ABOITIZ SHIPPING CORP VS GENERAL FIRE AND LIFE ASSURANCE CORP

FACTS:

The Petitioner Aboitiz Shipping is the owner of M/V P. Aboitiz, a vessel w/c sank on a
voyage from Hongkong to the Philippines. The Respondent is a foreign insurance
company pursuing its remedies as a subrogee of several cargo consignees whose
respective cargo sank with the said vessel and for which it has priorly paid. This
sinking of the vessel gave rise to the filing of several suits for recovery of the lost
cargo either by the shippers their successors-in-interest, or the cargo insurers like
General Accident (GAFLAC).

Board of Marine Inquiry (BMI), on its initial investigation found that such sinking was
due to force majeure and that subject vessel, at the time of the sinking was
seaworthy. However, the RTC rules against the carrier on the ground that the loss
did not occur as a result of force majeure and was subsequently affirmed by the CA.

Due to these different rulings, Aboitiz seeks a pronouncement as to the applicability

of the doctrine of limited liability on the totality of the claims vis a vis the losses
brought about by the sinking of the vessel M/V P. ABOITIZ, as based on the real and
hypothecary nature of maritime law.

ISSUE:
1. Whether the Limited Liability Rule arising out of the real and hypothecary
nature of maritime law should apply in this and related cases. the doctrine
applies in this case
2. Whether there is a finding of such negligence on the part of the owner in this
case. the petitioner is not negligence

RULING:

1) The SC ruled in the favour of Petitioner that the Doctrine of Limited Liability
applies in this case.

The real and hypothecary nature of maritime law simply means that the liability of
the carrier in connection with losses related to maritime contracts is confined to the
vessel, which is hypothecated for such obligations or which stands as the guaranty
for their settlement. It has its origin by reason of the conditions and risks attending
maritime trade in its earliest years when such trade was replete with innumerable
and unknown hazards since vessels had to go through largely uncharted waters to
ply their trade. It was designed to offset such adverse conditions and to encourage
people and entities to venture into maritime commerce despite the risks and the
prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent
arising from the operation of such vessel were confined to the vessel itself, its
equipment, freight, and insurance, if any, which limitation served to induce
capitalists into effectively wagering their resources against the consideration of the
large profits attainable in the trade.

The Limited Liability Rule in the Philippines is taken up in Book III of the Code of
Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of the
goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight it may have earned
during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a
notary, of the part of the vessel belonging to him.

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

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.

2) The SC ruled in the favour of Petitioner that it was not negligent.

There were no evidence presented sufficient to form a conclusion that petitioner

shipowner itself was negligent. The qualified nature of the meaning of
"unseaworthiness," under the peculiar circumstances of this case is underscored by
the fact that in the Country Banker's case, supra, arising from the same sinking, the
Court sustained the decision of the Court of Appeals that the sinking of the M/V P.
Aboitiz was due to force majeure. The findings of the trial court and the Court of
Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural
condition of the vessel which is the basis of the BMI's findings, but to the condition it
was in at the time of the sinking, which condition was a result of the acts of the
captain and the crew.

The rights of a vessel owner or agent under the Limited Liability Rule are akin to
those of the rights of shareholders to limited liability under our corporation law. Both
are privileges granted by statute, and while not absolute, must be swept aside only
in the established existence of the most compelling of reasons. In the absence of
such reasons, this Court chooses to exercise prudence and shall not sweep such
rights aside on mere whim or surmise, for even in the existence of cause to do so,
such incursion is definitely punitive in nature and must never be taken lightly.

More to the point, the rights of parties to claim against an agent or owner of a
vessel may be compared to those of creditors against an insolvent corporation
whose assets are not enough to satisfy the totality of claims as against it. While
each individual creditor may, and in fact shall, be allowed to prove the actual
amounts of their respective claims, this does not mean that they shall all be allowed
to recover fully thus favoring those who filed and proved their claims sooner to the
prejudice of those who come later. In such an instance, such creditors too would not
also be able to gain access to the assets of the individual shareholders, but must
limit their recovery to what is left in the name of the corporation.
In the instant case, there is, therefore, a need to collate all claims preparatory to
their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its
pending freightage at the time of its loss. No claimant can be given precedence
over the others by the simple expedience of having filed or completed its action
earlier than the rest. Thus, execution of judgment in earlier completed cases, even
those already final and executory, must be stayed pending completion of all cases
occasioned by the subject sinking. Then and only then can all such claims be
simultaneously settled, either completely or pro-rata should the insurance proceeds
and freightage be not enough to satisfy all claims.