EN BANC

G.R. No. L-8325 March 10, 1914

C. B. WILLIAMS, plaintiff-appellant,
vs.
TEODORO R. YANGCO, defendant-appellant.

William A. Kincaid and Thomas L. Hartigan for plaintiff.

Haussermann, Cohn, & Fisher fro defendant.

CARSON, J.:

The steamer Subic, owned by the defendant, collided with the lunch Euclid owned by the plaintiff, in the Bay of Manila at
an early hour on the morning of January 9, 1911, and the Euclid sank five minutes thereafter. This action was brought to
recover the value of the Euclid.

The court below held from the evidence submitted that the Euclid was worth at a fair valuation P10,000; that both vessels
were responsible for the collision; and that the loss should be divided equally between the respective owners, P5,000 to
be paid the plaintiff by the defendant, and P5,000 to be borne by the plaintiff himself. From this judgment both defendant
and plaintiff appealed.

After a careful review of all the evidence of record we are all agreed with the trial judge in his holding that the responsible
officers on both vessels were negligent in the performance of their duties at the time when the accident occurred, and that
both vessels were to blame for the collision. We do not deem it necessary to review the conflicting testimony of the
witnesses called by both parties, the trial also having inserted in his opinion a careful and critical summary and analysis of
the testimony submitted to him, which, to our minds, fully and satisfactorily disposes of the evidence are set forth in the
following language (translated):

In view of the negligence of which the patron Millonario (of defendant's vessel) has been guilty as well as that
imputable to the patron of the launch Euclid, both contributed in a decided manner and beyond all doubt to the
occurrence of the accident and the consequent damages resulting therefrom in the loss of the launch Euclid.

With a little diligence which either of the two patrons might have practiced under the circumstances existing at the
time of the collision, if both had not been so distracted and so negligent in the fulfillment of their respective duties,
the disaster could have been easily avoided, since the sea was free of obstacles and the night one which
permitted the patron Millonario to distinguish the hull of the launch twenty minutes before the latter entered upon
his path . . .

There is proven, therefore, the negligence of which the patron of the Euclid has been guilty.

If the negligence by which the patron of the launch Euclid has contributed to the cause of the accident and to the
resulting damages is patent, none the less so is the negligence of the patron of the steamer Subic, Hilarion
Millonario by name, as may be seen from his own testimony which is here copied for the better appreciation
thereof.

It will be seen that the trial judge was of opinion that the vessels were jointly liable for the loss resulting from the sinking of
the launch. But actions for damages resulting from maritime collisions are governed in this jurisdiction by the provisions of
section 3, title 4, Book III of the Code of Commerce, and among these provisions we find the following:

ART. 827. If both vessels may be blamed for the collision, each one shall be liable for its own damages, and both
shall be jointly responsible for the loss and damages suffered by their cargoes.

In disposing of this case the trial judge apparently had in mind that portion of the section which treats of the joint liability of
both vessels for loss or damages suffered by their cargoes. In the case at bar, however, the only loss incurred was that of
the launch Euclid itself, which went to the bottom soon after the collision. Manifestly, under the plain terms of the statute,
since the evidence of record clearly discloses, as found by the trail judge, that "both vessels may be blamed for the
collision," each one must be held may be blamed for it own damages, and the owner of neither one can recover from the
other in an action for damages to his vessel.
Counsel for the plaintiff, basing his contention upon the theory of the facts as contended for by him, insisted that under he
doctrine of "the last clear chance," the defendant should be held liable because, as he insists, even if the officers on board
the plaintiff's launch were negligence in failing to exhibit proper lights and in failing to take the proper steps to keep out of
the path of the defendant's vessel, nevertheless the officers on defendant's vessel, by the exercise of due precautions
might have avoided the collision by a very simple manuever. But it is sufficient answer to this contention to point out that
the rule of liability in this jurisdiction for maritime accidents such as that now under consideration is clearly, definitely, and
unequivocally laid down in the above-cited article 827 of the Code of Commerce; and under that rule, the evidence
disclosing that both vessels were blameworthy, the owners of either can successfully maintain an action against the other
for the loss or injury of his vessel.

In cases of a disaster arising from the mutual negligence of two parties, the party who has a last clear opportunity of
avoiding the accident, notwithstanding the negligence of his opponent, is considered wholly responsible for it under the
common-law rule of liability as applied in the courts of common law of the United States. But this rule (which is not
recognized in the courts of admiralty in the United States, wherein the loss is divided in cases of mutual and concurring
negligence, as also where the error of one vessel has exposed her to danger of collision which was consummated by he
further rule, that where the previous application by the further rule, that where the previous act of negligence of one vessel
has created a position of danger, the other vessel is not necessarily liable for the mere failure to recognize the perilous
situation; and it is only when in fact it does discover it in time to avoid the casualty by the use of ordinary care, that it
becomes liable for the failure to make use of this last clear opportunity to avoid the accident. (See cases cited in Notes, 7
Cyc., pp. 311, 312, 313.) So, under the English rule which conforms very nearly to the common-law rule as applied in the
American courts, it has been held that the fault of the first vessel in failing to exhibit proper lights or to take the proper side
of the channel will relieve from liability one who negligently runs into such vessels before he sees it; although it will not be
a defense to one who, having timely warning of the danger of collision, fails to use proper care to avoid it. (Pollock on
Torts, 374.) In the case at bar, the most that can be said in support of plaintiff's contention is that there was negligence on
the part of the officers on defendant's vessel in failing to recognize the perilous situation created by the negligence of
those in charge of plaintiff's launch, and that had they recognized it in time, they might have avoided the accident. But
since it does not appear from the evidence that they did, in fact, discover the perilous situation of the launch in time to
avoid the accident by the exercise of ordinary care, it is very clear that under the above set out limitation to the rule, the
plaintiff cannot escape the legal consequences of the contributory negligence of his launch, even were we to hold that the
doctrine is applicable in the jurisdiction, upon which point we expressly reserve our decision at this time.

The judgment of the court below in favor of the plaintiff and against the defendant should be reserved, and the plaintiff's
complaint should be dismissed without day, without costs to either party in this instance. So ordered.

Arellano, C.J., Moreland, Trent and Araullo, JJ., concur.

G.R. No. L-56294 May 20, 1991

SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE INSURANCE CO.,
INC.,petitioners,
vs.
THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents.

Bito, Misa & Lozada for petitioners.

Rodriguez, Relova & Associates for private respondent.

FELICIANO, J.:

In the early morning of 3 May 1970at exactly 0350 hours, on the approaches to the port of Manila near Caballo Island, a
collision took place between the M/V "Don Carlos," an inter-island vessel owned and operated by private respondent
Carlos A. Go Thong and Company ("Go Thong"), and the M/S "Yotai Maru," a merchant vessel of Japanese registry. The
"Don Carlos" was then sailing south bound leaving the port of Manila for Cebu, while the "Yotai Maru" was approaching
the port of Manila, coming in from Kobe, Japan. The bow of the "Don Carlos" rammed the portside (left side) of the "Yotai
Maru" inflicting a three (3) cm. gaping hole on her portside near Hatch No. 3, through which seawater rushed in and
flooded that hatch and her bottom tanks, damaging all the cargo stowed therein.

The consignees of the damaged cargo got paid by their insurance companies. The insurance companies in turn, having
been subrogated to the interests of the consignees of the damaged cargo, commenced actions against private respondent
Go Thong for damages sustained by the various shipments in the then Court of First Instance of Manila.

Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case No. 82567, was commenced on
13 March 1971 by petitioner Smith Bell and Company (Philippines), Inc. and Sumitomo Marine and Fire Insurance
Company Ltd., against private respondent Go Thong, in Branch 3, which was presided over by Judge Bernardo P.
Fernandez. The second case, Civil Case No. 82556, was filed on 15 March 1971 by petitioners Smith Bell and Company
(Philippines), Inc. and Tokyo Marine and Fire Insurance Company, Inc. against private respondent Go Thong in Branch 4,
which was presided over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas.

Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and evidence
relating to the collision between the "Don Carlos" and the "Yotai Maru" the parties in both cases having agreed that the
evidence on the collision presented in one case would be simply adopted in the other. In both cases, the Manila Court of
First Instance held that the officers and crew of the "Don Carlos" had been negligent that such negligence was the
proximate cause of the collision and accordingly held respondent Go Thong liable for damages to the plaintiff insurance
companies. Judge Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as
attorney's fees; while Judge Cuevas awarded the plaintiff insurance companies on two (2) claims US $ 68,640.00 or its
equivalent in Philippine currency plus attorney's fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney's fees,
respectively.

The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go Thong to the Court of
Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-R. The decision of Judge Cuevas in Civil Case No.
82556 was also appealed by Go Thong to the Court of Appeals, the appeal being docketed as C.A.-G.R. No. 61206-R.
Substantially identical assignments of errors were made by Go Thong in the two (2) appealed cases before the Court of
Appeals.

In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8 August 1978 affirming
the Decision of Judge Fernandez. Private respondent Go Thong moved for reconsideration, without success. Go Thong
then went to the Supreme Court on Petition for Review, the Petition being docketed as G.R. No. L-48839 ("Carlos A. Go
Thong and Company v. Smith Bell and Company [Philippines], Inc., et al."). In its Resolution dated 6 December 1978, this
Court, having considered "the allegations, issues and arguments adduced in the Petition for Review on Certiorari, of the
Decision of the Court of Appeals as well as respondent's comment", denied the Petition for lack of merit. Go Thong filed a
Motion for Reconsideration; the Motion was denied by this Court on 24 January 1979.

In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November 1980 (or almost two [2] years
after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed by the Supreme Court on Petition for
Review) through Sison, P.V., J., reversed the Cuevas Decision and held the officers of the "Yotai Maru" at fault in the
collision with the "Don Carlos," and dismissed the insurance companies' complaint. Herein petitioners asked for
reconsideration, to no avail.

The insurance companies are now before us on Petition for Review on Certiorari, assailing the Decision of Sison, P.V., J.,
in C.A.-G.R. No. 61206-R. Petitioners' principal contentions are:

a. that the Sison Decision had disregarded the rule of res judicata;

b. that Sison P.V., J., was in serious and reversible error in accepting Go Thong's defense that the question of
fault on the part of the "Yotai Maru" had been settled by the compromise agreement between the owner of the
"Yotai Maru" and Go Thong as owner of the "Don Carlos;" and

c. that Sison, P. V. J., was in serious and reversible error in holding that the "Yotai Maru" had been negligent and
at fault in the collision with the "Don Carlos."

The first contention of petitioners is that Sison, P. V. J. in rendering his questioned Decision, failed to apply the rule of res
judicata. Petitioners maintain that the Resolution of the Supreme Court dated 6 December 1978 in G.R. No. 48839 which
dismissed Go Thong's Petition for Review of the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had effectively
settled the question of liability on the part of the "Don Carlos." Under the doctrine of res judicata, petitioners contend,
Sison, P. V. J. should have followed the Reyes, L.B., J. Decision since the latter had been affirmed by the Supreme Court
and had become final and executory long before the Sison Decision was rendered.

Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in rendering its minute Resolution in
G.R. No. L- 48839, had merely dismissed Go Thong's Petition for Review of the Reyes, L.B., J. Decision for lack of merit
but had not affirmed in toto that Decision. Private respondent, in other words, purports to distinguish between denial of a
Petition for Review for lack of merit and affirmance of the Court of Appeals' Decision. Thus, Go Thong concludes, this
Court did not hold that the "Don Carlos" had been negligent in the collision.

Private respondent's argument must be rejected. That this Court denied Go Thong's Petition for Review in a minute
Resolution did not in any way diminish the legal significance of the denial so decreed by this Court. The Supreme Court is
not compelled to adopt a definite and stringent rule on how its judgment shall be framed. 1 It has long been settled that
this Court has discretion to decide whether a "minute resolution" should be used in lieu of a full-blown decision in any
particular case and that a minute Resolution of dismissal of a Petition for Review oncertiorari constitutes an adjudication
on the merits of the controversy or subject matter of the Petition. 2 It has been stressed by the Court that the grant of due
course to a Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is no need to fully
explain the Court's denial. For one thing, the facts and law are already mentioned in the Court of Appeals' opinion." 3 A
minute Resolution denying a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme
Court agrees with or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought
to be reviewed and set aside is correct.4

Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in the instant case whether in
respect of the Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme Court in G.R. No. L-48839, for
the reason that there was no identity of parties and no identity of cause of action between C.A.-G.R. No. 61206-R and
C.A.-G.R. No. 61320-R.

The parties in C.A.-G.R. No. 61320-R Where the decision of Judge Fernandez was affirmed, involved Smith Bell and
Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the petitioners in the instant case
(plaintiffs below) are Smith Bell and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other words,
there was a common petitioner in the two (2) cases, although the co-petitioner in one was an insurance company different
from the insurance company co-petitioner in the other case. It should be noted, moreover, that the co-petitioner in both
cases was an insurance company arid that both petitioners in the two (2) cases represented the same interest, i.e., the
cargo owner's interest as against the hull interest or the interest of the shipowner. More importantly, both cases had been
brought against the same defendant, private respondent Go Thong, the owner of the vessel "Don Carlos." In sum, C.A.-
G.R. No. 61320R and C.A-G.R. No. 61206-R exhibited substantial identity of parties.

It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense that the cargo
which had been damaged in the one case and for which indemnity was sought, was not the very same cargo which had
been damaged in the other case indemnity for which was also sought. The cause of action was, however, the same in the
two (2) cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been violated by the
same casualty, the ramming of the "Yotai Maru" by the "Don Carlos." The judgments in both cases were final judgments
on the merits rendered by the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which
has not been questioned.

Under the circumstances, we believe that the absence of identity of subject matter, there being substantial identity of
parties and identity of cause of action, will not preclude the application of res judicata. 5

In Tingson v. Court of Appeals,6 the Court distinguished one from the other the two (2) concepts embraced in the principle
of res judicata, i.e., "bar by former judgment" and "conclusiveness of judgment:"

There is no question that where as between the first case Where the judgment is rendered and the second case
where such judgment is invoked, there is identity of parties, subject-matter and cause of action, the judgment on
the merits in the first case constitutes an absolute bar to the subsequent action not only as to every matter which
was offered and received to sustain or defeat the claim or demand, but also as to any other admissible matter
which might have been offered for that purpose and to all matters that could have been adjudged in that case.
This is designated as "bar by former judgment."

But where the second action between the same parties is upon a different claim or demand, the judgment in the
prior action operates as an estoppel only as to those matters in issue or points controverted, upon the
determination of which the finding or judgment was rendered. In fine, the previous judgment is conclusive in the
second case, only as those matters actually and directly controverted and determined and not as to matters
merely involved therein. This is the rule on 'conclusiveness of judgment' embodied in subdivision (c) of Section 49
of Rule 39 of the Revised Rules of' Court.7 (Citations omitted) (Emphases supplied)

In Lopez v. Reyes, 8 the Court elaborated further the distinction between bar by former judgment which bars the
prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness of judgment which
bars the relitigation of particular facts or issues in another litigation between the same parties on a different claim or cause
of action:

The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the prosecution of a
second action upon the same claim, demand or cause of action. The second aspect is that it precludes the
relitigation of a particular fact or issues in another action between the same parties on a different claim or cause
of action.

The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in
former action are commonly applied to all matters essentially connected with the subject matter of the litigation.
Thus, it extends to questions "necessarily involved in an issue, and necessarily adjudicated, or necessarily
implied in the final judgment, although no specific finding may have been made in reference thereto, and although
such matters were directly referred to in the pleadings and were not actually or formally presented. Under this
rule, if the record of the former trial shows that the judgment could not have been rendered without deciding the
particular matter it will be considered as having settled that matter as to all future actions between the parties,
and if a judgment necessarily presupposes certain premises, they are as conclusive as the judgment itself.
Reasons for the rule are that a judgment is an adjudication on all the matters which are essential to support it, and
that every proposition assumed or decided by the court leading up to the final conclusion and upon which such
conclusion is based is as effectually passed upon as the ultimate question which is finally solved. 9 (Citations
omitted) (Emphases supplied)

In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so negligent as to have
proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted
and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the "Don Carlos" to
have been negligent rather than the "Yotai Maru" and, as already noted, that Decision was affirmed by this Court in G.R.
No. L-48839 in a Resolution dated 6 December 1978. The Reyes Decision thus became final and executory
approximately two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying
the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two
(2) vessels, had long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206- R. Private
respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error When it disregarded the Decision of this Court affirming the Reyes Decision. 10
Private respondent Go Thong also argues that a compromise agreement entered into between Sanyo Shipping Company
as owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos," under which the former paid P268,000.00 to
the latter, effectively settled that the "Yotai Maru" had been at fault. This argument is wanting in both factual basis and
legal substance. True it is that by virtue of the compromise agreement, the owner of the "Yotai Maru" paid a sum of
money to the owner of the "Don Carlos." Nowhere, however, in the compromise agreement did the owner of the "Yotai
Maru " admit or concede that the "Yotai Maru" had been at fault in the collision. The familiar rule is that "an offer of
compromise is not an admission that anything is due, and is not admissible in evidence against the person making the
offer." 11 A compromise is an agreement between two (2) or more persons who, in order to forestall or put an end to a law
suit, adjust their differences by mutual consent, an adjustment which everyone of them prefers to the hope of gaining
more, balanced by the danger of losing more.12 An offer to compromise does not, in legal contemplation, involve an
admission on the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is
groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further controversy and
saving the expenses of litigation. 13 It is of the very nature of an offer of compromise that it is made tentatively,
hypothetically and in contemplation of mutual concessions. 14 The above rule on compromises is anchored on public
policy of the most insistent and basic kind; that the incidence of litigation should be reduced and its duration shortened to
the maximum extent feasible.

The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of litigations but also administrative
proceedings before the Board of Marine Inquiry ("BMI"). The collision was the subject matter of an investigation by the
BMI in BMI Case No. 228. On 12 July 1971, the BMI through Commodore Leovegildo L. Gantioki, found both vessels to
have been negligent in the collision.

Both parties moved for reconsideration of the BMI's decision. The Motions for Reconsideration were resolved by the
Philippine Coast Guard ("PCG") nine (9) years later, in an order dated 19 May 1980 issued by PCG Commandant,
Commodore Simeon M. Alejandro. The dispositive portion of the PCG decision read as follows:

Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and amended absolving the
officers of "YOTAI MARU" from responsibility for the collision. This Headquarters finds no reason to modify the
penalties imposed upon the officers of Don Carlos. (Annex "C", Reply, September 5, 1981).15

Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order dated September 1980.

Go Thong sought to appeal to the then Ministry of National Defense from the orders of the PCG by filing with the PCG on
6 January 1981 a motion for a 30-day extension from 7 January 1981 within which to submit its record on appeal. On 4
February 1981, Go Thong filed a second urgent motion for another extension of thirty (30) days from 7 February 1981. On
12 March 1981, Go Thong filed a motion for a final extension of time and filed its record on appeal on 17 March 1981. The
PCG noted that Go Thong's record on appeal was filed late, that is, seven (7) days after the last extension granted by the
PCG had expired. Nevertheless, on 1 July 1981 (after the Petition for Review on Certiorari in the case at bar had been
filed with this Court), the Ministry of Defense rendered a decision reversing and setting aside the 19 May 1980 decision of
the PCG

The owners of the "Yotai Maru" then filed with the Office of the President a Motion for Reconsideration of the Defense
Ministry's decision. The Office of the President rendered a decision dated 17 April 1986 denying the Motion for
Reconsideration. The decision of the Office of the President correctly recognized that Go Thong had failed to appeal in a
seasonable manner:

MV "DON CARLOS" filed her Notice of Appeal on January 5, 1981. However, the records also show beyond
peradventure of doubt that the PCG Commandant's decision of May 19, 1980, had already become final and
executory When MV "DON CARLOS" filed her Record on Appeal on March 17, 1981, and When the motion for
third extension was filed after the expiry date.

Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant Marine Rules and Regulations,
decisions of the PCG Commandant shall be final unless, within thirty (30) days after receipt of a copy thereof, an
appeal to the Minister of National Defense is filed and perfected by the filing of a notice of appeal and a record on
appeal. Such administrative regulation has the force and effect of law, and the failure of MV "DON CARLOS" to
comply therewith rendered the PCG Commandant's decision on May 19, 1980, as final and executory, (Antique
Sawmills, Inc. vs. Zayco, 17 SCRA 316; Deslata vs. Executive Secretary, 19 SCRA 487; Macailing vs. Andrada,
31 SCRA 126.) (Annex "A", Go Thong's Manifestation and Motion for Early Resolution, November 24,
1986).16 (Emphases supplied)
Nonetheless, acting under the misapprehension that certain "supervening" events had taken place, the Office of the
President held that the Minister of National Defense could validly modify or alter the PCG Commandant's decision:

However, the records likewise show that, on November 26, 1980, the Court of Appeals rendered a decision in CA-
G.R. No. 61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go Thong & Co.) holding that the proximate cause
of the collision between MV "DON CARLOS" AND MS "YOTAI MARU" was the negligence, failure and error of
judgment of the officers of MS "YOTAI MARU". Earlier, or on February 27, 1976, the Court of First Instance of
Cebu rendered a decision in Civil Case No. R-11973 (Carlos A. Go Thong vs. San-yo Marine Co.) holding that
MS "YOTAI MARU" was solely responsible for the collision, which decision was upheld by the Court of Appeals.

The foregoing judicial pronouncements rendered after the finality of the PCG Commandant's decision of May 19,
1980, were supervening causes or reasons that rendered the PCG Commandant's decision as no longer
enforceable and entitled MV "DON CARLOS" to request the Minister of National Defense to modify or alter the
questioned decision to harmonize the same with justice and tile facts. (De la Costa vs. Cleofas, 67 Phil. 686; City
of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs. Canizares, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA
244). Under such precise circumstances, the Minister of National Defense may validly modify or alter the PCG
commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550, Revised Administrative Code; Province of
Pangasinan vs. Secretary of Public Works and Communications, 30 SCRA 134; Estrelia vs. Orendain, 37 SCRA
640). 17 (Emphasis supplied)

The multiple misapprehensions under which the Office of the President labored, were the following:

It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision that is the subject of review
in the Petition at bar and therefore not final. At the same time, the Office of the President either ignored or was unaware of
the Reyes, L.B., J., Decision in C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for the collision, and of the
fact that that Decision had been affirmed by the Supreme Court and had long ago become final and executory. A third
misapprehension of the Office of the President related to a decision in a Cebu Court of First Instance litigation which had
been settled by the compromise agreement between the Sanyo Marine Company and Go Thong. The Office of the
President mistakenly believed that the Cebu Court of First Instance had rendered a decision holding the "Yotai Maru"
solely responsible for the collision, When in truth the Cebu court had rendered a judgment of dismissal on the basis of the
compromise agreement. The Cebu decision was not, of course, appealed to the Court of Appeals.

It thus appears that the decision of the Office of the President upholding the belated reversal by the Ministry of National
Defense of the PCG'S decision holding the "Don Carlos" solely liable for the collision, is so deeply flawed as not to
warrant any further examination. Upon the other hand, the basic decision of the PCG holding the "Don Carlos" solely
negligent in the collision remains in effect.

II

In their Petition for Review, petitioners assail the finding and conclusion of the Sison Decision, that the "Yotai Maru" was
negligent and at fault in the collision, rather than the "Don Carlos." In view of the conclusions reached in Part I above, it
may not be strictly necessary to deal with the issue of the correctness of the Sison Decision in this respect. The Court
considers, nonetheless, that in view of the conflicting conclusions reached by Reyes, L.B.,J., on the one hand, and Sison,
P.V., J., on the other, and since in affirming the Reyes Decision, the Court did not engage in a detailed written
examination of the question of which vessel had been negligent, and in view of the importance of the issues of admiralty
law involved, the Court should undertake a careful review of the record of the case at bar and discuss those issues in
extenso.

The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the evidence concerning the
collision. It is worth underscoring that the findings of fact of Judge Fernandez in Civil Case No. 82567 (which was affirmed
by the Court of Appeals in the Reyes Decision and by this Court in G.R. No. L-48839) are just about identical with the
findings of Judge Cuevas. Examining the facts as found by Judge Cuevas, the Court believes that there are three (3)
principal factors which are constitutive of negligence on the part of the "Don Carlos," which negligence was the proximate
cause of the collision.

The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18 (a) of the
International Rules of the Road ("Rules")," which provides as follows

(a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each
shall alter her course to starboard, so that each may pass on the port side of the other. This Rule only applies to
 cases where vessels are meeting end on or nearly end on, in such a manner as to involve risk of collision, and
does not apply to two vessels which must, if both keep on their respective course, pass clear of each other. The
only cases to which it does apply are when each of two vessels is end on, or nearly end on, to the other; in other
words, to cases in which, by day, each vessel sees the masts of the other in a line or nearly in a line with her own;
and by night to cases in which each vessel is in such a position as to see both the sidelights of the other. It does
not apply, by day, to cases in which a vessel sees another ahead crossing her own course; or, by night, to cases
where the red light of one vessel is opposed to the red light of the other or where the green light of one vessel is
opposed to the green light of the other or where a red light without a green light or a green light without a red light
is seen ahead, or Where both green and red lights are seen anywhere but ahead. (Emphasis supplied)

The evidence on this factor was summarized by Judge Cuevas in the following manner:

Plaintiff's and defendant's evidence seem to agree that each vessel made a visual sighting of each other ten
minute before the collision which occurred at 0350. German's version of the incident that followed, was that "Don
Carlos" was proceeding directly to [a] meeting [on an] "end-on or nearly end-on situation" (Exh. S, page 8). He
also testified that "Yotai Maru's' headlights were "nearly in line at 0340 A.M." (t.s.n., June 6, 1974) clearly
indicating that both vessels were sailing on exactly opposite paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of
the International Rules of the Road provides as follows:

xxx xxx xxx

And yet German altered "Don Carlos" course by five degrees to the left at 0343 hours instead of to the right (t.s.n. June 6,
1974, pages 4445) which maneuver was the error that caused the collision in question. Why German did so is likewise
explained by the evidence on record. "Don Carlos" was overtaking another vessel, the "Don Francisco", and was then at
the starboard (right side) of the aforesaid vessel at 3:40 a.m. It was in the process of overtaking "Don Francisco" that "Don
Carlos' was finally brought into a situation where he was meeting end-on or nearly end-on "Yotai Maru, thus involving risk
of collision. Hence, German in his testimony before the Board of Marine inquiry stated:

Atty. Chung:

You said in answer to the cross-examination that you took a change of course to the left. Why did you not take a
course to the right instead?

German:

I did not take any course to the right because the other vessel was in my mind at the starboard side following me.
Besides, I don't want to get risk of the Caballo Island (Exh. 2, pages 209 and 210). 19(Emphasis supplied)

For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the "Yotai Maru" found herself on an
"end-on" or a "nearly end-on" situation vis-a-vis the "Don Carlos, " and as the distance between them was rapidly
shrinking, the "Yotai Maru" turned starboard (to its right) and at the same time gave the required signal consisting of one
short horn blast. The "Don Carlos" turned to portside (to its left), instead of turning to starboard as demanded by Rule 18
(a). The "Don Carlos" also violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning
"I am altering my course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the master of the
"Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and stopped her engines; at about 3:46 a.m. the
"Yotai Maru" went "full astern engine." 20 The collision occurred at exactly 3:50 a.m.

The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to have on board that
night a "proper look-out" as required by Rule I (B) Under Rule 29 of the same set of Rules, all consequences arising from
the failure of the "Don Carlos" to keep a "proper look-out" must be borne by the "Don Carlos." Judge Cuevas' summary of
the evidence said:

The evidence on record likewise discloses very convincingly that "Don Carlos" did not have "look-out" whose sole
and only duty is only to act as Such. . . . 21

A "proper look-out" is one who has been trained as such and who is given no other duty save to act as a look-out and who
is stationed where he can see and hear best and maintain good communication with the officer in charge of the vessel,
and who must, of course, be vigilant. Judge Cuevas wrote:
 The "look-out" should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548, 571). He
has only one duty, that which its name impliesto keep "look-out". So a deckhand who has other duties, is not a
proper "look-out" (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is not a sufficient "look-out"
(Larcen B. Myrtle, 44 Fed. 779)Griffin on Collision, pages 277-278). Neither the captain nor the [helmsman] in
the pilothouse can be considered to be a "look-out" within the meaning of the maritime law. Nor should he be
stationed in the bridge. He should be as near as practicable to the surface of the water so as to be able to see
low-lying lights (Griffin on Collision, page 273).

On the strength of the foregoing authorities, which do not appear to be disputed even by the defendant, it is hardly
probable that neither German or Leo Enriquez may qualify as "look-out" in the real sense of the
word.22 (Emphasis supplied)

In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision with the "Yotai Maru"
coming in from the opposite direction, was at least in part due to the failure of the "Don Carlos" to maintain a proper look-
out.

The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second Mate Benito
German was, immediately before and during the collision, in command of the "Don Carlos." Judge Cuevas summed up
the evidence on this point in the following manner:

The evidence on record clearly discloses that "Don Carlos" was, at the time of the collision and immediately prior
thereto, under the command of Benito German, a second mate although its captain, Captain Rivera, was very
much in the said vessel at the time. The defendant's evidence appears bereft of any explanation as to why
second mate German was at the helm of the aforesaid vessel when Captain Rivera did not appear to be under
any disability at the time. In this connection, Article [633] of the Code of Commerce provides:

Art. [633] The second mate shall take command of the vessel in case of the inability or disqualification
of the captain and sailing mate, assuming, in such case, their powers and liability.

The fact that second mate German was allowed to be in command of "Don Carlos" and not the chief or the sailing
mate in the absence of Captain Rivera, gives rise to no other conclusion except that said vessel [had] no chief
mate. Otherwise, the defense evidence should have at least explained why it was German, only a second mate,
who was at the helm of the vessel "Don Carlos" at the time of the fatal collision.

But that is not all. Worst still, aside from German's being only a second mate, is his apparent lack of sufficient
knowledge of the basic and generally established rules of navigation. For instance, he appeared unaware of the
necessity of employing a "look- out" (t.s.n. June 6, 1974, page 27) which is manifest even in his testimony before
the Board of Marine Inquiry on the same subject (Exh. 2, page 209). There is, therefore, every reasonable ground
to believe that his inability to grasp actual situation and the implication brought about by inadequacy of experience
and technical know-how was mainly responsible and decidedly accounted for the collision of the vessels involved
in this case.. . . 23 (Emphasis supplied)

Second Mate German simply did not have the level of experience, judgment and skill essential for recognizing and coping
with the risk of collision as it presented itself that early morning when the "Don Carlos," running at maximum speed and
having just overtaken the "Don Francisco" then approximately one mile behind to the starboard side of the "Don
Carlos," found itself head-on or nearly head on vis-a-vis the "Yotai Maru. " It is essential to point out that this situation was
created by the "Don Carlos" itself.

The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which contradicted the findings of fact
made by Judge Cuevas. What Sison, P.V., J. actually did was to disregard all the facts found by Judge Cuevas, and
discussed above and, astonishingly, found a duty on the "Yotai Maru" alone to avoid collision with and to give way to the
"Don Carlos ". Sison, P.V., J., wrote:

At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh] and Chonabayashi had ample
time to adopt effective precautionary measures to steer away from the Philippine vessel, particularly because both
[Katoh] and Chonabayashi also deposed that at the time they had first eyesight of the "Don Carlos" there was still
"no danger at all" of a collision.1wphi1 Having sighted the "Don Carlos" at a comparatively safe distance"no
danger at all" of a collisionthe Japanese ship should have observed with the highest diligence the course and
movements of the Philippine interisland vessel as to enable the former to adopt such precautions as will
 necessarily present a collision, or give way, and in case of a collision, the former is prima facie at fault. In G.
Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632, the Supreme Court held:

Nautical rules require that where a steamship and sailing vessel are approaching each other from
opposite directions, or on intersecting lines, the steamship, from the moment the sailing vessel is seen,
shall watch with the highest diligence her course and movements so as to enable it to adopt such timely
means of precaution as will necessarily prevent the two boats from coming in contact.' (Underscoring in
the original)

At 3:44 p.m., or 4 minutes after first sighting the "Don Carlos", or 6 minutes before contact time, Chonabayashi
revealed that the "Yotai Maru" gave a one-blast whistle to inform the Philippine vessel that the Japanese ship was
turning to starboard or to the right and that there was no blast or a proper signal from the "Don Carlos" (pp. 67-68.
Deposition of Chonabayashi, List of Exhibits). The absence of a reply signal from the "Don Carlos" placed
the "Yotai Maru" in a situation of doubt as to the course the "Don Carlos" would take. Such being the case, it was
the duty of the Japanese officers "to stop, reverse or come to a standstill until the course of the "Don Carlos" has
been determined and the risk of a collision removed(The Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum,
etc. vs. Cebu Stevedoring, etc., 5 C.A.R. 2d 853, 861-862).. . . . 24 (Emphasis supplied)

The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an exclusive obligation uponone of
the vessels, the "Yotai Maru, " to avoid the collision, the Court of Appeals not only chose to overlook all the above facts
constitutive of negligence on the part of the "Don Carlos;" it also in effect used the very negligence on the part of the "Don
Carlos" to absolve it from responsibility and to shift that responsibility exclusively onto the "Yotai Maru" the vessel which
had observed carefully the mandate of Rule 18 (a). Moreover, G. Urrutia and Company v. Baco River Plantation
Company 25 invoked by the Court of Appeals seems simply inappropriate and inapplicable. For the collision in
the Urrutia case was between a sailing vessel, on the one hand, and a power-driven vessel, on the other; the Rules, of
course, imposed a special duty on the power-driven vessel to watch the movements of a sailing vessel, the latter being
necessarily much slower and much less maneuverable than the power-driven one. In the case at bar, both the "Don
Carlos" and the "Yotai Maru" were power-driven and both were equipped with radar; the maximum speed of the "Yotai
Maru" was thirteen (13) knots while that of the "Don Carlos" was eleven (11) knots. Moreover, as already noted, the "Yotai
Maru" precisely took last minute measures to avert collision as it saw the "Don Carlos" turning to portside: the "Yotai
Maru" turned "hard starboard" and stopped its engines and then put its engines "full astern."

Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with Judge Fernandez and
Nocon, J., 26 that the "Don Carlos" had been negligent and that its negligence was the sole proximate cause of the
collision and of the resulting damages.

FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in C.A.-G.R. No. 61206-R is
hereby REVERSED and SET ASIDE. The decision of the trial court dated 22 September 1975 is hereby REINSTATED
and AFFIRMED in its entirety. Costs against private respondent.

SO ORDERED.
G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.

No. L-49469 August 19, 1988

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents- appellees.

Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National
Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court
of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company
and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development
Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE
HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon
from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS
(Pl0,000.00) by way of damages as and for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the defendant National
Development Company, judgment is hereby rendered, ordering the National Development Company to
pay the cross-claimant Maritime Company of the Philippines the total amount that the Maritime Company
of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to
the judgment rendered in this case.

With costs against the defendant Maritime Company of the Philippines.

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement entered into between
defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of
three ocean going vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent
to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28,
1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San Francisco,
California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking
Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic
Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-
A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd.,
consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate
and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati figured in a
collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as
a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of
which 535 bales as damaged were landed and sold on the authority of the General Average Surveyor for
Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes
was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as
holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A-
 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd.,
consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss
was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading
(Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the
consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this
complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent
respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of
Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP
(Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP
filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21, 1965 to
which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the
resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed
its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an
answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's
answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories and to
comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of
agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p.
44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its
order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision
ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus the legal rate of
interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of
P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set
aside the decision was denied by the trial court in its order dated February 13,1970.

On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979,
this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases
were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION
4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN
DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL
"DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL
JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE
INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-
APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

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 CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID
PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO
CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO
OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86
INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN
HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE
THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT
COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST
FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES
INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN
THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime
Company of the Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due
to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided
thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar
and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for the
loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were
adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been
relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied
and both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the
consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987])
where it was held under similar circumstance "that the law of the country to which the goods are to be transported governs
the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the
rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is
governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common
carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods
by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco, California and
Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by the
negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all
other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have
acted negigently, unless it proves that it has observed the extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible
error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of
Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a
vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But
more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both
vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages
suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is
not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is
imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is
merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Y'eung
Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and
not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically
provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage
of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing
in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as
limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of
Commerce, but more importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has
no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or
special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were
transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said
plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of
lading covering the shipments in question and an examination of the invoices in particular, shows that the actual
consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification
attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount of
P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a
cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo,
p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the
vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in
excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6,
Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in
Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract
in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP
cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and
the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia &
Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262
[1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in
Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil
Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court
held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is
the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y
Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to
the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without
prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and
the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw
cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in
determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no
less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan
Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such
injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the
collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of
Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the
Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at variance
with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that
both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility.

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

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent
Appellate Court is AFFIRMED.

SO ORDERED.
G.R. No. 88052 December 14, 1989

JOSE P. MECENAS, ROMEO P. MECENAS, LILIA P. MECENAS, ORLANDO P. MECENAS, VIOLETA M. ACERVO,
LUZVIMINDA P. MECENAS; and OFELIA M. JAVIER, petitioners,
vs.
HON. COURT OF APPEALS, CAPT. ROGER SANTISTEBAN and NEGROS NAVIGATION CO., INC.,respondents.

Benito P. Favie and Jose Dario Magno for petitioners.

Hernandez, Velicaria, Vibar & Santiago for private respondents.

FELICIANO, J.:

At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a barge-type oil tanker of Philippine registry, with
a gross tonnage of 1,241,68 tons, owned by the Philippine National Oil Company (PNOC) and operated by the PNOC
Shipping and Transport Corporation (PNOC Shipping), having unloaded its cargo of petroleum products, left Amlan,
Negros Occidental, and headed towards Bataan. At about 1:00 o'clock in the afternoon of that same day, the M/V "Don
Juan," an interisland vessel, also of Philippine registry, of 2,391.31 tons gross weight, owned and operated by the Negros
Navigation Co., Inc. (Negros Navigation) left Manila bound for Bacolod with seven hundred fifty (750) passengers listed in
its manifest, and a complete set of officers and crew members.

On the evening of that same day, 22 April 1980, at about 10:30 o'clock, the "Tacloban City" and the "Don Juan" collided at
the Talbas Strait near Maestra de Ocampo Island in the vicinity of the island of Mindoro. When the collision occurred, the
sea was calm, the weather fair and visibility good. As a result of this collision, the M/V "Don Juan" sank and hundreds of
its passengers perished. Among the ill-fated passengers were the parents of petitioners, the spouses Perfecto Mecenas
and Sofia Mecenas, whose bodies were never found despite intensive search by petitioners.

On 29 December 1980, petitioners filed a complaint in the then Court- of First Instance of Quezon City, docketed as Civil
Case No. Q-31525, against private respondents Negros Navigation and Capt. Roger Santisteban, the captain of the "Don
Juan" without, however, impleading either PNOC or PNOC Shipping. In their complaint, petitioners alleged that they were
the seven (7) surviving legitimate children of Perfecto Mecenas and Sofia Mecenas and that the latter spouses perished in
the collision which had resulted from the negligence of Negros Navigation and Capt. Santisteban. Petitioners prayed for
actual damages of not less than P100,000.00 as well as moral and exemplary damages in such amount as the Court may
deem reasonable to award to them.

Another complaint, docketed as Civil Case No. Q-33932, was filed in the same court by Lilia Ciocon claiming damages
against Negros Navigation, PNOC and PNOC Shipping for the death of her husband Manuel Ciocon, another of the
luckless passengers of the "Don Juan." Manuel Ciocon's body, too, was never found.

The two (2) cases were consolidated and heard jointly by the Regional Trial Court of Quezon City, Branch 82. On 17 July
1986, after trial, the trial court rendered a decision, the dispositive of which read as follows:

WHEREFORE, the Court hereby renders judgment ordering:

a) The defendant Negros Navigation Co., Inc. and Capt. Roger Santisteban jointly and severally liable to
pay plaintiffs in Civil Case No Q-31525, the sum of P400,000.00 for the death of plaintiffs' parents,
Perfecto A. Mecenas and Sofia P. Mecenas; to pay said plaintiff's the sum of P15.000,00 as and for
attorney's fees; plus costs of the suit.

b) Each of the defendants Negros Navigation Co Inc. and Philippine National Oil Company/PNOC
Shipping and Transportation Company, to pay the plaintiff in Civil Case No. Q-33932, the sum of
P100,000.00 for the death of Manuel Ciocon, to pay said plaintiff jointly and severally, the sum of P1
5,000.00 as and for attorney's fees, plus costs of the suit. 1

Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court's decision to the Court of
Appeals. Later, PNOC and PNOC Shipping withdrew their appeal citing a compromise agreement reached by them with
Negros Navigation; the Court of Appeals granted the motion by a resolution dated 5 September 1988, subject to the
reservation made by Lilia Ciocon that she could not be bound by the compromise agreement and would enforce the
award granted her by the trial court.

In time, the Court of Appeals rendered a decision dated 26 January 1989 which decreed the following:

WHEREFORE, in view of the foregoing, the decision of the court a quo is hereby affirmed as modified with respect to Civil
Case No. 31525, wherein defendant appellant Negros Navigation Co. Inc. and Capt. Roger Santisteban are held jointly
and severally liable to pay the plaintiffs the amount of P100,000. 00 as actual and compensatory damages and
P15,000.00 as attorney's fees and the cost of the suit. 2

The issue to be resolved in this Petition for Review is whether or not the Court of Appeals had erred in reducing the
amount of the damages awarded by the trial court to the petitioners from P400,000.00 to P100,000.00.

We note that the trial court had granted petitioners the sum of P400,000,00 "for the death of [their parents]" plus
P15,000.00 as attorney's fees, while the Court of Appeals awarded them P100,000.00 "as actual and compensatory
damages" and P15,000.00 as attorney's fees. To determine whether such reduction of the damages awarded was proper,
we must first determine whether petitioners were entitled to an award of damagesother than actual or compensatory
damages, that is, whether they were entitled to award of moral and exemplary damages.

We begin by noting that both the trial court and the Court of Appeals considered the action (Civil Case No. Q-31525)
brought by the sons and daughters of the deceased Mecenas spouses against Negros Navigation as based on quasi-
delict. We believed that action is more appropriately regarded as grounded on contract, the contract of carriage between
the Mecenas spouses as regular passengers who paid for their boat tickets and Negros Navigation; the surviving children
while not themselves passengers are in effect suing the carrier in representation of their deceased parents. 3 Thus, the
suit (Civil Case No. Q-33932) filed by the widow Lilia Ciocon was correctly treated by the trial and appellate courts as
based on contract (vis-a-vis Negros Navigation) and as well on quasi-delict (vis-a-vis PNOC and PNOC Shipping). In an
action based upon a breach of the contract of carriage, the carrier under our civil law is liable for the death of passengers
arising from the negligence or willful act of the carrier's employees although such employees may have acted beyond the
scope of their authority or even in violation of the instructions of the carrier, 4which liability may include liability for moral
damages. 5 It follows that petitioners would be entitled to moral damages so long as the collision with the "Tacloban City"
and the sinking of the "Don Juan" were caused or attended by negligence on the part of private respondents.

In respect of the petitioners' claim for exemplary damages, it is only necessary to refer to Article 2232 of the Civil Code:

Article 2332. In contracts and quasi-contracts, the court may exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive or malevolent manner. 6

Thus, whether petitioners are entitled to exemplary damages as claimed must depend upon whether or not private
respondents acted recklessly, that is, with gross negligence.

We turn, therefore, to a consideration of whether or not Negros Navigation and Capt. Santisteban were grossly negligent
during the events which culminated in the collision with "Tacloban City" and the sinking of the "Don Juan" and the
resulting heavy loss of lives.

The then Commandant of the Philippine Coast Guard, Commodore B.C. Ochoco, in a decision dated 2 March 1981, held
that the "Tacloban City" was "primarily and solely [sic] at fault and responsible for the collision." 7Initially, the Minister of
National Defense upheld the decision of Commodore Ochoco. 8 On Motion for Reconsideration, however, the Minister of
National Defense reversed himself and held that both vessels had been at fault:

It is therefore evident from a close and thorough review of the evidence that fault is imputable to both
vessels for the collision. Accordingly, the decision dated March 12, 1982, subject of the Motion for
Reconsideration filed by counsel of M/T Tacloban City, is hereby reversed. However, the administrative
penalties imposed oil both vessels and their respective crew concerned are hereby affirmed. 9

The trial court, after a review of the evidence submitted during the trial, arrived at the same conclusion that the Minister of
National Defense had reached that both the "Tacloban City" and the "Don Juan" were at fault in the collision. The trial
court summarized the testimony and evidence of PNOC and PNOC Shipping as well as of Negros Navigation in the
following terms:
 Defendant PNOC's version of the incident:

M/V Don Juan was first sighted at about 5 or 6 miles from Tacloban City (TSN, January 21, 1985, p. 13);
it was on the starboard (right) side of Tacloban City. This was a visual contact; not picked up by radar (p.
15, Ibid). Tacloban City was travelling 310 degrees with a speed of 6 knots, estimated speed of Don Juan
of 16 knots (TSN, May 9, pp. 5-6). As Don Juan approached, Tacloban City gave a leeway of 1 0 degrees
to the left. 'The purpose was to enable Tacloban to see the direction of Don Juan (p. 19, Ibid). Don Juan
switched to green light, signifying that it will pass Tacloban City's right side; it will be a starboard to
starboard passing (p. 21, Ibid) Tacloban City's purpose in giving a leeway of 10 degrees at this point, is to
give Don Juan more space for her passage (p. 22, Ibid). This was increased by Tacloban City to an
additional 15 degrees towards the left (p. 22, Ibid). The way was clear and Don Juan has not changed its
course (TSN, May 9,1985, p. 39).

When Tacloban City altered its course the second time, from 300 degrees to 285 degrees, Don Juan was
about 4.5 miles away (TSN, May 9,1985, p. 7).

Despite executing a hardport maneuver, the collision nonetheless occurred. Don Juan rammed the
Tacloban City near the starboard bow (p. 7, Ibid)."

NENACO's [Negros Navigation] version.

Don Juan first sighted Tacloban City 4 miles away, as shown by radar (p. 13, May 24, 1983). Tacloban
City showed its red and green lights twice; it proceeded to, and will cross, the path of Don Juan. Tacloban
was on the left side of Don Juan (TSN, April 20,1983, p. 4).

Upon seeing Tacloban's red and green lights, Don Juan executed hard starboard (TSN, p. 4, Ibid.) This
maneuver is in conformity with the rule that 'when both vessels are head on or nearly head on, each
vessel must turn to the right in order to avoid each other. (p. 5, Ibid). Nonetheless, Tacloban appeared to
be heading towards Don Juan (p. 6, Ibid),

When Don Juan executed hard starboard, Tacloban was about 1,500 feet away (TSN, May 24,1983, p.
6). Don Juan, after execution of hard starboard, will move forward 200 meters before the vessel will
respond to such maneuver (p. 7, Ibid). The speed of Don Juan at that time was 17 knits; Tacloban City
6.3 knots. t "Between 9 to 15 seconds from execution of hard starboard, collision occurred (p. 8, Ibid).
(pp. 3-4 Decision). 10

The trial court concluded:

M/ V Don Juan and Tacloban City became aware of each other's presence in the area by visual contact at
a distance of something like 6 miles from each other. They were fully aware that if they continued on their
course, they will meet head on. Don Juan - steered to the right; Tacloban City continued its course to the
left. There can be no excuse for them not to realize that, with such maneuvers, they will collide. They
executed maneuvers inadequate, and too late, to avoid collision.

The Court is of the considered view that the defendants are equally negligent and are liable for damages.
(p. 4, decision). 11

12
The Court of Appeals, for its part, reached the same conclusion.

There is, therefore, no question that the "Don Juan" was at least as negligent as the M/T "Tacloban City" in the events
leading up to the collision and the sinking of the "Don Juan." The remaining question is whether the negligence on the part
of the "Don Juan" reached that level of recklessness or gross negligence that our Civil Code requires for the imposition of
exemplary damages. Our own review of the record in the case at bar requires us to answer this in the affirmative.

In the first place, the report of the Philippine Coast Guard Commandant (Exhibit "l 0"), while holding the "Tacloban City" as
"primarily and solely [sic] at fault and responsible for the collision," did itself set out that there had been fault or negligence
on the part of Capt. Santisteban and his officers and crew before the collision and immediately after contact of the two (2)
vessels. The decision of Commodore Ochoco said:
 xxxxxxxxx

M/S Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the time of
collision. Moreover, after the collision, he failed to institute appropriate measures to delay the sinking MS
Don Juan and to supervise properly the execution of his order of abandonship. As regards the officer on
watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed or did not call or inform Capt.
Santisteban of the imminent danger of collision and of the actual collision itself Also, he failed to assist his
master to prevent the fast sinking of the ship. The record also indicates that Auxiliary Chief Mate Antonio
Labordo displayed laxity in maintaining order among the passengers after the collision.

x x x x x x x x x. 13

We believe that the behaviour of the captain of the "Don Juan" in tills instance-playing mahjong "before and up to the time
of collision constitutes behaviour that is simply unacceptable on the part of the master of a vessel to whose hands the
lives and welfare of at least seven hundred fifty (750) passengers had been entrusted. Whether or not Capt. Santisteban
was "off-duty" or "on-duty" at or around the time of actual collision is quite immaterial; there is, both realistically speaking
and in contemplation of law, no such thing as "off-duty" hours for the master of a vessel at sea that is a common carrier
upon whom the law imposes the duty of extraordinary diligence-

[t]he duty to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances. 14

The record does not show that was the first or only time that Capt. Santisteban had entertained himself during a voyage
by playing mahjong with his officers and passengers; Negros Navigation in permitting, or in failing to discover and correct
such behaviour, must be deemed grossly negligent.

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the collision, "to institute
appropriate measures to delay the sinking of M/V Don Juan." This appears to us to be a euphemism for failure to maintain
the sea-worthiness or the water-tight integrity of the "Don Juan." The record shows that the "Don Juan" sank within ten
(10) to fifteen (15) minutes after initial contact with the "Tacloban City. 15 While the failure of Capt. Santisteban to
supervise his officers and crew in the process of abandoning the ship and his failure to avail of measures to prevent the
too rapid sinking of his vessel after collision, did not cause the collision by themselves, such failures doubtless contributed
materially to the consequent loss of life and, moreover, were indicative of the kind and level of diligence exercised by
Capt. Santisteban in respect of his vessel and his officers and men prior to actual contact between the two (2) vessels.
The officer-on-watch in the "Don Juan" admitted that he had failed to inform Capt. Santisteban not only of the "imminent
danger of collision" but even of "the actual collision itself "

There is also evidence that the "Don Juan" was carrying more passengers than she had been certified as allowed to
carry. The Certificate of Inspection 16 dated 27 August 1979, issued by the Philippine Coast Guard Commander at Iloilo
City, the Don Juan's home port, states:

Passengers allowed : 810

Total Persons Allowed : 864

The report of the Philippine Coast Guard (Exhibit "10") stated that the "Don Juan" had been "officially cleared with 878
passengers on board when she sailed from the port of Manila on April 22, 1980 at about 1:00 p.m." This head-count of the
passengers "did not include the 126 crew members, children below three (3) years old and two (2) half-paying
passengers" which had been counted as one adult passenger. 17 Thus, the total number of persons on board the "Don
Juan" on that ill-starred night of 22 April 1 980 was 1,004, or 140 persons more than the maximum lumber that could be
safely carried by the "Don Juan," per its own Certificate of Inspection. 18 We note in addition, that only 750 passengers
had been listed in its manifest for its final voyage; in other words, at least 128 passengers on board had not even been
entered into the "Don Juan's" manifest. The "Don Juan's" Certificate of Inspection showed that she carried life boat and
life raft accommodations for only 864 persons, the maximum number of persons she was permitted to carry; in other
words, she did not carry enough boats and life rafts for all the persons actually on board that tragic night of 22 April 1980.

We hold that under these circumstances, a presumption of gross negligence on the part of the vessel (her officers and
crew) and of its ship-owner arises; this presumption was never rebutted by Negros Navigation.
The grossness of the negligence of the "Don Juan" is underscored when one considers the foregoing circumstances in
the context of the following facts: Firstly, the "Don Juan" was more than twice as fast as the "Tacloban City." The "Don
Juan's" top speed was 17 knots; while that of the "Tacloban City" was 6.3. knots. 19Secondly, the "Don Juan" carried the
full complement of officers and crew members specified for a passenger vessel of her class. Thirdly, the "Don Juan" was
equipped with radar which was functioning that night. Fourthly, the "Don Juan's" officer on-watch had sighted the
"Tacloban City" on his radar screen while the latter was still four (4) nautical miles away. Visual confirmation of radar
contact was established by the "Don Juan" while the "Tacloban City" was still 2.7 miles away. 20 In the total set of
circumstances which existed in the instant case, the "Don Juan," had it taken seriously its duty of extraordinary diligence,
could have easily avoided the collision with the "Tacloban City," Indeed, the "Don Juan" might well have avoided the
collision even if it had exercised ordinary diligence merely.

It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the Road which requires two (2)
power- driven vessels meeting end on or nearly end on each to alter her course to starboard (right) so that each vessel
may pass on the port side (left) of the other. 21 The "Tacloban City," when the two (2) vessels were only three-tenths (0.3)
of a mile apart, turned (for the second time) 150 to port side while the "Don Juan" veered hard to starboard. This
circumstance, while it may have made the collision immediately inevitable, cannot, however, be viewed in isolation from
the rest of the factual circumstances obtaining before and up to the collision. In any case, Rule 18 like all other
International Rules of the Road, are not to be obeyed and construed without regard to all the circumstances surrounding a
particular encounter between two (2) vessels. 22 In ordinary circumstances, a vessel discharges her duty to another by a
faithful and literal observance of the Rules of Navigation, 23 and she cannot be held at fault for so doing even though a
different course would have prevented the collision. This rule, however, is not to be applied where it is apparent, as in the
instant case, that her captain was guilty of negligence or of a want of seamanship in not perceiving the necessity for, or in
so acting as to create such necessity for, a departure from the rule and acting accordingly. 24 In other words, "route
observance" of the International Rules of the Road will not relieve a vessel from responsibility if the collision could have
been avoided by proper care and skill on her part or even by a departure from the rules. 25

In the petition at bar, the "Don Juan" having sighted the "Tacloban City" when it was still a long way off was negligent in
failing to take early preventive action and in allowing the two (2) vessels to come to such close quarters as to render the
collision inevitable when there was no necessity for passing so near to the "Tacloban City" as to create that hazard or
inevitability, for the "Don Juan" could choose its own distance. 26, It is noteworthy that the "Tacloban City," upon turning
hard to port shortly before the moment of collision, signalled its intention to do so by giving two (2) short blasts with
horn. 26A The "Don Juan " gave no answering horn blast to signal its own intention and proceeded to turn hatd to
starboard. 26B

We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross negligence in connection
with the collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan" leading to the death of
hundreds of passengers. We find no necessity for passing upon the degree of negligence or culpability properly
attributable to PNOC and PNOC Shipping or the master of the "Tacloban City," since they were never impleaded here.

It will be recalled that the trial court had rendered a lump sum of P400,000.00 to petitioners for the death of their parents
in the "Don Juan" tragedy. Clearly, the trial court should have included a breakdown of the lump sum award into its
component parts: compensatory damages, moral damages and exemplary damages. On appeal, the Court of Appeals
could have and should have itself broken down the lump sum award of the trial court into its constituent parts; perhaps, it
did, in its own mind. In any case, the Court of Appeals apparently relying uponManchester Development Corporation V.
Court of Appeals 27 reduced the P400,000.00 lump sum award into a P100,000.00 for actual and compensatory damages
only.

We believe that the Court of Appeals erred in doing so, It is true that the petitioners' complaint before the trial court had in
the body indicated that the petitioner-plaintiffs believed that moral damages in the amount of at least P1,400,000.00 were
properly due to them (not P12,000,000.00 as the Court of Appeals erroneously stated) as well as exemplary damages in
the sum of P100,000.00 and that in the prayer of their complaint, they did not specify the amount of moral and exemplary
damages sought from the trial court. We do not believe, however, that the Manchester doctrine, which has been modified
and clarified in subsequent decision by the Court in Sun Insurance Office, Ltd. (SIOL), et al. v. Asuncion, et al. 28 can be
applied in the instant case so as to work a striking out of that portion of the trial court's award which could be deemed
nationally to constitute an award of moral and exemplary damages. Manchester was promulgated by the Court on 7 May
1987. Circular No. 7 of this Court, which embodied the doctrine in Manchester, is dated 24 March 1988. Upon the other
hand, the complaint in the case at bar was filed on 29December 1980, that is, long before either Manchester or Circular
No. 7 of 24 March 1988 emerged. The decision of the trial court was itself promulgated on 17 July 1986, again,
before Manchester and Circular No. 7 were promulgated. We do not believe that Manchester should have been applied
retroactively to this case where a decision on the merits had already been rendered by the trial court, even though such
decision was then under appeal and had not yet reached finality. There is no indication at all that petitioners here sought
simply to evade payment of the court's filing fees or to mislead the court in the assessment of the filing fees. In any event,
we apply Manchester as clarified and amplified by Sun Insurance Office Ltd. (SIOL), by holding that the petitioners shall
pay the additional filing fee that is properly payable given the award specified below, and that such additional filing fee
shall constitute a lien upon the judgment.

We consider, finally, the amount of damages-compensatory, moral and exemplary-properly imposable upon private
respondents in this case. The original award of the trial court of P400,000.00 could well have been disaggregated by the
trial court and the Court of Appeals in the following manner:

1. actual or compensatory damages proved in the course of trial consisting of actual expenses

incurred by petitioners

in their search for their

parents' bodies- -P126,000.00

2. actual or compensatory

damages in case of

wrongful death

(P30,000.00 x 2) -P60,000.00 29

(3) moral damages -P107,000.00

(4) exemplary damages -P107,000.00

Total -P400,000.00

Considering that petitioners, legitimate children of the deceased spouses Mecenas, are seven (7) in number and that they
lost both father and mothe in one fell blow of fate, and considering the pain and anxiety they doubtless experienced while
searching for their parents among the survivors and the corpses recovered from the sea or washed ashore, we believe
that an additional amount of P200,000.00 for moral damages, making a total of P307,000.00 for moral damages, making a
total of P307,000.00 as moral damages, would be quite reasonable.

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in
its consequence by creating negative incentives or deterrents against such behaviour. In requiring compliance with the
standard which is in fact that of the highest possible degree of diligence, from common carriers and in creating a
presumption of negligence against them, the law seels to compel them to control their employees, to tame their reckless
instincts and to force them to take adequate care of human beings and their property. The Court will take judicial notive of
the dreadful regularity with which grievous maritime disasters occur in our waters with massive loss of life. The bulk of our
population is too poor to afford domestic air transportation. So it is that notwithstanding the frequent sinking of passenger
vessels in our waters, crowds of people continue to travel by sea. This Court is prepared to use the instruments given to it
by the law for securing the ends of law and public policy. One of those instruments is the institution of exemplary
damages; one of those ends, of special importance in an archipelagic state like the Philippines, is the safe and reliable
carriage of people and goods by sea. Considering the foregoing, we believe that an additional award in the amount of
P200,000.00 as exmplary damages, is quite modest.

The Court is aware that petitioners here merely asked for the restoration of the P 400.000.00 award of the trial court. We
underscore once more, however, the firmly settled doctrine that this Court may consider and resolved all issues which
must be decided in order to render substantial justice to the parties, including issues not explicity raised by the party
affected. In the case at bar, as in Kapalaran Bus Line v. Coronado, et al., 30 both the demands of sustantial justice and the
imperious requirements of public policy compel us to the conclusion that the trial court's implicit award of moral and
exemplary damages was erronoeusly deledted and must be restored and augmented and brought more nearely to the
level required by public policy and substantial justice.
WHEREFORE, the Petition for Review on certiorari is hereby GRANTED and the Decision of the Court of Appeals insofar
as it redurce the amount of damages awarded to petitioners to P100,000.00 is hereby REVERSED and SET ASIDE. The
award granted by the trial court is hereby RESTORED and AUGMENTED as follows:

(a) P 126,000.00 for actual damages;

(b) P 60,000.00 as compensatory damages for wrongful death;

(c) P 307,000.00 as moral damages;

(d) P 307,000.00 as exemplary damages making a total of P 800,000.00; and

(e) P 15,000.00 as attorney's fees.

Petitioners shall pay the additional filing fees properly due and payable in view of the award here made, which fees shall
be computed by the Clerks of Court of the trial court, and shall constitute a lien upon the judgment here awarded. Cost
against private respondents.

SO ORDERED.
G.R. No. 100446 January 21, 1993

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD., respondent.

Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.

Napoleon Rama collaborating counsel for petitioner.

Dollete, Blanco, Ejercito & Associates for private respondent.

MELO, J.:

This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated June 21,
1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein petitioner, Aboitiz
Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court of the National Capital
Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's prayer for execution for the
full amount of the judgment award. The trial court in so doing swept aside petitioner's opposition which was grounded on
the real and hypothecary nature of petitioner's liability as ship owner. The application of this established principle of
maritime law would necessarily result in a probable reduction of the amount to be recovered by private respondent, since
it would have to share with a number of other parties similarly situated in the insurance proceeds on the vessel that sank.

The basic facts are not disputed.

Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade
as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage
from Hongkong to the Philippines on October 31, 1980. Private respondent General Accident Fire and Life Assurance
Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of
several cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid.

The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their
successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board
of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due to force majeure and
that subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding, the trial court in
said Civil Case No. 144425 found against the carrier on the basis that the loss subject matter therein did not occur as a
result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim. This
decision in favor of GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188
SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the
judgment award in said case in the amount of P1,072,611.20 plus legal interest has given rise to the instant petition.

On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was
seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was likewise
elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, et al., August 28,
1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the resulting apparent contrary
findings in cases originating out of a single set of facts.

It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine of limited
liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel M/V P. ABOITIZ, as
based on the real and hypothecary nature of maritime law. This is an issue which begs to be resolved considering that a
number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to 183,Rollo) still pend and whose resolution
shall well-nigh result in more confusion than presently attends the instant case.

In support of the instant petition, the following arguments are submitted by the petitioner:

1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of
other creditors' shares;
 2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and

3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)

On the other hand, private respondent opposes the foregoing contentions, arguing that:

1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587, 590,
and 837 of the Code of Commerce in the face of the facts found by the lower court (Civil Case No.
144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the Supreme Court
in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case; and

2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly situated
and the same issues litigated should be decided in conformity therewith following the maximstare decisis
et non quieta movere. (pp. 225 to 279, Rollo.)

Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution of this
Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied Guaranty
Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant petition as argued by
respondent GAFLAC.

An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the same
settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable
therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence
required by law of common carriers.

It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar,
but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of
stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was contained in
Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the cargo whose value was therein
sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of contention in this
case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on primary
administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and should no
longer be touched, the instant case raises a completely different issue. It appears, therefore, that the resolution in G.R.
88159 adverted to has no bearing other than factual to the instant case.

This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the
full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited
liability enunciated under the appropriate articles of the Code of Commerce. The articles may be ancient, but they are
timeless and have remained to be good law. Collaterally, determination of the question of whether execution of judgments
which have become final and executory may be stayed is also an issue.

We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its
existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such shall result in the
subverting of substantial justice. The right to an execution after finality of a decision is certainly no exception to this. Thus,
in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that:

. . . It is a truism that every court has the power "to control, in the furtherance of justice, the conduct of its
ministerial officers, and of all other persons in any manner connected with a case before it, in every
manner appertaining thereto. It has also been said that:

. . . every court having jurisdiction to render a particular judgment has inherent power to
enforce it, and to exercise equitable control over such enforcement. The court has
authority to inquire whether its judgment has been executed, and will remove
obstructions to the enforcement thereof. Such authority extends not only to such orders
and such writs as may be necessary to carry out the judgment into effect and render it
binding and operative, but also to such orders and such writs as may be necessary to
prevent an improper enforcement of the judgment. If a judgment is sought to be perverted
 and made a medium of consummating a wrong the court on proper application can
prevent it. (at p. 359)

and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that:

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order
its execution, admits of certain exceptions as in cases of special and exceptional nature where it
becomes the imperative in the higher interest of justice to direct the suspension of its execution (Vecine v.
Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v Tan, 85
Phil. 164); or when certain facts and circumstances transpired after the judgment became final which
would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)

We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative.

In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757 upholding
private respondent's claims in that particular case, which the Court of Appeals took to mean that this Court has
"considered, passed upon and resolved Aboitiz's contention that all claims for the losses should first be determined before
GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily negated the application of the limited
liability principle" (p. 175, Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered only the
circumstances peculiar to that particular case, and was not meant to traverse the larger picture herein brought to fore, the
circumstances of which heretofore were not relevant. We must stress that the matter of the Limited Liability Rule as
discussed was never in issue in all prior cases, including those before the RTCs and the Court of Appeals. As discussed
earlier, the "limited liability" in issue before the trial courts referred to the package limitation clauses in the bills of lading
and not the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was
never made a matter of defense in any of the cases a quo, as properly it could not have been made so since it was not
relevant in said cases. The only time it could come into play is when any of the cases involving the mishap were to be
executed, as in this case. Then, and only then, could the matter have been raised, as it has now been brought before the
Court.

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

It might be noteworthy to add in passing that despite the modernization of the shipping industry and the development of
high-technology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even
practically absolute in well-developed maritime countries such as the United States and England where it covers almost
all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both
international maritime conventions and generally accepted practices relative to maritime trade and travel. This is
highlighted by the following excerpts on the limited liability of vessel owners and/or agents;

Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement,
loss, or destruction by any person of any person or any property, goods, or merchandise shipped or put
on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the
privity or knowledge of such owner or owners shall not exceed the amount or value of the interest of such
owner in such vessel, and her freight then pending. (Section 183 of the US Federal Limitation of Liability
Act).

and

1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in
respect of claims arising, from any of the following occurrences, unless the occurrence giving rise to the
claim resulted from the actual fault or privity of the owner;
 (a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to,
any property on board the ship.

(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage
to any other property or infringement of any rights caused by the act, neglect or default the owner is
responsible for, or any person not on board the ship for whose act, neglect or default the owner is
responsible: Provided, however, that in regard to the act, neglect or default of this last class of person, the
owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the
navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the
embarkation, carriage or disembarkation of its passengers.

(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in
connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned
(including anything which may be on board such ship) and any obligation or liability arising out of damage
caused to harbor works, basins and navigable waterways. (Section 1, Article I of the Brussels
International Convention of 1957)

In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it
originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in
Articles 587, 590, and 837, hereunder quoted in toto:

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

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

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

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

Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of the
captain (Art. 590) and collisions (Art. 837).

In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near
absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen, the
reasons for its being are still apparently much in existence and highly regarded.

We now come to its applicability in the instant case. In the few instances when the matter was considered by this Court,
we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when
there is an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941];
Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186
SCRA 649 [1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the owner in
the instant case.

A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well as the
entirety of the records in the instant case will show that there has been no actual finding of negligence on the part of
petitioner. In its Decision, the trial court merely held that:

. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were
not lost due to fortuitous event or force majeure." (p. 32, Rollo)

The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the Court of
Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and additional finding of
fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the sinking of the vessel was
because of unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence. Indeed,
there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was
negligent, and no tribunal, including this Court will add or subtract to such evidence to justify a conclusion to the contrary.

The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is underscored
by the fact that in the Country Banker's case, supra, arising from the same sinking, the Court sustained the decision of the
Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.

On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap, absent
a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has been ruled to exist
is directly attributable to the vessel's crew and captain, more so on the part of the latter since Article 612 of the Code of
Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with
the laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis,
the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not
totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness"
clearly did not pertain to the structural condition of the vessel which is the basis of the BMI's findings, but to the condition it
was in at the time of the sinking, which condition was a result of the acts of the captain and the crew.

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

More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those of
creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it. While
each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does
not mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims sooner to the
prejudice of those who come later. In such an instance, such creditors too would not also be able to gain access to the
assets of the individual shareholders, but must limit their recovery to what is left in the name of the corporation. Thus, in
the case of Lipana v. Development Bank of Rizal earlier cited, We held that:

In the instant case, the stay of execution of judgment is warranted by the fact that the respondent bank
was placed under receivership. To execute the judgment would unduly deplete the assets of respondent
bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank v.
Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it
to cease operations, the Board becomes the trustee of its assets for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an advantage or preference over another by an attachment,
execution or otherwise. (at p. 261).

In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to
the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the
corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending
freightage for the particular voyage.

In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus,
execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending
completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously
settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.

Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to 183,Rollo),
together with the corresponding claims and the pro-rated share of each. We likewise note that some of these cases are
still with the Court of Appeals, and some still with the trial courts and which probably are still undergoing trial. It would not,
therefore, be entirely correct to preclude the trial courts from making their own findings of fact in those cases and deciding
the same by allotting shares for these claims, some of which, after all, might not prevail, depending on the evidence
presented in each. We, therefore, rule that the pro-rated share of each claim can only be found after all the cases shall
have been decided.

In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should
now be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the
proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds from the
insurance company and pending freightage in order to safeguard the same pending final resolution of all incidents, for
final pro-rating and settlement thereof.

ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch IV dated
April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby directed to
desist from proceeding with the execution of the judgment rendered in Civil Case No. 144425 pending determination of
the totality of claims recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute
the necessary action and to deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15)
days from finality of this decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby
made permanent.

SO ORDERED.
 [G.R. No. 116940. June 11, 1997]

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. COURT OF APPEALS and
FELMAN SHIPPING LINES,respondents.

DECISION
BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the extraordinary
diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rights of the
insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and operated by
respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.[1] The shipment
was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine
Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same day. At around eight
forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her
entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which
paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any
liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the
vessels unseaworthiness as she was put to sea in an unstable condition.It further alleged
that the vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate measures
to proceed to a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation
in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights,
interests and ownership over MV Asilda together with her freight and appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of Commerce. [2]
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set
aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition
for certiorari with this Court but it was subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. [3] It ruled that MV Asilda was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the shipowners
surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed to
either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the
negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could not recover from
FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessels
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken
payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an
action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent
appellate court rendered judgment finding MV Asilda unseaworthy for being top- heavy as 2,500 cases of Coca-Cola
softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast Guard
certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to
the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assureds implied
warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights
and interests of the shipper.Furthermore, respondent court held that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV Asilda was seaworthy when it left the port of
Zamboanga; (b) whether the limited liability under Art. 587 of the Code ofCommerce should apply; and, (c) whether
PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against FELMAN, the
shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief
mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the
vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders
and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases
of Coca-Cola bottles on deck.[4] The ship captain stated that around four oclock in the morning of 7 July 1983 he was
awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that the
weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the vessel
was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his
crew to shift the cargo from starboard to portside until the vessel was balanced. At about seven oclock in the morning, the
master of the vessel stopped the engine because the vessel was listing dangerously to portside. He ordered his crew to
shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume
full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next
move, some of the cargo on deck were thrown overboard and seawaterentered the engine room and cargo holds of the
vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, MV
Asilda capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the
vessels collision with a partially submerged log.[5]
The Elite Adjusters, Inc., submitted a report regarding the sinking of MV Asilda. The report, which was adopted by
the Court of Appeals, reads -

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

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

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

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

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

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the
sinking of MV Asilda was its being top-heavy. Contrary to the ship captains allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after MV Asilda sank, an estimated
2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ships hatches
were properly secured, the empty Coca-Cola cases recovered could have come only from the vessels deck cargo. It is
settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo
will not interfere with the proper management of the ship. However, in this case it was established that MV Asilda was not
designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of
the vessels metacentric height[7] thus making it unstable. The strong winds and waves encountered by the vessel are but
the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy
condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. [8] Simply put, the ship
agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be
limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the
loss or injury was due to the fault of the shipowner and the captain. [9] The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases where the injury or average
was occasioned by the shipowners own fault.[10] It must be stressed at this point that Art. 587 speaks only of situations
where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587
will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier. [11]
It was already established at the outset that the sinking of MV Asilda was due to its unseaworthiness even at the time
of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on
deck. Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN
was equally negligent.It cannot therefore escape liability through the expedient of filing a notice of abandonment of the
vessel by virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case x x x x" In the event of loss of goods,
common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this
presumption.
In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy with reference to
the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to
the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect
a voluntary payment and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at
its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel
is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. [12] Thus
Sec. 113 of the Insurance Code provides that (i)n every marine insurance upon a ship or freight, or freightage, or upon
anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy. Under Sec. 114, a ship
is seaworthy when reasonably fit to perform the service, and to
encounterthe ordinary perils of the voyage, contemplated by the parties to the policy. Thus it becomes the obligation of
the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no
control over the vessel but he has full control in the selection of the common carrier that will transport his goods. He also
has full discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by
FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty of
seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. [13] And where the policy
stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured. [14]
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed
with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads (t)he liberties as
per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading
and/or Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not prejudice the
insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted. [15]
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states (t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x" [16]
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the
warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company.[17] The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that
cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN
has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this
case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action against
FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third
party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon
payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the
mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience
ought to pay.[19] Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former
the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of
FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand
Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date
of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.[20]
SO ORDERED.
G.R. No. L-10051 March 9, 1916

ERLANGER & GALINGER, plaintiffs-appellants,

vs.
THE SWEDISH EAST ASIATIC CO., (LTD.) ET AL., defendants. THE "OELWERKE TEUTONIA" and NEW ZEALAND
INSURANCE CO. (LTD.), appellants.

Gilbert, Haussermann, Cohn and Fisher for plaintiff-appellant.

Rohde and Wright and Lawrence, Ross and Block for defendant-appellants.

PER CURIAM:

The facts in this case are as follows:

First. The steamship Nippon loaded principally with copra and with some other general merchandise sailed from Manila
on May 7, 1913, bound for Singapore. Second. The steamship Nippon went aground on Scarborough Reef about 4.30 in
the afternoon of May 8, 1913. Third. Scarborough Reef is about 120 to 130 miles from the nearest point on the Island of
Luzon. Fourth. On May 9, 1913, the chief officer, Weston, and nine members of the crew left the Nippon and succeeded in
reaching the coast of Luzon at Santa Cruz, Zambales, on the morning of May 12, 1913. Fifth. On May 12, 1913, the chief
officer sent a telegram to Helm, the Director of the Bureau of Navigation, at Manila, which was as follows:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.

Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone. 12.15 p. m.

(Sgd.) WESTON.

Sixth. On the same day (May 12) at 1.30 p. m., the Government of the Philippine Islands ordered the coast guard
cutter Mindoro with life-saving appliances to the scene of the wreck of the Nippon . Seventh. On the same day (May 12) at
3 p. m. the steamship Manchuria sailed from Manila for Hongkong and was requested to pass by Scarborough Reef.
Eighth. The Manchuria arrived at Scarborough Reef some time before the arrival of theMindoro on May 13, 1913, and
took on board the captain and the remainder of the crew. Ninth. The Manchuriawas still near Scarborough Reef when
the Mindoro arrived. The captain of the Manchuria informed the captain of the Mindoro that the captain and crew of
the Nippon were on board the Manchuria and were proceeding to Hongkong. Tenth. The captain of the Mindoro offered to
render assistance to the captain and crew of the Nippon , which assistance was declined The Mindoro proceeded to
the Nippon and removed the balance of the baggage of the officers and crew, which was found upon the deck. Eleventh.
The Mindoro proceeded to Santa Cruz, Zambales, where the chief officer, Weston, and the nine members of the crew
were taken on board and brought to Manila, arriving there on May 14, 1913. Twelfth. On May 13, 1913, Dixon, captain of
the Manchuria sent the following message:

S. S. `MANCHURIA', May 13, 1913.

All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel stranded May 9. She is full of water
fore and aft and is badly ashore. Ship abandoned. Proceed Hongkong.

(Sgd.) "DIXON.

The captain of the Nippon saw the above message before it was sent. Thirteenth. On May 14, 1913, the plaintiff applied to
the Director of Navigation for a charter of a coast guard cutter, for the purpose of proceeding to "the stranded and
abandoned steamer Nippon ." Fourteenth. The coast guard cutter Mindoro was chartered to the plaintiffs and started on
its return to the S. S. Nippon on May 14, 1913. Fifteenth. The plaintiffs took possession of the Nippon on or about May 17,
1913, and continued in possession until about the 1st of July, when the last of the cargo was shipped to Manila. Sixteenth.
The Nippon was floated and towed to Olongapo, where temporary repairs were made, and then brought to Manila.
Seventeenth. The Manchuria arrived at Hongkong on the evening of May 14, 1913. When the captain and crew left
the Nippon and went on board of Manchuria, they took with them the chronometer, the ship's register, the ship's articles,
the ship's log, and as much of the crew's baggage as a small boat could carry. The balance of the baggage of the crew
was packed and left on the deck of the Nippon and was later removed to the Mindoro, without protest on the part of the
captain of the Nippon , as above indicated. Eighteenth. The cargo was brought to the port of Manila and the following
values were fixed:

Copra (approximately 1317 tons) valued P142,657.05

at, less cost of sale by Collector of
Customs

General cargo sold at customhouse 5,939.68

Agar-agar 5,635.00

Camphor 1,850.00

Curios 150.00

Total 156,231.73

Nineteenth. The ship was valued at P250.000. The plaintiffs' claim against the ship was settled for L15,000 or about
P145,800.

The plaintiffs brought the present action (August 5, 1913; amended complaint, September 23, 1913) against the insurance
companies and underwriters, who represented the cargo salved from the Nippon, to have the amount of salvage, to which
the plaintiffs were entitled, determined.

The case came on for trial before the Honorable A. S. Crossfield. The Oelwerke Teutonia, a corporation, appeared as
claimant of the copra. The New Zealand Insurance Company appeared as insurer and assignee of the owners of 33
crates of agar-agar; The Tokio Marine Insurance Company appeared as the insurer and assignee of 1,000 cases of bean
oil and two cases of bamboo lacquer work; and The Thames and Mersey Marine Insurance Company appeared as a
reinsurer to the extent of P6,500 on the cargo of copra. The court found that the plaintiffs were "entitled to recover one-
half of the net proceeds from the property salved and sold (which has nothing to do with the steamship itself), and one-
half the value of the property delivered to the claimants."

Judgment was entered as follows:

In favor of the plaintiffs, Erlanger & Galinger for one-half of the net proceeds of sales amounting to P47,298.36
and one-half of the interest accruing thereon, and against Carl Maeckler for the sum of P925, and against the
New Zealand Insurance Company (Ltd.) for the sum of P2,800, and against whomever the two cases marked R
W, Copenhagen, were delivered to, and for the sum of P2,370.68, out of the proceeds of the sale of 1,000
cases of vegetable oil, and in favor of the 'Oelwerke Teutonia' for the sum of P71,328.53, now deposited with the
Hongkong & Shanghai Banking Corporation, together with one-half of the interest thereon.

No costs were taxed.

The Oelwerke Teutonia, The New Zealand Insurance Company (Ltd.), and Erlanger & Galinger appealed from this
decision. The Oelwerke Teutonia made the following assignments of error: "

(I) The court below erred in finding that the plaintiffs are salvors of the copra in question. (II) The court erred in
holding that the plaintiffs are entitled to recover one-half of the proceeds of the copra. (III) The court erred in
rendering judgment in favor of the plaintiffs for half of the proceeds of the copra. (IV) The court erred in
disallowing the defendants' counterclaim. (V) The court erred in overruling defendant's motion for a new trial."

The New Zealand Insurance Company (Ltd.) made the following assignments of error:
 Now comes the New Zealand Insurance Company (Ltd.), defendant and appellant in the above-entitled cause,
and avers that in the proceedings in the said cause, in the Court of First Instance of Manila, there was manifest
error to the prejudice of this appellant, in this, to wit:

(I) That said court found that the plaintiffs are entitled to one-half of the value of thirty crates of agar-agar
delivered to his appellant; (II) That the said court ordered judgment in favor of the plaintiffs and against this
appellant for the sum of P2,800; (III) That the said court denied the motion of this appellant for a new trial.

The appellants, Erlanger & Galinger, made the following assignments of error:

Error No. 1. The court erred in ruling that the plaintiffs were not entitled to a reimbursement of their expenses, out
of the gross value of the salved property, before the division of the remainder into moieties between the salvors
and the claimants. Error No. 2. The court erred in holding that the cargo and the vessel are equally chargeable
with the expense of salvage. Error No. 3. The court erred in refusing to award the plaintiffs, out of the proceeds of
the sale of the cargo, the sum of P28,755.86 as compensation and the sum of P98,720 as reimbursement of
expenses, or a total of P127,475.08. Error No. 4. The court erred in awarding into the claimaint 'Oelwerke
Teutonia' the sum of P17,328.53, or any part thereof out of the proceeds of the salved cargo. Error No. 5. The
court erred in denying the motion of the plaintiffs for a new trial."

The assignments of error and the briefs of all of the appellants raised by three questions: (1) Was the ship abandoned?
(2) Was the salvage conducted with skill, diligence, and efficiency? (3) Was the award justified?

The general rules and principles governing salvage services and salvage awards are well settled. This branch of the law
of the sea dates back to the early history of navigation. We find the recorded in the Laws of Oleron, which were
promulgated sometime before the year 1266, at article IV:

If a vessel, departing with her lading from Bordeaux, or any other place, happens in the course of her voyage, to
be rendered unfit to proceed therein, and the mariners save as much of the lading as possibly they can; if the
merchants require their goods of the master, he may deliver them if he pleases, they paying the freight in
proportion to the part of the voyage that is performed, and the costs of the salvage. But if the master can readily
repair his vessel, he may do it; of if he pleases, he may freight another ship to perform his voyage. And if he has
promised the people who help him to save the ship the third, or the half part of the goods saved for the danger
they ran, the judicatures of the country should consider the pains and trouble they have been at, and reward them
accordingly, without any regard to the promises made them by the parties concerned in the time of their distress.
(See 30 Fed. Cas., at page 1172).

The courts of the United States and England have, in a long line of adjudicated cases, discussed the various phases of
this important subject. In general, salvage may be defined as a service which one person renders to the owner of a ship or
goods, by his own labor, preserving the goods or the ship which the owner or those entrusted with the care of them have
either abandoned in distress at sea, or are unable to protect and secure. The Supreme Court of the United States and the
other Federal Courts of the United States have had occasion numerous times to quote with approval the following
definition from Flanders on Maritime Law:

Salvage is founded on the equity of remunerating private and individual services performed in saving, in whole or
in part, a ship or its cargo from impending peril, or recovering them after actual loss. It is a compensation for
actual services rendered to the property charged with it, and is allowed for meritorious conduct of the salvor, and
in consideration of a benefit conferred upon the person whose property he has saved. A claim for salvage rests
on the principle that, unless the property be in fact saved by those who claim the compensation, it can not be
allowed, however benevolent their intention and however heroic their conduct. (The Job H. Jackson, 161 Fed.
Rep., 1015, 1017; The Amelia, 1 Cranch, 1; The Alberta, 9 Cranch, 369; Clarke vs. Dodge Healy, 4 Wash. C. C.,
651; Fed. Cas. No. 2849.)

In the case of Williamson vs. The Alphonso (Fed. Cas., No. 17749; 30 Fed. Cas. 4, 5), the court laid down practically the
same rule.

The relief of property from an impending peril of the sea, by the voluntary exertions of those who are under no
legal obligation to render assistance, and the consequent ultimate safety of the property, constitute a case of
salvage. It may be a case of more or less merit, according to the degree of peril in which the property was, and
the danger and difficulty of relieving it; but these circumstances affect the degree of the service and not its nature.
In Blackwall vs. Saucelito Tug Company (10 Wall., 1, 12), the court said:

Salvage is the compensation allowed to persons by whose assistance a ship or her cargo has been saved, in
whole or in part, from impending peril on the sea, or in recovering such property from actual loss, as in case of
shipwreck, derelict, or recapture.

It will be noticed from the above definitions that there are certain definite conditions which must always exist in a case of
pure salvage. The Supreme Court of the United States, speaking through Mr. Justice Clifford, in the case of The
Mayflower vs. The Sabine (101 U. S., 384) makes those conditions three (p. 384).

Three elements are necessary to a valid salvage claim: (1) A marine peril. (2) Service voluntarily rendered when
not required as an existing duty or from a special contract. (3) Success, in whole or in part, or that the service
rendered contributed to such success.

These are the general principles governing salvage.

The question whether or not a particular ship and her cargo is a fit object of salvage depends upon her condition at the
time the salvage services are performed. In the present case the plaintiff-appellant claims that the Nipponwas a derelict or
quasi-derelict and that their claim should be adjudged upon this cases. A derelict is defined as "A ship or her cargo which
is abandoned and deserted at sea by those who were in charge of it, without any hope of recovering it (sine spe
recuperandi), or without any intention of returning to it (sine animo revertendi). Whether property is to be adjudged derelict
is determimed by ascertaining what was the intention and expectation of those in charge of it when they quitted it. If those
in charge left with the intention of returning, or of procuring assistance, the property is not derelict, but if they quitted the
property with the intention of finally leaving it, it is derelict, and a change of their intention and an attempt to return will not
change its nature." (Abbott's Law of Merchant Ships and Seamen, Fourteenth Edition, p. 994.)

This contention of the plaintiffs raises the first question: (1) Was the ship abandoned?

The defendant-appellant Oelwerke Teutonia contends that the captain and the crew did not leave the ship sine animo
revertendi, but that it was their intention to go to Hongkong and procure assistance with which to save the ship and her
cargo. Whether the intention to return exists in a particular case is always difficult to determine. It is indeed a rare case
when the master of the ship will leave without the intention of returning, if there is the slightest hope of saving his vessel.
In the case of The Coromandel (1 Swab., 208) Dr. Lushington said:

It may be perfectly true that the master and these fifteen men, when they had got on board The Young Frederick,
and were sailing away to Yarmouth, intended, if possible, to employ steamers to go and rescue the vessel, which
was at no great distance. But is not that the case every day? A master and crew abandon a vessel for the safety
of their lives; he does not contemplate returning to use his own exertions, but the master hardly ever abandons a
vessel on the coast without the intention, if he can obtain assistance, to save his vessel. That does not take away
the legal character of derelict. (Norcross vs. The Laura, 14 Wall., 336.)

Judge Crossfield found that:

At the time the plaintiff commenced the attempt to salve what was possible of the S. S. Nippon and cargo, it was
justified, from all the conditions existing, in believing that it had been abandoned and in taking possession, even
though the master of the vessel intended when he left it, to return and attempt salvage.

Such intention, if it existed, does not appear to have been very firmly fixed, considering the leisurely manner in
which the master proceeded after he reached the Port of Hongkong.

The evidence amply supports this finding. The chief officer, Weston, upon reaching the coast of Zambales, on May 12,
1913, sent the following telegram to the Director of the Bureau of Navigation:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.

 Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone 12.15 p. m.

(Sgd.) R. WESTON.

On the evening of the same day Weston sent the following telegram:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.

Left with nine hands at noon, 9th, 26 men still on board, ship well on reef, stern part afloat, about ten feed of water
in holds, starboard list, heavy swell breaking over, little hope of saving ship 6.27 p. m.

(Sgd.) WESTON.

On May 13, 1913, Captain Dixon of the S. S. Manchuria, after rescuing the remainder of the crew, left on board
the Nippon , sent the following telegram to the Director of Navigation.

S. S. `MANCHURIA,' May 13, 1913.

All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel stranded May 9th. She is full of
water fore and aft, and is badly ashore. Ship abandoned. Proceeding Hongkong 9.40 a. m.

(Sgd.) DIXON, Master.

On May 14, 1913, after the members of the crew who came ashore with Weston had reached Manila, they made the
following signed statement:

MANILA, P. I., May 14, 1913.

We, the undersigned officers and part of the crew of the Swedish steamer Nippon, do hereby declare that the S.
S. Nippon struck on Scarborough Reef, about 4.30 on the afternoon on Thursday May 8 1913. Two of her boats
were lost after we struck the reef, leaving only two on board and those damaged. The ship was filled with water
and pounding on the reef and we considered her a wreck. In company with the chief officer, we left the ship about
noon on Friday, May 9, 1913, in a small boat and reached Sta. Cruz Zambales, a distance of 130 miles on the
morning of Monday, May 12, 1913, and immediately the chief officer wired the Director of Navigation at Manila for
assistance to rescue the balance of the crew left aboard the Nippon, as we considered their lives in danger and
the ship a wreck, with little hope of saving her.

(Signed.)

F. Carman A.G. Erickson

G.E. Johansson F. Palm

W. Bratt J. Karlberg

B. Nyolram E. Thulin

E. Petterson
On May 16, 1913, Captain Anderson of the Coast Guard cutter Mindoro made the following report to the Director of
Navigation.

S.S. Mindoro
Manila, P.I., May 16, 1913

Sir

I have the honor to make he following report of voyage made to Scarborough Reef, May 12 to 14, 1913 for
officers and crew of S.S. Nippon.

May 13, 1913, being 2 1/2 miles sought of reef, I observed S. S. Nippon stranded on the N. E. edge of reef. I
immediately steered northward around the western edge of reef and arrived of stranded ship at 9.30 a. m. S.
S. Manchuria was laying to about 1 1/2 miles northward of reef, making signals for me to come alongside. I
immediately proceeded out to the Manchuria; upon arrival alongside the Manchuria the captain of the same ship
informed me that the S. S. Nippon was abandoned and that he had the captain and crew on board for Hongkong.
I then asked the captain of the Manchuria if the captain of the Nippon cared to go to Hongkong, as I was there to
bring him and the crew to Manila if he desired to go. The captain of theManchuria again informed me that the
captain of the Nippon intended to go to Hongkong. I answered `All right, I will then go and have a look at
the Nippon and see how badly she is wrecked.' The captain of theManchuria made the remark that she was half
full of water and that she was very badly wrecked, but that there was still some baggage left on broad. He also
informed me that he had a wire from the Director of Navigation ordering me to proceed to Santa Cruz to pick up
boat's crew from Nippon . I said, `All right. I will go and get baggage and have a look at the wreck.' I then left
the Manchuria and steamed over to the wreck. On arrival alongside of the wreck I took on board all baggage
packed standing on deck and sounded around the ship, fore and aft, finding 11 feet of water forward at low water
and 20 feet aft in board, gradually decreasing from forward to aft and I found in holds about 8 feet of water and
the cargo as far as I could see, on top, was nice and dry, and it is my opinion that with the position the ship is
laying in and with the Southwest monsoon blowing the ship and most of the cargo can be salved, if work is started
before the heavy typhoon season sets in. After leaving the wreck, I proceeded to Santa Cruz and picked up the
first officer and crew of nine men and brought them to Manila.

On my second trip to the wreck, May 15th, I examined Nippon more fully and I believe that if the cargo is taken
out the ship can be saved after the holes are pathed up, if this is done before the heavy weather sets in.

Very respectfully,

(Sgd.) GEO. ANDERSON,

Captain, 'Mindoro.'

THE DIRECTOR OF NAVIGATION, Manila.

Copy sent Struckman & Company, May 16, 1913.

(Sgd.) "A. S. Thompson, chief clerk.

The testimony of Captain Eggert of the Nippon regarding the circumstances of the wreck, is as follows: (2d part of record,
p. 327). "(P. 334.)

Q. When the Manchuria visited the scene of the wreck on May 13, how many of you went on board?

A. We all went on board.

Q. By 'all' you mean yourself, passenger, and all the members of the crew that remained?

A. Yes.

Q. What did you take with you?

A. Just personal luggage, not all, what you could carry in a small boat, it could not be very much considering
that the boat was broken and there were 27 men, the ship's chronometer and ship's papers.

Q. What do you mean by `ship's papers'?

A. Register, articles.

Q. Did you take the ship's log?

A. Yes; that is the first thing I take.

Q. That is the first thing you take under what circumstances?

A. Under any circumstances of accidents to the ship; because it is the official record up to the time an
accident happens.

Q. Do you mean to state, captain, that in the event of any accident to a ship, no matter how slight, that the
ship's log and register and articles are taken ashore?

A. The ship's log on any occasion has to be brought before the Swedish Consul.

Q. How about the register and articles?

A. Of course not.

Q. Under what circumstances do you take ashore the ship's articles and register?

A. When I leave the ship myself I have, of course, to take those papers with me.

Q. Every time you leave the ship?

A. No. Every time when I leave it stranded as she was. If I go on shore and try to get means for taking my ship
off the ground, I have to prove what ship it is and all that. In the meantime a gale may come up and the ship be
torn off the rock and destroyed and the papers lost."

(P. 336.) Q. What were the conditions prevailing aboard the ship from the time that she stranded until
theManchuria arrived?

A. The first night there was very bad sea and high wind. The ship was came so much better than we could
send the boat off about 11 o'clock in the forenoon by using precautions, oil, etc. The third and fourth day the
weather was fine.

(P. 337.) Q. And do you now admit that you were mighty glad to get off the Nippon ?

A. We were all mighty glad.

Q. Why were you mighty glad?

A. Chiefly because the crew had insisted on leaving the ship in some way, by building rafts, or in that boat of
ours. And secondly because of the uncertainty. We did not know if our boat had reached shore. The scene of the
accident was quite out of the track of any vessel, so it was quite natural when we saw that ship coming up we
were glad to get into communication with the outside world.

Q. You say that the crew had insisted on leaving the ship?

A. They were not insisting on it because they can not insist against the master of a ship. But they would like to
get off.
 Q. Why were they discussing the question?

A. Because they considered it better to leave the ship and reach land rather than stay on the ship, not
knowing if the boat had reached land or not.

Q. They considered it better for what purpose?

A. Being safe.

Q. You mean better from the standpoint of safety of their life and limb?

A. Yes. To their lives.

(P. 343.) Q. Captain, if your purpose in leaving the Nippon was to go to Hongkong for the purpose of arranging for
her salvage, why did you not leave some of the crew on board?

A. How could I leave some of the crew on board when there was no attendant? There could be a gale at any
time and the ship would have slipped off and broken to pieces. I first of all was responsible for their lives."

(P. 348.) Q. (By Mr. Rohde.) Captain, did you or did you not leave the Nippon , with the intention of returning and
the hope of recovering your ship and cargo?

A. I left the Nippon with the full intention of returning to the ship and try to recover her, and I discussed that
matter during the three days we were on the reef with every member I could see in the crew, and with the
passenger. Everybody knew as soon as I put my foot on the Manchuria it was for the purpose of getting
assistance. Captain Dixon knew, his officers knew it, and his crew knew it.

(Mr. Cohn.) You have not fully replied to the question asked you by counsel for the defendant, which is whether
you had the hope of recovering the ship.

A. I had hope if the weather continued fine.

(Mr. Cohn.) If you had that hope why didn't you leave some of your crew on board?

A. Because the hope would not justify me leaving any of the crew on the ship.

(Mr. Cohn.) Your hope was so slight it did not warrant your leaving anybody on board?

A. A hope is always slight. I mean to say your hope will never justify you to risk another man's life, even if you
have a very good foundation for your hope. Life comes before property.

(Mr. Cohn.) Just what do you mean by "hope"?

A. I mean to say that if the weather continues fine there is no risk, but if there is a typhoon or gale we will be
worse off and the ship will be smashed and the crew perish. That is what I mean by a "hope" in this occasion.

(Mr. Cohn.) What you mean, Captain, is that you were going to Hongkong and if you could find some one that
was willing to go out and look for your ship, and if your ship was still there, that you would undertake to salve her
if you could.

A. Of course.

Chief Engineer Emil Gohde was asked why the crew wanted to get ashore.

(P. 353.) Q. Why did they want to get to shore?

 A. They wanted to save their lives. We didn't know the weather in the China Sea. We could have expected a
typhoon in a couple of days and very likely the ship would have gone into the sea.

Captain Eggert sent the following cablegram to the owners of the Nippon , after reaching Hongkong on May 14,
1913:

(P. 360.) Nippon wrecked during typhoon eight May Scarborough Shoal latitude 15 longitude 118 probably total
wreck bottom seriously damaged ship full of water chief officer and nine men took to boat for rescue landed
twelfth Luzon mailsteamer Manchuria saved captain and remaining crew morning thirteenth. Arrived Hongkong
tonight. Wreck on edge of reef, will probably slip off and sink by first gale captain arranging to visit wreck and
attempt salvage.

EGGERT.

Captain Eggert did not make any determined effort to arrange for the salvage of the Nippon, as will be seen from the
testimony.

(P. 330. Captain Eggert testifying).

Q. What did you do upon your arrival in Hongkong?

A. The first thing I did it was about 5 o'clock in the afternoon I went to the office of our agents my
owners' agents. It was then close up so I had to proceed to the private residence of the manager. From there I
dispatched a telegram to the owners.

xxx xxx xxx

Q. What date was this telegram sent?

A. On the evening of the 14th.

Q. Of what month?

A. Of May.

Q. Did you enter into any negotiations with persons or firms?

A. Yes. The first thing in the morning of the 15th I visited together with the Swedish Consul the Tykoo
dockyard people, the Hongkong dockyard people, and went to the Mitsui Bussan Kaisha branch office, and those
people sent a wire to their home office in Nagasaki.

Q. What, if anything, interrupted your negotiations with the firms and persons in Hongkong relative to the
salvage of the Nippon and her cargo?

A. A wire from my owners.

xxx xxx xxx

Q. When was this telegram received by you, Captain?

A. On the 17th.

Q. What did you do then?

A. I tried to find out when the next steamer was leaving for Manila and there was none leaving before the
20th, the steamer I took and proceeded here.
From the above it will be seen that Capt. Eggert had over two days in which to arrange for salvage operations and he did
nothing, while the plaintiffs, who were strangers and had no interest, sent out a salvage expedition in twenty-four hours
after they discovered that the ship was wrecked.

The evidence proves that the Nippon was in peril; that the captain left in order to protect his life and the lives of the crew;
that the animo revertendi was slight. The argument of the defendant-appellant to the effect that the ship was in no danger
is a bit out of place in view of the statement of the captain that she would sink with the first gale, coupled with the fact that
a typhoon was the cause of her stranding.

The Federal Courts have, a number of times, had presented to them cases in which the facts were very similar to the facts
in the present case. The claim for salvage was allowed in each of these cases. In The Bee (Fed. Cas. No. 1219; 3 Fed.
Cas., 41), the facts were as follows: The Bee sailed from Boston to Nova Scotia. Three days after leaving port a gale was
encountered which forced her to run into a cove on the north side of Grand Manan Island, where an anchor was let out.
The ship was somewhat injured from the force of the storm. The master and the crew stayed on board for 24 hours and
then went ashore to procure assistance. The island was very sparsely settled. They met on shore a number of men (the
libelants) to whom they explained the predicament and position of the ship. These men immediately went to the ship,
boarded her, and took possession. After the master had been ashore about five hours he returned to the ship and found
the libelants in possession. The owners contended that the master was excluded from the ship wrongfully and therefore
the libelants could not claim salvage. The court stated the law as follows (p. 44):

When a vessel is found at sea, deserted, and has been abandoned by the master and crew without the intention
of returning and resuming the possession, she is, in the sense of the law, derelict, and the finder who takes the
possession with the intention of saving her, gains a right of possession, which he can maintain against the true
owner. The owner does not, indeed, renounce his right of property. This is not presumed to be his intention, nor
does the finder acquire any such right. But the owner does abandon temporarily his right of possession, which is
transferred to the finder, who becomes bound to preserve the property with good faith, and bring it to a place of
safety for the owner's use; and he acquired a right to be paid for his services a reasonable and proper
compensation, out of the property itself. He is not bound to part with the possession until this is paid, or it is taken
into the custody of the law, preparatory to the amount of salvage being legally ascertained. Should be salvors
meet with the owner after an abandonment, and he should tender his assistance in saving and securing the
property, surely this ought not, without good reasons, to be refused, as this would be no bar to the right of
salvage, and should it be unreasonably rejected it might affect the judgment of a court materially, as to the
amount proper to be allowed. Still, as I understand the law, the right of possession is in the salvor. But when the
owner, or the master and crew who represent him, leave a vessel temporarily, without any intention of a final
abandonment, but with the intent to return and resume the possession, she is not considered as a legal derelict,
nor is the right of possession lost by such temporary absence for the purpose of obtaining assistance, although no
individual may be remaining on board for the purpose of retaining the possession. Property is not, in the sense of
the law, derelict and the possession left vacant for the finder, until the spes recuperandi is gone, and theanimus
revertendi is finally given up. (The Aquila, 1 C. Rob. Adm., 41.) But when a man finds property thus temporarily
left to the mercy of the elements, whether from necessity or any other cause, though not finally abandoned and
legally derelict, and he takes possession of it with the bona fide intention of saving it for the owner, he will not be
treated as a trespasser. On the contrary, if by his exertions he contributes materially to the preservation of the
property, he will entitle himself to a remuneration according to the merits of his service as a salvor.

The court allowed salvage in this case. They held that the master had taken insufficient precautions to protect his vessel
and although the ship was not a legal derelict, the libelants were salvors and entitled to salvage.

In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the ship John Gilpin, in attempting to leave New York harbor
in a winter storm, was driven ashore. The ship's crew sent for help and in the meantime put forth every effort to get her off.
Help arrived toward evening, but accomplished nothing. The master and crew went ashore. The same night the libelants
went out to the ship with equipment and started working. It was contended that the master had gone ashore for
assistance. He returned the next morning with a tug and some men and demanded possession, which was refused.
Salvage was allowed. The court said (p. 676):

The libelants, in the exercise of their calling as wreckers, coming to a vessel in that plight, would be guilty of a
dereliction of duty if they failed to employ all their means for the instantaneous preservation of property so
circumstanced. This may not be strictly and technically a case of derelict (Clarke vs. The Dodge Healy, Case No.
2849), if really the master of the brig had gone to the city to obtain the necessary help to save the cargo and brig,
intending at the time, to return with all practicable dispatch. It appears he came to the wreck by 8 or 9 a. m. the
following day, in a steam-tug, with men to assist in saving the cargo. The animus revertendi et recuperandi may
thus far have continued with the master, but this mental hope or purpose must be regarded inoperative and
 unavailing as an actual occupancy of the vessel, or manifestation to others of a continuing possession. She was
absolutely deserted for 12 or 14 hours in a condition when her instant destruction was menaced, and the lives of
those who should attempt to remain by her would be considered in highest jeopardy. She was quite derelict; and
being thus found (The Boston, Case no. 1673; Rowe vs. The Brig, Case no. 12093; 1 Sir Lionel Jenkins, 89) by
the libelants, the possession they took of her was lawful. (The Emulous, Case No. 4480.)

Possession being thus taken when the vessel was, in fact, abandoned and quite derelict, under peril of instant
destruction, the libelants had a right to retain it until the salvage was completed, and no other person could
interfere against them forcibly, provided they were able to effect the purpose, and were conducting the business
with fidelity and vigor.

In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the following facts: The four-masted
schooner Myrtle Tunnel sailed from Brunswick bound for New York. The first day out a hurricane struck her and tore the
sails away and carried off the deck load. She was badly damaged and leaking. The master of the Myrtle Tunnel requested
towage by the steamship Mae to the port of Charleston. The Mae, on account of her own damaged condition, was unable
to tow but she took the master and crew of the Myrtle Tunnel off and landed them at Charleston. The owners were notified
and they started an expedition out in search. Before this expedition reached her, the steamship Shawmut sighted
the Myrtle Tunnel, and, finding that she was abandoned and waterlogged, took her in two and succeeded in taking her to
Charleston. The owners of the Myrtle Tunnelcontended that she was not derelict, because the master had gone ashore to
procure assistance. With reference to this question, the court said (p. 478):

The first question that arises is whether the Myrtle Tunnel is a derelict. Prima facie a vessel found at sea in a
situation of peril, with no one aboard of her, is a derelict; but where the master and crew leave such vessel
temporarily, without any intention of final abandonment, for the purpose of obtaining assistance, and with the
intent to return and resume possession, she is not technically a derelict. It is not of substantial importance to
decide that question. She was what may be called a quasi-derelict; abandoned, helpless, her sails gone, entirely
without power in herself to save herself from a situation not of imminent, but of considerable peril; lying about
midway between the Gulf Stream and the shore, and about 30 miles from either. An east wind would have driven
her upon one, and a west wind into the other, where she should have become a total loss. Lying in the pathway of
commence, with nothing aboard to indicate an intention to return and resume possession, it was a highly
meritorious act upon the part of the Shawmut to take possession of her, and the award must be governed by the
rules which govern in case of derelicts; the amount of it to be modified in some degree in the interest of the
owners in consideration of their prompt, intelligent, and praiseworthy efforts to resume possession of her, wherein
they incurred considerable expense.

The first of these cases was decided in 1836 and the last in 1907. The indicate that the abandonment of a vessel by all on
board, when the vessel is in peril, will justify third parties in taking possession with the bona fide intention of saving the
vessel and its cargo for its owners. The mental hope of the master and the crew will in no way affect the possession nor
the right to salvage. See also The Hyderabad (11 Fed. Rep., 749), The Cairnsmore (20 Fed. Rep., 519), Pearce vs. The
Ann L. Lockwood (37 Fed. Rep., 233).

This brings us to the second question raised by the assignments of error: (2) Was the salvage conducted with skill,
diligence, and efficiency? The court found:

While the plaintiff entered upon the salvage proceedings without proper means and not being adapted by their
business to conduct their work, and while it may appear that possibly the salvage might have been conducted in a
better manner and have accomplished somewhat better results in the saving of the copra cargo, yet it appears
that they quickly remedied their lack of means and corrected the conduct of the work so that it accomplished fairly
good results.

It does not appear from the evidence that anyone then or subsequently suggested or found any other course
which might have been pursued and which would have brought better results.

There was some dispute whether Manila or Hongkong should be used as a base for operations. Capt. Robinson, who was
the only one of the experts who had had any experience in handling wet copra, unqualifiedly approved Manila as a base
for operations. (P. 437, 3d part of record):

Q. Assuming that you had been asked to undertake the work of salving the steamer Nippon and her cargo,
please state whether you would have undertaken that work with the men and material available in Manila, or
 whether you would have gone to Hongkong and used Hongkong men and material and made Hongkong your
base on operations.

A. Certainly not. I would have made Manila my base, which I always have done.

Lebreton, a stevedore, testified that he would have gotten some of his materials from Hongkong but that he would have
freighted the salved cargo to Manila. All other things being equal, the fact that Hongkong is forty sailing hours from
Scarborough Reef while Manila is less than twenty-four sailing hours would make Manila by far the more logical base.

The plaintiffs sent men into the hold of the ship and sacked the copra and brought it to Manila where it was sold. Some of
the witnesses contended that other methods should have been used. They testified that "grabs" or "claim shells" would
have brought better results, but none of these witnesses had had any experience in unloading wet copra. Capt. Robinson
was the only witness called who had had any experience in this class of work. He testified that the only way all the copra
could be gotten out was by sacks or by canvas slights; that "grabs" would be of no use because of the inability to work
with them between decks. The copra was in three layers. The top layer was dry, the middle layer was submerged every
time the tide rose, and the lower layer was submerged all of the time. It was manifestly impossible to keep these layers
separate by using "grabs" or "clam shells." The fact that wet copra is exceedingly difficult to handle, on account of the
gases which arise from it, is also of prime importance in weighing the testimony of defendant's witnesses, because none
of them had ever had experience with wet copra.

The plaintiffs commenced the actual work of salving the ship and cargo on May 18, 1913. The last of the cargo was a
brought to Manila the latter part of June. The last of the dry copra was brought to Manila on June 5. The estimates of the
experts with regard to the time necessary to remove the cargo ranged from eight to twenty days. The greater portion of
the cargo was brought in by the plaintiffs within fifteen days. The delay after June 5 was due to the difficulty in inducing
laborers to work with wet copra. This difficulty would have arisen with any set of salvors and cannot be attributed to a lack
of care or diligence on the part of the plaintiffs.

The plaintiffs were diligent in commencing the work and were careful and efficient in its pursuit and conclusion.

The third and last question is with regard to the amount of the award (3) Was the award justified?

Compensation as salvage is not viewed by the admiralty courts merely as pay on the principle of quantum
meruit or as a remuneration pro opere et labore, but as a reward given for perilous services, voluntarily rendered,
and as an inducement to mariners to embark in such dangerous enterprises to save life and property. (The
Mayflower vs. The Sabine, 101 U. S., 384.)

The plaintiff-appellant contends that the expenses incurred should be deducted from the entire amount of the salved
property and the remainder be divided as a reward for the services rendered. This contention has no basis in the law of
salvage compensation. The expenses incurred by the plaintiffs must be borne by them. It is true that the award should be
liberal enough to cover the expenses and give an extra amount as a reward for the services rendered but the expenses
are used in no other way as a basis for the final award. A part of the risk that the plaintiffs incurred was that the goods
salved would not pay them for the amount expended in salving them. The plaintiffs knew this risk and they should not
have spent more money than their reasonable share of the proceeds would amount to under any circumstances.

In the case of The Carl Schurz (Case No. 2414; 5 Fed. Cas., 84) the actual expenditure by the libelant in salving the
vessel in question was $568.95. The ship when sold brought $792. The libelant wanted the court to first deduct the
expenses. The court refused to do this but decreed a moiety. The court said (p. 86):

A salvor, in the view of the maritime law, has an interest in the property; it is called a lien, but it never goes, in the
absence of a contract expressly made, upon the idea of a debt due by the owner to the salvor for services
rendered, as at common law, but upon the principle that the service creates a property in the thing saved. He is,
to all intents and purposes, a joint owner, and if the property is lost he must bear his share like other joint owners.

This is the governing principle here. The libelant and the owners must mutually bear their respective share of the
loss in value by the sale. If the libelant has been unfortunate and has spent his time and money in saving a
property not worth the expenditure he made, or if, having saved enough to compensate him, it is lost by the
uncertainties of a judicial sale for partition, so to speak, it is a misfortune not uncommon to all who seek gain by
adventurous speculations in values. The libelant says in his testimony that he relied entirely on his rights as a
salvor. This being so he knew the risk he ran and it was his own folly to expend more money in the service than
his reasonable share would have been worth under all circumstances and contingencies. He can rely neither on
 the common law idea of an implied contract to pay for work on and about one's property what the work is
reasonably worth with alien attached by possession for satisfaction, nor upon any notion of an implied maritime
contract for the service, with a maritime lien to secure it, as in the case of repairs, or supplies furnished a needy
vessel, or the like. In such a case the owner would lose all if the property did not satisfy the debt, when fairly sold.
But this doctrine has no place in the maritime law of salvage. It does not proceed upon any theory of an implied
obligation, either of the owner or the res, to pay a quantum meruit, nor actual expenses incurred, but rather on
that of a reasonable compensation or reward, as the case may be, to one who has rescued the res from danger of
total loss. If he gets the whole, the property had as well been lost entirely, so far as the owner is concerned.
(Smith vs. The Joseph Stewart, Fed. Cas. No. 13070.) I think the public policy of encouragement for such service
does not, of itself, furnish sufficient support for a rule which would exclude the owner from all benefit to be derived
from the service.

In Williams vs. The Adolphe (Fed. Cas. No. 17712; 29 Fed. Cas., 1350) the court said (p. 1353):

The claim of the libelants is for salvage, the services rendered were salvage services and the owners are to
receive their property again, after paying salvage for the services rendered them. What service would it be to
them to take their property under circumstances calling for the whole of it by way of indemnity? The mistake of the
captain and the supercargo, and part owner of the Triton as to the value of the property on board the Adolphe,
should not operate to the injury of the owners thereof; the salvors must bear the consequences of their own
mistake, taking such a proportion only of the property salved, as by the law of the admiralty should be awarded
them.

In The Edwards (12 Fed. Rep., 508, 509), the court said:

It is true that in rendering a salvage service the salvor assumes the risks of failure, and his salvage depends upon
his success and the amount of property saved; yet when there is enough to fully compensate him for time and
labor, and leave a reasonable proportion for the owner, he should certainly be awarded that, if the amount will
allow no more.

In The L. W. Perry (71 Fed. Rep., 745, 746), the court said:

Without regard to the element of reward which is intended by the salvage allowance, it is manifest that
remuneration pro opere et labore would be placed in excess of the fund here, if such basis were allowable.
Therefore, it is contended on behalf of the libelant that the entire sum remaining should be awarded for the
salvage service;. . . .

While salvage is of the nature of a reward of meritorious service, and for determination of its amount the interests
of the public and the encouragement of others to undertake like service are taken into consideration, as well as
the risk incurred, and the value of the property saved, and where the proceeds for division are small, the
proportion of allowance to the salvor may be enlarged to answer these purposes, nevertheless, the doctrine of
salvage requires, as a prerequisite to any allowance, that the service `must be productive of some benefit to the
owners of the property salved; for, however meritorious the exertions of alleged salvors may be, if they are not
attended with benefit to the owners, they can not be compensated as such.' (Abb. Shipp. [London Ed., 1892],
722.) The claim of the libelant can only be supported as one for salvage. It does not constitute a personal
demand, upon quantum meruit, against the owners, but gives an interest in the property saved, which entitles the
salvor to a liberal share of the proceeds. . . .

(P. 747.) One of the grounds for liberality in salvage awards is the risk assumed by the salvor, that he can have
no recompense for service or expense unless he is successful in the rescue of property, and that his reward must
be within the measure of his success. He obtains an interest in the property, and in its proceeds when sold, but
accompanied by the same risk of any misfortune or depreciation which may occur to reduce its value. In other
words, he can only have a portion, in any event; and the fact that his exertions were meritorious and that their
actual value, or the expense actually incurred, exceeded the amount produced by the service, cannot operate to
absorb the entire proceeds against the established rules of salvage. (The Carl Schurz, Fed. Cas. No. 2414).

The plaintiff-appellants contends that the award of the lower court of one-half is the established rule in cases of derelicts
and should not be disturbed. It is well established now that the courts have a wide discretion in settling the award. The
award is now determined by the particular facts and the degree of merit. In The Job H. Jackson(161 Fed. Rep., 1015,
1018), the court said:
 There is no fixed rule for salvage allowance. The old rule in cases of a derelict was 50 per cent of the property
salved; but under modern decisions and practice, it may be less, or it may be more. The allowance rests in the
sound discretion of the court or judge, who hears the case, hears the witnesses testify, looks into their eyes, and
is acquainted with the environments of the rescue. . . . An allowance for salvage should not be weighed in golden
scales, but should be made as a reward for meritorious voluntary services, rendered at a time when danger of
loss is imminent, as a reward for such services so rendered, and for the purpose of encouraging others in like
services.

In The Lamington (86 Fed. Rep., 675, 678), the court said:

While it appears most clearly that, since the old hard and fast rule of `50 per cent of a derelict' was abandoned,
the award is determined by a consideration of the peculiar facts of each case, it is none the less true that the
admiralty courts have always been careful not only to encourage salving enterprises by liberality, when possible,
but also to recognize the fact that it is, after all, a speculation in which desert and reward will not always balance.

The award is largely in the discretion of the trial court and it is rare that the appellate court will disturb the findings.

Appellate courts rarely reduce salvage awards, unless there has been some violation of just principles, or some
clear or palpable mistake. They are reluctant to disturb such award, solely on the ground that the subordinate
court gave too large a sum, unless they are clearly satisfied that the court below made an exorbitant estimate of
the services. It is equally true that, when the law gives a party a right to appeal, he has the right to demand the
conscientious judgment of the appellate court on every question arising in the case, and the allowance of salvage
originally decreased has, in many cases, been increased or diminished in the appellate court, even where it did
not violate any of the just principles which should regulate the subject, but was unreasonably excessive or
inadequate. (Post vs. Jones, 19 How., 161). Although the amount to be awarded as salvage rests, as it is said, in
the discretion of the court awarding it, appellate courts will look to see if that discretion has been exercised by the
court of first instance in the spirit of those decisions which higher tribunals have recognized and enforced, and will
readjust the amount if the decree below does not follow in the path of authority, even though no principle has
been violated or mistake made.

The property of the defendant-appellants which was salved was forced to pay the same proportion of the award without
distinction. The day copra and the agar-agar was salved with much more ease than the wet copra. The courts have,
almost universally, made a distinction in this regard. In The America (1 Fed. Cas., 596), decided in 1836, the award was
as follows: 25 per cent on cargo salved dry; 50 per cent on cargo salved damaged; 60 per cent on cargo salved by diving.

In The Ajax (1 Fed. Cas., 252(, decided in 1836, the award was as follows: 33 per cent on the dry; 50 per cent on the wet;
50 per cent on ship's materials. In The Nathaniel Kimball (Fed. Cas. No. 10033), decided in 1853, the award was as
follows: 30 per cent on dry cargo; 50 per cent on wet, salved by diving and working under water.

In The Brewster (Fed. Cas. No. 1852), decided in 1848, the award was as follows: 33 per cent, and as to some cargo
where diving was necessary, 60 per cent.

In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the award was as follows: 25 per cent salving dry deck cotton;
45 per cent salving cotton submerged between decks; 55 per cent salving cotton by diving.

In The John Wesley (Fed. Cas. No. 7433), decided in 1866, the award was as follows: 15 per cent; on damaged cotton a
slightly higher per cent.

In The Northwester (Fed. Cas. No. 10333), decided in 1873, the award was as follows: 20 per cent on cotton dry; 33 1/3
per cent on cotton wet and burnt; 40 per cent on materials; 50 per cent on property salved by diving.

In Baker vs. Cargo etc. of The Slobodna (35 Fed. Rep., 537), decided in 1887, the award was as follows: 25 per cent on
dry cotton; 33 1/3 per cent on wet cotton; 45 per cent on materials.

In the cases in which the full award of 50 per cent was allowed the court usually made the comment: "services highly
meritorious," "meritorious service," "with great labor and difficulty," or similar remarks.

In the salvage operations conducted by the plaintiff, the following property was involved:
 First, the steamship Nippon , valued at P250,000.00

Second, copra, net value, salved 142,657.05

Third, agar-agar, net value, salved 5,635.00

Fourth, general cargo 5,939.68

Fifth, camphor, net value, salved 1,850.00

Sixth, curios, net value, salved 150.00

The plaintiff and the owners of the ship have heretofore, by mutual agreement, settled the question of the amount of
salvage of the ship. The plaintiff received for that part of their services the sum of L15,000 or about P145,800.

No appeal was taken from the judgment of the lower court concerning the amount of salvage allowed by it for the general
cargo, the camphor, nor the curios salved.

The only question raised by the appellants is as to the amount of salvage which should be awarded to the plaintiff-
appellants for the copra and the agar-agar. After a careful study of the entire record and taking into account the amount
which the plaintiffs has heretofore received, we have arrived at the conclusion that in equity and justice the plaintiff-
appellants should receive for their services the following amounts:

(a) 40 per cent of the net value of the wet copra salved.

(b) 25 per cent of the net value of the dry copra salved.

(c) 20 per cent of the net value of the agar-agar salved.

The net value of the wet copra salved amounted to P40,381.94; 40 per cent of that amount would be P16,152.78. The net
value of the dry copra salved amounted to P102,272.11; 25 per cent of that amount would be P25,568.77.

In ascertaining the net value of the copra salved, the expenses incurred by the Collector of Customs in the sale of the
copra, amounting to P4,080.01, has been deducted from the total amount of the copra salved in the proportion of 2.5 to 1.
Dividing the expense in that proportion we have deducted from the amount of the dry copra salved the sum of P2,914.39,
and from the amount of the wet copra salved, the sum of P1,165.62.

The net value of the agar-agar salved amounted to P5,636; 20 per cent of that amount would be P1,127.

In view of all of the foregoing, it is hereby ordered and decreed that the judgment of the lower court be modified, and that
a judgment be entered against the defendant-appellants and in favor of the plaintiff-appellant, as follows: First, it is hereby
ordered and decreed that a judgment be entered against the defendant, the Oelwerke Teutonia, and in favor of the
plaintiff in the sum of P41,721.55. Second, it is further ordered and decreed that a judgment be entered against the
defendant, the New Zealand Insurance Company (Ltd.), and in favor of the plaintiff, in the sum of P1,127. Third, it is
further ordered and decreed that the amount of the judgment hereinbefore rendered in favor of the plaintiff be paid out of
the money which is now under the control of the Court of First Instance of the city of Manila. And without any finding as to
costs, it is so ordered.

Arellano, C.J., Torres, Johnson, Carson, and Trent, JJ.

G.R. No. L-17192 March 30, 1963

HONORIO M. BARRIOS, plaintiff-appellant,

vs.
CARLOS A. GO THONG & COMPANY, defendant-appellee.

Laput & Jardiel for plaintiff-appellant.

Quisumbing & Quisumbing for defendant-appellee.

BARRERA, J.:

From the decision of the Court of First Instance of Manila (in Civil Case No. 37219) dismissing with costs his case against
defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios, interposed the present appeal.

The facts of the case, as found by the trial court, are briefly stated in its decision, to wit:

The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of the William Lines
Incorporated, of Cebu City, plying between and to and from Cebu City and other southern cities and ports, among which
are Dumaguete City, Zamboanga City, and Davao City. At about 8:00 o'clock on the evening of May 1, 1958, plaintiff in
his capacity as such captain and/or master of the aforesaid MV Henry I, received or otherwise intercepted an S.O.S. or
distress signal by blinkers from the MV Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong &
Company. Acting on and/or answering the S.O.S. call, the plaintiff Honorio M. Barrios, also in his capacity as captain
and/or master of the MV Henry I, which was then sailing or navigating from Dumaguete City, altered the course of said
vessel, and steered and headed towards the beckoning MV Don Alfredo, which plaintiff found to be in trouble, due to
engine failure and the loss of her propeller, for which reason, it was drifting slowly southward from Negros Island towards
Borneo in the open China Sea, at the mercy of a moderate easterly wind. At about 8:25 p.m. on the same day, May 1,
1958, the MV Henry I, under the command of the plaintiff, succeeded in getting near the MV Don Alfredo in fact as near
as about seven meters from the latter ship and with the consent and knowledge of the captain and/or master of the MV
Don Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and connected with two lines from the MV
Henry I; and in that manner, position and situation, the latter had the MV Don Alfredo in tow and proceeded towards the
direction of Dumaguete City, as evidenced by a written certificate to this effect executed and accomplished by the Master,
the Chief Engineer, the Chief Officer, and the Second Engineer, of the MV Don Alfredo, who were then on board the latter
ship at the time of the occurrence stated above (Exh. A). At about 5:10 o'clock the following morning, May 2, 1958, or after
almost nine hours during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were
approaching the vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of the MV Don
Alfredo, was sighted heading towards the direction of the aforesaid two vessels, reaching then fifteen minutes later, or at
about 5:25 o'clock on that same morning. Thereupon, at the request and instance of the captain and/or master of the MV
Don Alfredo, the plaintiff caused the tow lines to be released, thereby also releasing the MV Don Alfredo.

These are the main facts of the present case as to which plaintiff and defendant quite agree with each other. As was
manifested in its memorandum presented in this case on August 22, 1958, defendant thru counsel said that there is,
indeed, between the parties, no dispute as to the factual circumstances, but counsel adds that where plaintiff concludes
that they establish an impending sea peril from which salvage of a ship worth more than P100,000.00, plus life and cargo
was done, the defendant insists that the facts made out no such case, but that what merely happened was only mere
towage from which plaintiff cannot claim any compensation or remuneration independently of the shipping company that
owned the vessel commanded by him.

On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating:

Plaintiff bases his claim upon the provisions of the Salvage Law, Act No. 2616, .....

In accordance with the Salvage Law, a ship which is lost or abandoned at sea is considered a derelict and,
therefore, proper subject of salvage. A ship in a desperate condition, where persons on board are incapable, by
reason of their mental and physical condition, of doing anything for their own safety, is a quasi-derelict and may,
likewise, be the proper subject of salvage. Was the MV Don Alfredo, on May 1, 1958, when her engine failed and,
for that reason, was left drifting without power on the high seas, a derelict or a quasi-derelict? In other words, was
it a ship that was lost or abandoned, or in a desperate condition, which could not be saved by reason of incapacity
or incapacity of its crew or the persons on board thereof? From all appearances and from the evidence extant in
the records, there can be no doubt, for it seems clear enough, that the MV Don Alfredo was not a lost ship, nor
was it abandoned. Can it be said that the said ship was in a desperate condition, simply because S.O.S. signals
were sent from it?.

From the testimony of the captain of the MV Don Alfredo, the engine failed and the ship already lost power as
early as 8:00 o'clock on the morning of May 1, 1958; although it was helpless, in the sense that it could not move,
it did not drift too far from the place where it was, at the time it had an engine failure. The weather was fair in
fact, as described by witnesses, the weather was clear and good. The waves were small, too slight there were
only ripples on the sea, and the sea was quite smooth. And, during the night, while towing was going on, there
was a moonlight. Inasmuch as the MV Don Alfredo was drifting towards the open sea, there was no danger of
floundering. As testified to by one of the witnesses, it would take days or even weeks before the ship could as
much as approach an island. And, even then, upon the least indication, the anchor could always be weighed
down, in order to prevent the ship from striking against the rocks.

"There was no danger of the vessel capsizing, in view of the fairness of the sea, and the condition of the weather,
as described above. As a matter of fact, although the MV Don Alfredo had a motor launch, and two lifeboats,
there was no attempt, much less, was there occasion or necessity, to lower anyone or all of them, in order to
evacuate the persons on board; nor did the conditions then obtaining require an order to jettison the cargo.

But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from aboard the MV Don Alfredo,
which was enough to establish the fact that it was exposed to imminent peril at sea. It is admitted by the
defendant that such S.O.S. signal was, in fact, sent by blinkers. However, defendant's evidence shows that
Captain Loresto of the MV Don Alfredo, did not authorize the radio operator of the aforesaid ship to send an
S.O.S. or distress signal, for the ship was never in distress, nor was it exposed to a great imminent peril of the
sea. What the aforesaid Captain told the radio operator to transmit was a general call; for, at any rate, message
had been sent to defendant's office at Cebu City, which the latter had acknowledged, by sending back a reply
stating that help was on the way. However, as explained by the said radio operator, in spite of his efforts to send a
general call by radio, he did not receive any response. For this reason, the Captain instructed him to send the
general call by blinkers from the deck of the ship; but the call by blinkers, which follows the dots and dashes
method of sending messages, could not be easily understood by deck officers who ordinarily are not radio
operators. Hence, the only way by which the attention of general officers on deck could be called, was to send an
S.O.S. signal which can be understood by all and sundry.

Be it as it may, the evidence further shows that when the two ships were already within hearing distance (barely
seven meters) of each other, there was a sustained conversation between Masters and complement of the two
vessels, by means of loud speakers and the radio; and, the plaintiff must have learned of the exact nature and
extent of the disability from which the MV Don Alfredo had suffered that is, that the only trouble that the said
vessel had developed was an engine failure, due to the loss of its propellers..

It can thus be said that the MV Don Alfredo was not in a perilous condition wherein the members of its crew would
be incapable of doing anything to save passengers and cargo, and, for this reason, it cannot be duly considered
as a quasi-derelict; hence, it was not the proper subject of salvage, and the Salvage Law, Act No. 2616, is not
applicable.

Plaintiff, likewise, predicates his action upon the provisions of Article 2142 of the New Civil Code, which reads as
follows:

Certain lawful, voluntary and unilateral acts give to the juridical relation of quasi-contract to the end that
no one shall be unjustly enriched or benefited at the expense of another.

This does not find clear application to the case at bar, for the reason that it is not the William Lines, Inc., owners
of the MV Henry I which is claiming for damages or remuneration, because it has waived all such claims, but the
plaintiff herein is the Captain of the salvaging ship, who has not shown that, in his voluntary act done towards and
which benefited the MV Don Alfredo, he had been unduly prejudiced by his employers, the said William Lines,
Incorporated.

What about equity? Does not equity permit plaintiff to recover for his services rendered and sacrifices made? In
this jurisdiction, equity may only be taken into account when the circumstances warrant its application, and in the
absence of any provision of law governing the matter under litigation. That is not so in the present case.
 In view of the foregoing, judgment is hereby rendered dismissing the case with costs against the plaintiff; and
inasmuch as the plaintiff has not been found to have brought the case maliciously, the counterclaim of the
defendant is, likewise, dismissed, without pronouncement as to costs.

SO ORDERED.

The main issue to be resolved in this appeal is, whether under the facts of the case, the service rendered by plaintiff to
defendant constituted "salvage" or "towage", and if so, whether plaintiff may recover from defendant compensation for
such service.

The pertinent provision of the Salvage Law (Act No. 2616), provides:

SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall have
been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a
reward for the salvage.

Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a like reward.

According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be entitled to a reward
(salvage). "Salvage" has been defined as "the compensation allowed to persons by whose assistance a ship or her cargo
has been saved, in whole or in part, from impending peril on the sea, or in recovering such property from actual loss, as in
case of shipwreck, derelict, or recapture." (Blackwall v. Saucelito Tug Company, 10 Wall. 1, 12, cited in Erlanger &
Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178.) In the Erlanger & Galinger case, it was held that three elements
are necessary to a valid salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when not required as
an existing duty or from a special contract, and (3) success in whole or in part, or that the service rendered contributed to
such success.1

Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant? Like the trial
court, we do not think there was. It appears that although the defendant's vessel in question was, on the night of May 1,
1958, in a helpless condition due to engine failure, it did not drift too far from the place where it was. As found by the
court a quo the weather was fair, clear, and good. The waves were small and too slight, so much so, that there were only
ripples on the sea, which was quite smooth. During the towing of the vessel on the same night, there was moonlight.
Although said vessel was drifting towards the open sea, there was no danger of it floundering or being stranded, as it was
far from any island or rocks. In case of danger of stranding, its anchor could released, to prevent such occurrence. There
was no danger that defendant's vessel would sink, in view of the smoothness of the sea and the fairness of the weather.
That there was absence of danger is shown by the fact that said vessel or its crew did not even find it necessary to lower
its launch and two motor boats, in order to evacuate its passengers aboard. Neither did they find occasion to jettison the
vessel's cargo as a safety measure. Neither the passengers nor the cargo were in danger of perishing. All that the
vessel's crew members could not do was to move the vessel on its own power. That did not make the vessel a quasi-
derelict, considering that even before the appellant extended the help to the distressed ship, a sister vessel was known to
be on its way to succor it.

If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law, can it be considered
as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer seems to incline in the affirmative,
for in consenting to plaintiff's offer to tow the vessel, defendant (through the captain of its vessel MV Don Alfredo) thereby
impliedly entered into a juridical relation of "towage" with the owner of the vessel MV Henry I, captained by plaintiff, the
William Lines, Incorporated.

Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its engine speed
because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by while ship
proceeded to dock under own power, was entitled, in absence of written agreement as to amount to be paid for
services, to payment for towage services, and not for salvage services. (Sause, et al. v. United States, et al., 107
F. Supp. 489)

If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to the exclusion of
the crew of the said vessel, may be entitled to remuneration.
It often becomes material too, for courts to draw a distinct line between salvage and towage, for the reason that a reward
ought sometimes to be given to the crew of the salvage vessel and to other participants in salvage services; and such
reward should not be given if the services were held to be merely towage. (The Rebecca Shepherd, 148 F. 731.)

The master and members of the crew of a tug were not entitled to participate in payment by liberty ship for services
rendered by tug which were towage services and not salvage services. (Sause, et al. v. United States, et al., supra.)

"The distinction between salvage and towage is of importance to the crew of the salvaging ship, for the following reasons:
If the contract for towage is in fact towage, then the crew does not have any interest or rights in the remuneration pursuant
to the contract. But if the owners of the respective vessels are of a salvage nature, the crew of the salvaging ship is
entitled to salvage, and can look to the salvaged vessel for its share. (I Norris, The Law of Seamen, Sec. 222.)

And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation for the towage
service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon and not separate from the interest
of his employer, is not entitled to payment for such towage service.

Neither may plaintiff invoke equity in support of his claim for compensation against defendant. There being an express
provision of law (Art. 2142, Civil Code) applicable to the relationship created in this case, that is, that of a quasi-contract of
towage where the crew is not entitled to compensation separate from that of the vessel, there is no occasion to resort to
equitable considerations.

WHEREFORE, finding no reversible error in the decision of the court a quo appealed from, the same is hereby affirmed in
all respects, with costs against the plaintiff-appellant. So ordered.