons
warehouse in Manila and that Remington had already disposed of the remaining 70%. In the Certificate of Inspection issued by SGS,
dated February 18, 1992, it was reported that the surface of the steel sheets with length of twenty feet were found to be rusty
"extending from 60% to 80% per plate".21 However, there was no proof to show how many metric tons of twenty-foot and eight-foot
length steel sheets, respectively, comprise the remaining 30% of the cargo. No competent evidence was presented to prove the weight
of the remaining twenty-foot length steel sheets, on the basis of which the amount of actual damages could have been ascertained.
Remington claims that 70% of the twenty-foot length steel sheets were damaged. Remingtons general manager, Rowina Tan Saban,
testified that the "70%" figure was based on the reports submitted by SGS and Tan-Gatue and Remingtons independent survey to
confirm these reports.22 Saban further testified that on the basis of these reports, Remington came up with a summary of the amount of
damages sustained by the subject cargo, to wit:
Plates 8 ft lengths

491.540 MT -

US$157,292.80

Quantity Damaged

25%

Loss Allowance

13%

Total Plates 8 ft lengths

US$ 15,211.56

Plates 20 ft lengths

194.025 MT -

US$ 62,088.00

Quantity Damaged

70%

Loss Allowance

35%

Total Plates 20 ft lengths

P544,875.71

with the following detailed computation:

Plates under 8 ft lengths 491.540 MT @ $320./MT
US $157,292.80
Multiply by 25% Qty. damaged

$ 39,323.20
13% Loss allowance

Plates under 20 ft. lengths 194.025 MT @ $320./MT

$ 5,112.02

US $ 62,088.00
Multiple 70% Qty. damaged

US $ 43,461.60
35% Loss allowance

Total claim

$ 15,211.56

US $ 5,112.02
$15,211.56
US $20,323.58 @ $26.81

= P544,875.17

and which the trial court based the actual damages awarded in favor of Remington.
However, after a careful examination of the reports submitted by SGS and Tan-Gatue, we find nothing in the said reports and
computation to justify the claim of Remington that 70% of the twenty-foot length steel sheets were damaged. Neither does the alleged
survey conducted by Remington consisting only of photographs,23 prove the quantity of the damaged cargo.
As to the eight-foot length steel sheets, SGS reported that they were found oiled all over which makes it hard to determine the rust
condition on its surface.24 On the other hand, the report issued by Tan-Gatue did not specify the extent of damage done to the said
merchandise.25 There is also no proof of the weight of the remaining eight-foot length steel sheets. From the foregoing, it is evident that
the extent of actual damage to the subject cargo is likewise not satisfactorily proven.
It is settled that actual or compensatory damages are not presumed and should be proven before they are awarded. In Spouses
Quisumbing vs. Meralco26, we held that
Actual damages are compensation for an injury that will put the injured party in the position where it was before it was injured. They
pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or stipulation,
a party is entitled to an adequate compensation only for such pecuniary loss as it has duly proven.
Hence, for failure of Remington to present sufficient evidence which is susceptible of measurement, it is not entitled to actual damages.
Nonetheless, since it was established that the subject steel sheets sustained damage by reason of the negligence of the carrier, albeit
no competent proof was presented to justify the award of actual damages, we find that Remington is entitled to temperate damages in
accordance with Articles 2216, 2224 and 2225 of the Civil Code, to wit:
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the
circumstances of each case.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with
certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances.1wphi1
Thirty percent of the alleged cost of damages, i.e., P544, 875.17 or P165,000.00 is reasonable enough for temperate damages.
We likewise agree with petitioners claim that it should not be held liable for the payment of attorneys fees because it was always
willing to settle its liability by offering to pay 30% of Remingtons claim and that it is only Remingtons unwarranted refusal to accept
such offer that led to the filing of the instant case. As found earlier, there is no evidence that the 70% of the 20-foot length steel sheets
which had been disposed of had been damaged. Neither is there competent evidence proving the actual extent of damage sustained by
the eight-foot length steel sheets. Petitioner was therefore justified in refusing to satisfy the full amount of Remingtons claims.
WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998 and the Resolution dated December 24, 1998, in
CA-G.R. CV No. 49725 are MODIFIED as follows: The award of actual damages and attorneys fees are deleted. Respondent is
awarded temperate damages in the amount of P165,000.00. In all other respects, the appealed decision and resolution are affirmed.
No pronouncement as to costs.
SO ORDERED.

PROVIDENT
INSURANCE
CORP.,
vs.
HONORABLE COURT OF APPEALS and AZUCAR SHIPPING CORP., respondents.

petitioner,

DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals dated November 15,
1994, which affirmed the appealed Orders dated August 12, 1991 and February 4, 1992 issued by the Regional Trial Court of Manila,
Branch 51, in Civil Case No. 91-56167.
The pertinent facts as culled from the stipulation of facts submitted by the parties are as follows:

On or about June 5, 1989, the vessel MV "Eduardo II" took and received on board at Sangi, Toledo City a shipment of 32,000 plastic
woven bags of various fertilizer in good order and condition for transportation to Cagayan de Oro City. The subject shipment was
consigned to Atlas Fertilizer Corporation, and covered by Bill of Lading No. 01 and Marine Insurance Policy No. CMI-211/89-CB.
Upon its arrival at General Santos City on June 7, 1989, the vessel MV "Eduardo II" was instructed by the consignee's representative to
proceed to Davao City and deliver the shipment to its Davao Branch in Tabigao.
On June 10, 1989, the MV "Eduardo II" arrived in Davao City where the subject shipment was unloaded. In the process of unloading the
shipment, three bags of fertilizer fell overboard and 281 bags were considered to be unrecovered spillages. Because of the mishandling
of the cargo, it was determined that the consignee incurred actual damages in the amount of P68,196.16.
As the claims were not paid, petitioner Provident Insurance Corporation indemnified the consignee Atlas Fertilizer Corporation for its
damages. Thereafter, petitioner, as subrogee of the consignee, filed on June 3, 1991 a complaint against respondent carrier seeking
reimbursement for the value of the losses/damages to the cargo.
Respondent carrier moved to dismiss the complaint on the ground that the claim or demand by petitioner has been waived, abandoned
or otherwise extinguished for failure of the consignee to comply with the required claim for damages set forth in the first sentence of
Stipulation No. 7 of the bill of lading, the full text of which reads
7. All claims for damages to the goods must be made to the carrier at the time of delivery to the consignee or his agent if the package
or containers show exterior sign of damage, otherwise to be made in writing to the carrier within twenty-four hours from the time of
delivery. Notice of loss due to delay must be given in writing to the carrier within 30 days from the time the goods were ready for
delivery, or in case of non-delivery or misdelivery of shipment the written notice must be given within 30 days after the arrival at the port
of discharge of the vessels on which the goods were received in case of the failure of the vessel on which the goods were shipped to
arrived at the port of discharge, misdelivery must be presented in writing to the carrier within two months after the arrival of the vessel of
the port of discharge or in case of the failure of the vessel in which the goods were shipped to arrive at the port of discharge written
claims shall be made within 30 days of the time the vessel should have arrived. The giving of notice and the filing of claims as above
provided shall be conditions precedent to the securing of the right of actions against the carrier for losses due to delay, non-delivery, or
misdelivery. In the case of damage to goods, the filing of the suit based upon claims arising from damage, delay, non-delivery or misdelivery shall be instituted within one year from the date of the accrual of the right of action. Failure to institute judicial proceedings as
herein provided shall constitute a waiver of the claim or right of action, and no agent nor employee of the carrier shall have authority to
waive any of the provisions or requirements of this bill of lading. Any action by the ship owner or its agents or attorneys in considering or
dealing with claims where the provisions or requirements of this bill of lading have not been complied with shall not be considered a
waiver of such requirements and they shall not be considered as waived except by an express waiver.1 (Italics Supplied)
The trial court, in an Order dated August 12, 1991, found the motion to dismiss well taken and accordingly, dismissed the complaint.2
Petitioner filed a motion for reconsideration which the trial court, in an Order dated February 4, 1992, denied.3
Aggrieved by the lower court's decision, petitioner appealed to the Court of Appeals. On November 15, 1994, the Court of Appeals
rendered the assailed decision which affirmed the lower court's Orders dated August 12, 1991 and February 4, 1992. 4 Hence, this
petition raising the lone error that
THE HONORABLE COURT OF APPEALS HAS DECIDED THE QUESTION IN ISSUE NOT IN ACCORDANCE WITH THE PURPOSE
FOR WHICH THE LAW WAS ESTABLISHED AND CONTRARY TO THE EXISTING JURISPRUDENCE. 5
In support of its petition, petitioner contends that it is unreasonable for the consignee Atlas Fertilizer Corporation to be required to abide
by the provisions of Stipulation No. 7 of the bill of lading. According to petitioner, since the place of delivery was remote and
inaccessible, the consignee cannot be expected to have been able to immediately inform its main office and make the necessary claim
for damages for the losses and unrecovered spillages in the subject cargo.
Petitioner further argues that the contents of the bill of lading are printed in small letters that no one would bother to read them, as they
are difficult to read.
Finally, petitioner avers that from June 13 to 18, 1987, the vessel's Chief Officer supervised the unloading of the shipment and
thereafter signed a discharging report attesting to the fact of loss and unrecovered spillages on the cargo. Thus, petitioner argues that
respondent carrier's knowledge of the loss and spillages was substantial compliance with the notice of claim required under Stipulation
No. 7 of the bill of lading.
The petition is bereft of merit.
It is a fact admitted by both parties that the losses and damages were caused by the mishandling of the cargo by respondent carrier.
There is also no dispute that the consignee failed to strictly comply with Stipulation No. 7 of the Bill of Lading in not making claims for
damages to the goods within the twenty-four hour period from the time of delivery, and that there was no exterior sign of damage of the

goods. Consequently, the only issue left to be resolved is whether the failure to make the prompt notice of claim as required is fatal to
the right of petitioner to claim indemnification for damages.
The bill of lading defines the rights and liabilities of the parties in reference to the contract of carriage. Stipulations therein are valid and
binding in the absence of any showing that the same are contrary to law, morals, customs, public order and public policy. Where the
terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations
shall control.
In light of the foregoing, there can be no question about the validity and enforceability of Stipulation No. 7 in the bill of lading. The
twenty-four hour requirement under the said stipulation is, by agreement of the contracting parties, a sine qua non for the accrual of the
right of action to recover damages against the carrier. The wisdom of this kind of proviso has been succinctly explained in Consunji v.
Manila Port Service, where it was held:
Carriers and depositaries sometimes require presentation of claims within a short time after delivery as a condition precedent to their
liability for losses. Such requirement is not an empty formalism. It has a definite purpose, i.e., to afford the carrier or depositary a
reasonable opportunity and facilities to check the validity of the claims while the facts are still fresh in the minds of the persons who took
part in the transaction and the document are still available.6
Considering that a prompt demand was necessary to foreclose the possibility of fraud or mistake in ascertaining the validity of claims,
there was a need for the consignee or its agent to observe the conditions provided for in Stipulation No. 7. Hence, petitioner's
insistence that respondent carrier had knowledge of the damage because one of respondent carrier's officers supervised the unloading
operations and signed a discharging report, cannot be construed as sufficient compliance with the aforementioned proviso. The
Discharge Report is not the notice referred to in Stipulation No. 7, hence, its accomplishment cannot be considered substantial
compliance of the requirement embodied therein. Moreover, a reading of the first paragraph of Stipulation No. 7 will readily show that
upon the consignee or its agent rests the obligation to make the necessary claim within the prescribed period and not merely rely on the
supposed knowledge of the damages by the carrier.
Petitioner also makes much of the fact that it had nothing to do with the preparation of the bill of lading. Worse, according to petitioner,
the bill of lading, particularly Stipulation No. 7, was printed in very small letters that no one would be minded to closely examine the
contents thereof and understand its legal implications.
We are not persuaded. A bill of lading is in the nature of a contract of adhesion, defined as one where one of the parties imposes a
ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding
as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.7
After it received the bill of lading without any objection, consignee Atlas Fertilizer Corporation was presumed to have knowledge of its
contents and to have assented to the terms and conditions set forth therein. The pronouncement by this Court in Magellan
Manufacturing Marketing Corp. v. Court of Appeals may be cited by analogy
The holding in most jurisdictions has been that 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. In other words, 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.8 (Italics Supplied)
In this regard, we also quote with approval the lower court's view on the matter when it said:
It is very clear that the Bill of Lading provides for the time or period within which a claim should be made or suit filed in Court. Plaintiff or
Atlas Fertilizer Corporation failed on this score. Moreover, Atlas Fertilizer Corporation could not claim ignorance of the contents of the
Bill of Lading just because the printed letters are so small that they are hard to read or that the shipper did not sign it for Atlas Fertilizer
Corporation being a regular shipper and a big corporation. Plaintiff is presumed to know the contents thereof for the reason that this is
the very document (Annex "A" of the complaint) where plaintiff relied its suit.9
We are likewise not inclined to lend credence to petitioner's allegation that the lack of communications facilities in the place of delivery
prevented the consignee from making a prompt claim for recovery of damages as prescribed by Stipulation No. 7. It is indeed hard to
believe that Atlas Fertilizer Corporation, being an established corporation and a regular shipper, would be so inept as not to have the
necessary facilities to at least monitor, in the form of communications equipment, the condition of its large shipment involving 32,000
bags of fertilizer. As pointed out by the appellate court, at this day and age of advanced telecommunications and modern transportation,
even in the year 1989, the time limitation provided for in Stipulation No. 7 are just and reasonable.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 36498 is
AFFIRMED in toto.

SO ORDERED.

A.MAGSAYSAYINC.,plaintiffappellee,
vs.
ANASTACIOAGAN,defendantappellant.
CustodioA.Villavaforappellant.
Quijano,AlidioandAzoresforappellee.
REYES,A.J.:
TheSS"SanAntonio",vesselownedandoperatedbyplaintiff,leftManilaonOctober6,1949,boundforBasco,Batanes,visAparri,
Cagayan,withgeneralcargobelongingtodifferentshippers,amongthemthedefendant.ThevesselreachedAparrionthe10thofthat
month,andafteraday'sstopoverinthatport,weighedanchortoproceedtoBasco.Butwhilestillinport,itranagroundatthemouth

oftheCagayanriver,and,attemptstorefloatitunderitsownpowerhavingfailed,plaintiffhaveitrefloatedbytheLuzonStevedoring
Co.atanagreedcompensation.OnceafloatthevesselreturnedtoManilatorefuelandthenproceededtoBasco,theportof
destination.Therethecargoesweredeliveredtotheirrespectiveownersorconsignees,who,withtheexceptionofdefendant,madea
depositorsignedabondtoanswerfortheircontributiontotheaverage.
Onthetheorythattheexpensesincurredinfloatingthevesselconstitutegeneralaveragetowhichbothshipandcargoshould
contribute,plaintiffbroughtthepresentactionintheCourtofFirstInstanceofManilatomakedefendantpayhiscontribution,which,
asdeterminedbytheaverageadjuster,amountstoP841.40.Defendant,inhisanswer,deniesliabilitytohisamount,alleging,among
otherthings,thatthestrandingofthevesselwasduetothefault,negligenceandlackofskillofitsmaster,thattheexpensesincurred
inputtingitafloatdidnotconstitutegeneralaverage,andthattheliquidationoftheaveragewasnotmadeinaccordancewithlaw.
Aftertrial,thelowercourtfoundforplaintiffandrenderedjudgmentagainstthedefendantfortheamountoftheclaim,withlegal
interests.FromthisjudgmentdefendanthadappealeddirectlytothisCourt.
Althoughappellantassignsvariouserrors,underourviewofthecaseonlythefollowingneedbeconsidered:
Thetrialcourterredinallowingthegeneralaverageforfloatingavesselunintentionallystrandedinsideaportandatthe
mouthofariverduringafineweather.
Forthepurposesofthisassignmentoferrorwemaywellacceptthefindingbelowthatthestrandingofplaintiff'svesselwasduetothe
suddenshiftingofthesandbarsatthemouthoftheriverwhichtheportpilotdidnotanticipate.Thestandingmay,therefore,be
regardedasaccidental,andthequestioniswhethertheexpensesincurredinfloatingavesselsostrandedshouldbeconsideredgeneral
averageandsharedbythecargoowners.
ThelawonaveragesiscontainedintheCodeofCommerce.Underthatlaw,averagesareclassifiedintosimpleorparticularand
generalorgross.Generallyspeaking,simpleorparticularaveragesincludeallexpensesanddamagescausedtothevesselorcargo
whichhavenotinuredtothecommonbenefit(Art.809),andare,therefore,tobeborneonlybytheownerofthepropertygaveriseto
same(Art.810);whilegeneralorgrossaveragesinclude"allthedamagesandexpenseswhicharedeliberatelycausedinordertosave
thevessel,itscargo,orbothatthesametime,fromarealandknownrisk"(Art.811).Beingforthecommonbenefit,grossaverages
aretobebornebytheownersofthearticlessaved(Art.812).
Inclassifyingaveragesintosimpleoparticularandgeneralorgrossanddefiningeachclass,theCode(Art.809and811)atthesame
timeenumeratescertainspecificcasesascomingspeciallyunderoneortheotherdenomination.Goingoverthespecificcases
enumeratedwefindthat,whiletheexpensesincurredinputtingplaintiff'svesselafloatmaywellcomeundernumber2ofarticle809
whichreferstoexpensessufferedbythevessel"byreasonofanaccidentoftheseaoftheforcemajuere"andshouldthereforebe
classifiedasparticularaverage,thesaidexpensesdonotfitintoanyofthespecificcasesofgeneralaverageenumeratedinarticle811.
No.6ofthisarticledoesmention"expensescausedinordertofloatavessel,"butitspecificallyrefersto"avesselintentionally
strandedforthepurposeofsavingit"andwouldhavenoapplicationwhere,asinthepresentcase,thestrandingwasnotintentional.
Letusnowseewhethertheexpenseshereinquestioncouldcomewithinthelegalconceptofthegeneralaverage.Tolentino,inhis
commentariesontheCodeofCommerce,givesthefollowingrequisitesforgeneralaverage:
First,theremustbeacommondanger.Thismeans,thatboththeshipandthecargo,afterhasbeenloaded,aresubjecttothe
samedanger,whetherduringthevoyage,orintheportofloadingorunloading;thatthedangerarisesfromtheaccidentsof
thesea,dispositionsoftheauthority,orfaultsofmen,providedthatthecircumstancesproducingtheperilshouldbe
ascertainedandimminentormayrationallybesaidtobecertainandimminent.Thislastrequirementexcludemeasures
undertakenagainstadistantperil.
Second,thatforthecommonsafetypartofthevesselorofthecargoorbothissacrificeddeliberately.
Third,thatfromtheexpensesordamagescausedfollowsthesuccessfulsavingofthevesselandcargo.
Fourth,thattheexpensesordamagesshouldhavebeenincurredorinflictedaftertakingproperlegalstepsandauthority.
(Vol.1,7thed.,p.155.)
Withrespecttothefirstrequisite,theevidencedoesnotdisclosethattheexpensessoughttoberecoveredfromdefendantwere
incurredtosavevesselandcargofromacommondanger.Thevesselranagroundinfineweatherinsidetheportatthemouthofa
river,aplacedescribedas"veryshallow".Itwouldthusappearthatvesselandcargowereatthetimeinnoimminentdangerora

dangerwhichmight"rationallybesoughttobecertainandimminent."Itis,ofcourse,conceivablethat,ifleftindefinitelyatthemercy
oftheelements,theywouldruntheriskofbeingdestroyed.Butasstatedattheabovequotation,"thislastrequirementexcludes
measuresundertakenagainstadistantperil."Itisthedeliverancefromanimmediate,impendingperil,byacommonsacrifice,that
constitutestheessenceofgeneralaverage.(TheColumbianInsuranceCompanyofAlexandriavs.Ashby&Striblingetal.,13Peters
331;10L.Ed.,186).Inthepresentcasethereisnoproofthatthevesselhadtobeputafloattosaveitfromimminentdanger.What
doesappearfromthetestimonyofplaintiff'smanageristhatthevesselhadtobesalvagedinordertoenableit"toproceedtoitsport
ofdestination."Butaswassaidinthecasejustciteditisthesafetyoftheproperty,andnotofthevoyage,whichconstitutesthetrue
foundationofthegeneralaverage.
Astothesecondrequisite,weneedonlyrepeatthattheexpensesinquestionwerenotincurredforthecommonsafetyofvesseland
cargo,sincethey,oratleastthecargo,werenotinimminentperil.Thecargocould,withoutneedofexpensivesalvageoperation,have
beenunloadedbytheownersiftheyhadbeenrequiredtodoso.
Withrespecttothethirdrequisite,thesalvageoperation,itistrue,wasasuccess.Butasthesacrificewasforthebenefitofthevessel
toenableittoproceedtodestinationandnotforthepurposeofsavingthecargo,thecargoownersarenotinlawboundto
contributetotheexpenses.
Thefinalrequisitehasnotbeenproved,foritdoesnotappearthattheexpenseshereinquestionwereincurredafterfollowingthe
procedurelaiddowninarticle813etseq.
Inconclusionwefoundthatplaintiffnotmadeoutacaseforgeneralaverage,withtheresultthatitsclaimforcontributionagainstthe
defendantcannotbegranted.
Wherefore,thedecisionappealedfromisreversedandplaintiff'scomplaintordereddismissedwithcosts.