STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellee,

vs.
MANUEL LOPEZ CASTELO, defendant-appellant.

Gabriel La O for appellant.

Lawrence and Ross for appellee.

STREET, J.:

By contract of character dated February 8, 1915, Manuel Lopez Castelo, as owner, let the small interisland
steamer Batangueo for the term of one year to Jose Lim Chumbuque for use in the conveying of cargo
between certain ports of the Philippine Islands. In this contract it was stipulated that the officers and crew
of the Batangueo should be supplied by the owner, and that the charterer should have no other control
over the captain, pilot, and engineers than to specify the voyages that they should make and to require
the owner to discipline or relieve them as soon as possible in case they should fail to perform the duties
respectively assigned to them.

While the boat was being thus used by the charterer in the interisland trade, the standard Oil Company
delivered to the agent of the boat in Manila a quantity of petroleum to be conveyed to the port of
Casiguran, in the Province of Sorsogon. For this consignment a bill of lading of the usual form was
delivered, with the stipulation that freight should be paid at the destination. Said bill of lading contained
no provision with respect to the storage of the petroleum, but it was in fact placed upon the deck of the
ship and not in the hold.

While the boat was on her way to the port mentioned, and off the western coast of Sorsogon, a violent
typhoon passed over that region, and while the storm was at its height the captain was compelled for the
safety of all to jettison the entire consignment of petroleum consisting of two hundred cases. When the
storm abated the ship made port, and thirteen cases of the petroleum were recovered, but the remainder
was wholly lost.

To recover the value of the petroleum thus jettisoned but not recovered, the present action was instituted
by the Standard Oil Company against the owner of the ship in the Court of First Instance of Manila, where
judgment was rendered in favor of the plaintiff. From this judgment the defendant appealed.

No question is made upon the point that the captain exercised proper discretion in casting this petroleum
overboard, as a step necessary to the salvation of the ship; and in fact it appears that even after the vessel
was thus eased, she was with difficulty prevented from capsizing, so great was the intensity of the storm.

The first question for discussion is whether the loss of this petroleum was a general average loss or a
particular less to be borne solely by the owner of the cargo. Upon this point it will be observed that the
cargo was carried upon deck; and it is a general rule, both under the Spanish Commercial Code and under
the doctrines prevailing in the courts of admiralty of England America, as well as in other countries, that
ordinarily the loss of cargo carried on deck shall not be considered a general average loss. This is clearly
expressed in Rule I of the York-Antwerp Rules, as follows: "No jettison of deck cargo shall be made good
as general average." The reason for this rule is found in the fact that deck cargo is in an extra-hazardous
position and, if on a sailing vessel, its presence is likely to obstruct the free action of the crew in managing
the ship. Moreover, especially in the case of small vessels, it renders the boat top-heavy and thus may
have to be cast overboard sooner than would be necessary if it were in the hold; and naturally it is always
the first cargo to go over in case of emergency. Indeed, in subsection 1 of article 815 of the Code of
Commerce, it is expressly declared that deck cargo shall be cast overboard before cargo stowed in the
hold.

But this rule, denying deck cargo the right to contribution by way of general average in case of jettison,
was first mad in the days of sailing vessels; and with the advent of the steamship as the principal conveyer
of cargo by sea, it has been felt that the reason for the rule has become less weighty, especially with
reference to coastwise trade; and it is now generally held that jettisoned goods carried on deck, according
to the custom of trade, by steam vessels navigating coastwise and inland waters, are entitled to
contribution as a general average loss (24 R. C. L., 1419).
Recognition is given to this idea in two different articles in the Spanish Code of Commerce. In the first it is
in effect declared that, if the marine ordinances allow cargo to the laden on deck in coastwise navigation,
the damages suffered by such merchandise shall not be dealt with as particular average (art. 809 [3],
Comm. Code); and in the other it is stated that merchandise laden on the upper deck of the vessel shall
contribute in the general average if it should be saved; but that there shall be no right to indemnity if it
should be lost by reason of being jettisoned for the general safety, except when the marine ordinances
allow its shipment in this manner in coastwise navigation (art. 855, Comm. Code).

The Marine Regulations now in force in these Islands contain provisions recognizing the right of vessels
engaged in the interisland trade to carry deck cargo; and express provision is made as to the manner in
which it shall be bestowed and protected from the elements (Phil. Mar. Reg. [1913], par 23). Indeed, there
is one commodity, namely, gasoline, which from its inflammable nature is not permitted to be carried in
the hold of any passenger vessel, though it may be carried on the deck if certain precautions are taken.
There is no express provision declaring that petroleum shall be carried on deck in any case; but having
regard to its inflammable nature and the known practices of the interisland boats, it cannot be denied
that this commodity also, as well as gasoline, may be lawfully carried on deck in our coatwise trade.

The reason for adopting a more liberal rule with respect to deck cargo on vessels used in the coastwise
trade than upon those used for ordinary ocean borne traffic is to be found of course in the circumstance
that in the coastwise trade the boats are small and voyages are short, with the result that the coasting
vessel can use more circumspection about the condition of the weather at the time of departure; and if
threatening weather arises, she can often reach a port of safety before disaster overtakes her. Another
consideration is that the coastwise trade must as a matter of public policy be encouraged, and domestic
traffic must be permitted under such conditions as are practically possible, even if not altogether ideal.

From what has been said it is evident that the loss of this petroleum is a general and not a special
average, with the result that the plaintiff is entitled to recover in some way and from somebody an
amount bearing such proportion to its total loss as the value of both the ship and the saved cargo bears
to the value of the ship and entire cargo before the jettison was effected. Who is the person, or persons,
who are liable to make good this loss, and what are the conditions under which the action can be
maintained?

That the owner of the ship is a person to whom the plaintiff in this case may immediately look for
reimbursement to the extent above stated is deducible not only from the general doctrines of admiralty
jurisprudence but from the provisions of the Code of Commerce applicable to the case. It is universally
recognized that the captain is primarily the representative of the owner; and article 586 of the Code of
Commerce expressly declares that both the owner of the vessel and the naviero, or charterer, shall be civil
liable for the acts of the master. In this connection, it may be noted that there is a discrepancy between
the meaning of naviero, in articles 586 of the Code of Commerce, where the word is used in
contradistinction to the term "owner of the vessel" ( propietario), and in article 587 where it is used alone,
and apparently in a sense broad enough to include the owner. Fundamentally the word "naviero" must be
understood to refer to the person undertaking the voyage, who in one case may be the owner and in
another the charterer. But this is not vital to the present discussion. The real point to which we direct
attention is that, by the express provision of the Code, the owner of the vessel is civilly liable for the acts
of the captain; and he can only escape from this civil liability by abandoning his property in the ship and
any freight that he may have earned on the voyage (arts. 587, 588, Code of Comm.).

Now, by article 852 of the Code of Commerce the captain is required to initiate the proceedings for the
adjustment, liquidation, and distribution of any gross average to which the circumstances of the voyage
may have given origin; and it is therefore his duty to take the proper steps to protect any shipper whose
goods may have been jettisoned for the general safety. In ordinary practice this, we supposed, would be
primarily accomplished by requiring the consignees of other cargo, as a condition precedent to the
delivery of their goods to them, to give a sufficient bond to respond for their proportion of the general
average. But it is not necessary here to inquire into details. It is sufficient to say that the captain is
required to take the necessary steps to effect the adjustment, liquidation, and distribution of the general
average. In the case before us the captain of the vessel did not take those steps; and we are of the
opinion that the failure of the captain to take those steps gave rise to a liability for which the owner of the
ship must answer.
But it is said and the entire defense seems to be planted upon this proposition that the liquidation
of the general average is, under article 852 and related provisions, a condition precedent to the liability of
the defendant, and that at any rate the defendant, as owner of the ship, should only be held liable for his
proportion of the general average. It is also suggested that if the plaintiff has any right of action at all
upon the state of facts here presented, it is against the captain, who has been delinquent in performing
the duty which the law imposes on him.

This argument involves, we think, a misconception of the true import of the provisions relating to the
adjustment and liquidation of general average. Clearly, for one thing, those provisions are intended to
supply the shipowner, acting of cause in the person of the captain, with a means whereby he may escape
bearing the entire burden of the loss and may distribute it among all the persons who ought to
participate in sharing it; but the making of the liquidation is not a condition precedent to the liability of
the shipowner of the shipper whose property has been jettisoned.

It is true that if the captain does not comply with the article relating to the adjustment, liquidation, and
distribution of the general average, the next article (852) gives to those concerned whether shipowner
(naviero) or shipper the right to maintain an action against the captain for indemnification for the loss;
but the recognition of this right of action does not by any means involve the suppression of the right of
action which is elsewhere recognized in the shipper against the ship's owner. The shipper may in our
opinion go at once upon the owner and the latter, if so minded, may have his recourse for indemnization
against his captain.

In considering the question now before us it is important to remember that the owner of the ship
ordinarily has vastly more capital embarked upon a voyage than has any individual shipper of cargo.
Moreover, the owner of the ship, in the person of the captain, has complete and exclusive control of the
crew and of the navigation of the ship, as well as of the disposition of the cargo at the end of the voyage.
It is therefore proper that any person whose property may have been cast overboard by order of the
captain should have a right of action directly against the ship's owner for the breach of any duty which
the law may have imposed on the captain with respect to such cargo. To adopt the interpretation of the
law for which the appellant contends would place the shipowner in a position to escape all responsibility
for a general average of this character by means of the delinquency of his own captain. This cannot be
permitted. The evident intention of the Code, taken in all of its provisions, is to place the primary liability
upon the person who has actual control over the conduct of the voyage and who has most capital
embarked in the venture, namely, the owner of the ship, leaving him to obtain recourse, as it is very easy
to do, from other individuals who have been drawn into the venture as shippers.

It results that the plaintiff is entitled to recover in this action; and the only additional point to be inquired
into is the amount that should be awarded. In this connection it appears that the total value of the
jettisoned cargo, belonging partly to the plaintiff to another shipper, was P880.35, of which P719.95
represented the value of the plaintiff's petroleum. Upon the apportionment of this total loss among the
different interests involved, to wit, value of ship, value of cargo, and the earned but lost freight, it appears
that the amount of the loss apportionable to the plaintiff is P11.28. Deducting this from the value of the
petroleum, we have as a result, the amount of P708.67, which is the amount for which judgment should
be given.

Accordingly, modifying the judgment appealed from to this extent, we affirm the same, with costs. So
ordered.

Johnson and Villamor, JJ., concur.

Mapa, C.J., concurs in the result.

Separate Opinions
ARAULLO, J., dissenting:

As the loss of the petroleum shipped by the plaintiff company on board the vessel Batangueo, which
belongs to the defendant, constitutes gross average and, as the latter, being, according to the law, an
agent, all of which is admitted in the foregoing decision, the provisions applicable to the case and which
should be taken into consideration in deciding the appeal before this court are those of various articles in
sections 1 of title 4 and sections 1, 2, and 3, of title 5, of Book 3 of the Code of Commerce.

Article 811 defines gross or general averages as damages and expenses which are deliberately caused in
order to save the vessel, her cargo, or both at the same time, from a real and known risk, and particularly,
such as goods jettisoned to lighten the vessel, whether they belong to the vessel, to the cargo, or to the
crew, and the damage suffered through said act by the goods or board; the damage caused to the vessel
by scuttling or entering her hold in order to save the cargo; and the expenses of the liquidation of the
average. Article 812 provides that in order to satisfy the amount of the gross or general average, all
persons having an interests in the vessel and cargo at the time of the occurrence of the average shall
contribute. Article 846 provides that the persons interested in the proof and liquidation of averages may
mutually agree and bind themselves at any time with regard to the liability, liquidation and payment
thereof, and that, in the absence of agreements, the proof of the average shall take place in the port
where the repairs are made, should any be necessary, or in the port of unloading; that the liquidation shall
take place in the port of unloading should it be a Spanish port (now Filipino); that should the average
have occurred outside of the jurisdictional waters of the Philippines or should the cargo have been sold in
a foreign port by reason of the arrival of the vessel under stress in said port, liquidation shall be made in
the port of arrival; and, finally, if the average should have occurred near the port of destination, and that
port is made, the proceedings for the proof and liquidation above-mentioned shall he had there.

Article 847 provides that when the liquidation of the averages is made privately by virtue of agreement, as
well as when a judicial authority takes part therein at the request of any of the parties interested who do
not agree thereto, all of them shall be cited and heard, should they not have renounced this right; that
should they not be present or not have a legitimate representative, the liquidation shall be made by the
consul in said port, and where there is none, by the judge or court of competent jurisdiction, accordance
to the laws of the country, and for the account of the proper person; and, finally, desiring to furnish all
possible means to effect the liquidation, legislator provides in the last part of said article that, when the
representative is a person well-known in the place where the liquidation takes place, his intervention shall
be admitted and will produce legal effect, even though he be authorized only by a letter of the shipowner,
freighter, or underwriter; and as to general or gross averages, he lays down concrete and conclusive rules
in articles 853, 854, and 858, with respect to the form and mode in which the experts appointed by the
interested parties or by the court shall fulfill their duties, as to the examination of the vessel, the repairs
and the appraisement of their cost, as well as to the appraisement of the goods which are to contribute to
the gross average and those which constitute the average, likewise providing in article 857 that, after the
appraisement by the experts of the goods saved, lost, and those which constitute the gross average, and
after the repairs have been made to the vessel, should any be necessary, and in such case, after the
approval of the accounts by the persons interested or by the court, the entire record shall be turned over
to the liquidator appointed, in order that he may proceed with thepro rata distribution of the average
among the contributing values, after fixing the amount mentioned in said article of the contributing
capital: (1) By the value of the cargo, according to the rules established in article 854; (2) by the value of
the vessel in her actual condition, according to a statement of experts; (3) by 50 per cent of the amount of
the freight, deducting the remaining 50 per cent for wages and maintenance of the crew. 1awph!l.net

Lastly, in relation to said provisions, article 851 authorizes the captain to proceed privately, upon the
agreement of the parties interested, in the adjustment, liquidation, and distribution of the gross average,
and for this purpose, it is his duty to call, within forty hours following the arrival of the vessel at the port,
the persons interested in order that they may decide whether the adjustment or liquidation of the gross
average is to be made by experts and liquidators appointed by themselves, in which case this shall be
done should the persons interested agree, and said article also provides that should an agreement not be
possible, the captain shall apply to the judge or court of competent jurisdiction, who shall be the one of
the port where the proceedings are to be held in accordance with the provisions of the Code of
Commerce, to the consul of Spain (now of the United States), should there be one, or otherwise to the
local authority when the proceedings are to be held in a foreign port. And finally, the next article, 852,
says: "If the captain should not comply with the provisions contained in the foregoing article, the
shipowner or agent or the freighters shall demand the liquidation, without prejudice to the action they
may bring to demand indemnity from him."

It is therefore beyond question that the action of the plaintiff to recover indemnity for the damage which
it claims to have suffered by reason of the failure of the captain of the vessel Batangueo to proceed with
the liquidation and distribution of the gross average in which it was a contributor, and by reason of his act
in delivering to the other shippers their respective goods, without first requiring them to give bond,
should have been brought not against the shipowner or agent, who is the defendant in this case, but
against the captain himself of the vessel Batangueo.

Although in the preceding decision it is clearly recognized that the captain should have begun the
proceedings for the adjustment, liquidation, and distribution of the gross average in question, and that it
was his duty to take the proper steps to protect any ship whose goods may have been jettisoned for the
common security, it is also stated that in ordinary practice this is supposed to be complied with by
requiring the consignees of the other cargoes, as a condition precedent to the delivery thereof, to give a
sufficient bond to answer proportionally for the gross average, and, lastly, that the failure of the captain to
take the necessary steps to effect the adjustment, liquidation, and distribution of said average gave rise to
the responsibility which should be enforced against the defendant shipowner, against whom the shipper
may immediately institute his action, the former having in turn, if he so desires, the right to bring suit
against the captain. The majority opinion attempts to support the last proposition and invokes articles
586, 587, and 588.

First of all, according to articles 866, 867, and 888 of the same Code, a bond should be required of the
shippers by the captain after the liquidation is already approved, if the contributors should fail to pay the
amount of the quota by the third day after having been required to do so, and before delivering to them
the goods saved. the captain having the right, upon failure to give the bond, to delay the delivery of
the goods until the shippers pay their part of the gross average corresponding to each of them and not
before proceeding with the liquidation, for the simple reason that the amount of the bond may only be
fixed after the determination of the amount which each of the shippers may be obliged to contribute to
the payment of the average, and this is so clear and evident that in article 867 the captain is authorized to
attach the goods saved until the shippers should pay the amount, if they should fail to do so by the third
day after demand upon them. And since the captain may require bond, he may delay the delivery of the
goods saved to the shippers until they make the payment. In the case at bar, no step having as yet been
taken for the adjustment and liquidation of the gross average in question, the fact that the captain of
the Batangueo delivered the respective cargoes of the other shippers without previously requiring a
bond, can not constitute the basis for making the captain responsible, much less the owner of the vessel,
as the trial court has erroneously held in the judgment appealed from and as this court is given to
understand in referring to said filing of the bond as a prerequisite to the delivery of the cargo. This is
because the time was not opportune when the captain should and could exact the bond and the law
neither requires such bond to be filed before proceeding with the liquidation, inasmuch as the shipowner
or agent, as well as the shippers, being interested in proceeding with the liquidation, the Code authorizes
them, first, to demand it from the captain and later to institute the action corresponding to them against
him to recover indemnity if he should not comply with the provisions upon the subject, that is, if he
should fail to effect the liquidation, or if, in lieu thereof, he should deliver the respective cargoes to the
shippers or permit them to dispose of the same, in which case the responsibility may be fixed upon the
captain and not upon the agent upon this ground, and for not requiring the shippers to give said bond.

In the second place, although it is true that the captain is, as stated in the decision, primarily the
representative of the shipowner or agent, it cannot in all cases, as the decision gives us to understand, be
deduced that the shipowner must be civilly responsible for all the acts of the captain.

The Code of Commerce clearly and positively specifies the cases in which such responsibility in
demandable from the agent or shipowner, and the cases in which he is not responsible, the responsible
attaching only to the captain. These cases can not be confused in view of the clear and positive provisions
of said Code, in relation to the method adopted in the exposition thereof and following the order of the
subjects contained in this law.

Articles 586, 587, and 588, invoked in the decision in question in order to maintain that theory, are found
in title 2 of Book 3 of said Code which treats of the persons who intervene in maritime commerce, that is,
as may be seen in sections 1, 2, and 3 thereof, the shipowners and agents, the captains and masters of
vessels and the officers and crew thereof, respectively. Articles 806 to 818 and 846 to 849, and
consequently, article 852, invoked in said decision and which refer to the gross or general average and to
the simple or particular average, are found in titles 4 and 5 of the same Book 3 which, respectively, deal
with the risks, damages, and accidents of maritime commerce and with the proof and liquidation of the
averages; and they contain all the provisions of the law relative to said subjects and to the rights and
obligations which arise from the averages.

There is no relation whatever between said articles 586, 587, and 588, invoked in the decision, and those
which treat of averages. The first of said articles establishes the civil responsibility of the shipowner and
agent for the acts of the captain and the obligations incurred by the latter for the repair, equipment, and
provisioning of the vessel. The second, that is, article 587, establishes the same responsibility of the agent
for indemnities, in favor of third persons, which may arise from the conduct of the captain in the care of
the goods which the vessel may carry, from which he may exempt himself by abandoning the vessel with
all her equipment and the freight he may have earned during the voyage. In the present case it is not the
conduct of the captain in the care of the goods which has given rise to the right to exact the
corresponding civil responsibility, but, according to article 862, the failure of the captain to comply with
the provisions of article 851, with respect to the adjustment, liquidation, and distribution of the gross
average and the failure to attend to the claims which the agent or the shippers may or should have made,
inasmuch as said article 852 clearly so declares, in referring to the agent or the shippers in the following
words: "Without prejudice to the action they may bring to demand indemnity from him." The care of the
goods to which article 857 refers consists in the placing of the goods in the proper and adequate place
for their transportation and due preservation during the voyage, in such manner that they may not suffer
damages or deterioration nor be taken away, for, according to article 618, which bears some relation to
said article 587, the captain is civilly responsible to the agent and the latter to third persons, who may
have occurred to the vessel and the cargoes due to lack of skill or to negligence on his part and for the
subtraction of theft committed by the crew, reserving this right to proceed against the guilty parties; and,
according to article 619, he shall be liable for the cargo from the time it is turned over to him at the deck
or afloat alongside the vessel at the port of loading until he delivers it on the shore or on the discharging
wharp of the port of unloading, unless the contrary has been expressly agreed upon; and, finally,
according to No. 5 of the same article 618, he shall be liable for those damages arising from an undue use
of the powers and nonfulfillment of the obligations which are his in accordance with the articles 610 and
612, one of which, the fifth mentioned in the last article, is to remain constantly on board the vessel
during the time the freight is taken on board and carefully watch the stowage thereof, which acts, as is
well-known, constitute the means for the effective custody of the goods which may be shipped on board.

In the present case, if the consignees or owners of the cargo on board the vessel Batangueo took away
with them their respective cargoes or disposed of them upon arriving at port, after part thereof, which
included the petroleum boxes belonging to the plaintiff, had been jettisoned, it was not because the
captain of said vessel had not fulfilled his duty with respect to the care of the cargo, but because he did
not proceed in accordance with the provision of article 851 already cited, in the adjustment, liquidation,
and distribution of the gross average caused by that accident. and did not, as he should have done,
according to article 852, require the liquidation either of the agent or the shippers. Therefore to them
alone, including the plaintiff, and not to the conduct of the captain in the custody of the cargo, is the fact
attributable that the shippers were able to carry away the dispose of the cargo saved upon the arrival of
the vessel at port.

The third or said articles, that is, 588, cited also in the same decision, far from making the shipowner or
the agent responsible for the obligations incurred by the captain, exempts them from all responsibility, if
the captain should have exceeded the powers and privileges which are his by reason of his position or
have been conferred upon him by the former, excepting the case, which bears no relation whatever to
that in question, in which the amounts claimed were made use of for the benefit of the vessel.

Lastly, although this point has not been touched at all in the decision now under discussion, according to
article 618. No. 5, the captain shall be civilly liable to the agent, and the latter to third persons with whom
he may have contracted, for the damages arising from an undue use of his powers and the nonfulfillment
of his obligations, but it adds that such liability shall be "in accordance with articles 610 and 612." These
articles, as may be seen, refer to the powers and obligations inherent in the position of captain with
respect to the appointment, contract, and command of the crew, direction of the vessel to the port of
destination, the imposition of punishments for crimes committed on board, contracts for the charter of
the vessel, its preservation and repair, the supplying of books of navigation, and others, which are
mentioned in said last article, the equipping of the vessel and the receiving of the cargo, etc., among
which obligations there is none which bears the slightest relation to those which the same Code imposes
upon the captain with respect to the adjustment, liquidation, and distribution of the gross average.

On the other hand, in the various sections of title 4 of Book 3, and in section 1 of title 5, the Code, in
treating of the risks, damages, and accidents of maritime commerce, specifically indicates the cases in
which the responsibility of the captain is enforcible, those in which that of the agent or shipowner is
demandable and those in which that responsibility is joint among them, as well as those cases in which no
responsibility may be demanded of the agent or shipowner but only of the captain.

In effect, article 841 of section 3 of said title 4 provides that if the wreck or stranding should arise through
the malice, or lack or skill of the captain, or because the vessel put to sea insufficiently repaired and
prepared, the captain shall be responsible for the indemnification of damages caused to the vessel or the
cargo by the accident, which liability may be demanded by the agent or the shippers; but there is in said
section no provision whatever by which the agent or shipowner is made responsible.

In article 826 of section 3 of the same title, which deals with collisions, it is provided that the agent of the
vessel at fault shall indemnify the losses and damages suffered, after an expert appraisal, if a vessel should
collide with another through the fault, negligence, or lack of skill of the captain, sailing mate, or any other
member of the complement, and, according to article 831, if a vessel should be forced to collide with
another by a third vessel, the agent of the third vessel shall indemnify for the losses and damages caused,
the captain being civilly liable to said agent, this liability being understood to be limited to the value of
the vessel with all equipment and freight earned.

In treating of arrivals under stress, section 2 of the same title, in article 821, declares that when such arrival
is not legitimate, the agent and the captain shall be jointly liable for the expense incurred.

In treating averages, article 809, No. 8, in section 1 of the same title, which includes, in simple averages,
the damage suffered by the vessel or cargo by reason of an impact or collision with another, declares that
if the accident occurred through the fault or negligence of the captain, he shall be responsible for all the
damages caused, and in No. 9 of the same article, that the owner of the cargo who is injured as a result of
the fault, negligence, or barratry of the captain or the crew may demand indemnity from the captain or
the crew may demand indemnity from the captain, the vessel and freight, a rule which is based upon No.
1 of article 618 , already mentioned, according to which the captain shall be civilly responsible to the
agent and the latter to the third persons, for all damages suffered by the vessel and its cargo by reason of
the want of skill or negligence on his part, a provision which, as is well known, cannot refer to the case in
which the owners of the cargo, having the right to demand the adjustment, liquidation, and distribution of
the gross average, upon the arrival of the vessel at port, should dispose of the cargo saved. Such case, as
already stated, is the subject of the express and positive provisions of articles 851 and 852, in relation to
articles 866, 867, and 868, included in section 2 of the same title, as is shown by the fact that the first of
said articles declares that the captain is responsible to the owners of the goods averaged for the losses
they may have suffered through his delay or negligence in collecting the amount of the contribution after
the liquidation is approved, and by the fact that the last of said articles, that is, 868, declares that the
captain may exact from the shippers a bond sufficient to answer for the amount of corresponding to the
gross average for the purpose of delaying the delivery to them of the goods saved until they pay said
amount.

It is by these special provisions and not by the general provisions contained in sections 1, 2, and 3, of title
2, of Book 3 of said Code, that we must be governed when dealing with the risks, damages, and accidents
the maritime commerce; and gross average being among them, then, for the failure of the captain of the
vessel Batangueo to comply with the provisions relating to the adjustment, liquidation, and distribution,
the defendant owner of the vessel can not and should not be made liable, but only the captain, for article
852, already cited, is clear and positive to the effect that in said case the agent or the shippers shall
demand of the captain the liquidation and may exercise against him the action to recover the proper
indemnity, a provision which excludes in such case all responsibility of the agent or owner of the vessel,
for the reason that, the latter being, according to the same article, one of those who, jointly with the
shippers, may ask the captain for the liquidation and institute against him the corresponding action for
indemnification, it would be absurb to pretend and maintain that the shippers may also institute the same
action against the agent or owner of the vessel, in this manner converting him from plaintiff into
defendant.

But, as if it is still possible to put under discussion and interpret so clear and positive a provision as that of
said article 852, and those related to it which, as has already been mentioned, are also of the same
character, it is argued in the decision of this court that as "the owner of the ship ordinarily has vastly more
capital embarked upon a voyage than has any individual shipper of cargo, and moreover, as the owner of
the ship, in the person of the captain, has complete and exclusive control of the crew and of the
navigation of the ship, as well as of the disposition of the cargo at the end of the voyage, the evident
intention of the Code, taken in all of its provisions, is to place the primary liability upon . . . the owner of
the ship, leaving him to obtain recourse, as it is very easy to do, from other individuals who have been
drawn into the venture as shippers, for, to adopt another interpretation of the law would place the
shipowner in a position to escape all responsibility for a general average of this character by means of the
delinquency of his own captain. And it is therefore proper that any person whose property may have been
cast overboard by order of the captain should have a right of action directly against the ship's owner for
the breach of any duty which the law may have imposed on the captain with respect to such cargo."

Such reasoning, however, is not convincing. In the first place, it is not true that the average in question
was occasioned by the fault of the captain of the vessel Batangueo, for on this point there is no evidence
in the record, but because of the necessity of throwing overboard part of the cargo of said vessel to save
it from the danger then threatening it; secondly, the purpose of the adjustment and liquidation of the
gross average is to secure contribution from the parties interested in the vessel and cargo existing at the
time of the occurrence thereof in order to pay the amount of such average (art. 812, Code of Commerce),
for which purpose article 858 defines the procedure for the distribution of the value of the average,
stating that there must be taken into consideration, as already stated by us, when we were discussing this
article, the contributing capital determined by the value of the cargo, that of the vessel in her actual
condition and the percentage of the amount of the freight reduced by 50 per cent for wages and
maintenance of the crew, and further declaring that after the determination of the amount of the average,
it shall be distributed pro rata among the contributing values and then paid to the proper parties, after
the persons interested therein, that is, the agent or owner of the vessel and the shippers have consented
thereto, or in default thereof, after the liquidation is duly approved; and, lastly, as repeatedly stated by us,
accordingly to the same articles, the owner of the vessel, or the agent, is also one of the interested parties
and coparticipants in the adjudication of the average and its pro rata distribution among the contributing
values. From what has just been said it results that no purpose is served by considering whether or not he
has put in the voyage or undertaking a capital greater than that of any individual shipper for the purpose
of making him principally liable, that is compelling him to pay to the shippers what each of the latter as
well as he himself has the right to be paid for in proportion to the amount of the respective capital fixed
according to the rules already stated in the distribution of the average. This is because, however great the
value of the vessel may be, there cannot be conceded to the shippers in the adjudication a greater value
than that corresponding to them in the adjudication and distribution of the average, according to the
capital determined by the value of the cargo at each, in conformity with the rules established in article 854
for the assessment of the same cargo and of the goods which have to contribute to said average, nor can
there be conceded to the owner of the vessel a value greater than that which may correspond to him in
said adjudication and distribution, based upon the value of the vessel in its actual condition, according to
a statement of experts and the rules for assessment thereof found in Nos. 6 and 7 of said article 854, from
which it is necessarily inferred that it is notoriously unjust, because the law does not authorize it and it
would be a violation of its positive provisions to compel the owner of the vessel, by the mere fact of
having put a greater capital in the undertaking, to pay to the shippers the quota which corresponds to
each of them which, in this case, according to the majority opinion, is that which should correspond,
without a previous liquidation, to the plaintiff, Standard Oil Company, saving to him, however, the right
afterwards to bring action or proceed against the other shippers, as expressed in the same decision. In
short, it would amount to absolutely ignoring the provisions of the law, which are so clear, express, and
positive with respect not only to the adjustment, liquidation, and distribution of the gross average, but
also to the procedure for effecting the same and the rights and obligations of those who should
contribute to the average. And it is very clear that error has been committed, because in the same
decision, two paragraphs before that in which the theory already discussed is made, it is stated that there
has been "a misconception of the true import of the provisions relating to the adjustment and liquidation
of general average," in arguing that the right of action should be "against the captain, who has been
delinquent in performing the duty which the law imposes on him," for "clearly," says the same decision,
"those provisions are intended to supply the shipowner, acting to court in the person of the captain, with
a means whereby he may escape bearing the entire burden of the loss and may distribute it among all the
persons who ought to participate in sharing it; but the making of the liquidation is not a condition
precedent to the liability of the shipowner to the shipper whose property has been jettisoned."

As is clearly seen, what has just been stated gives us to understand that the owner of the vessel must
suffer all the loss in case of gross average, and that the provisions relating to the adjustment, liquidation,
and distribution thereof are for the purpose of furnishing him the means for evading and enabling himself
to distribute it between the persons who should participate in the average. This is erroneous, because
these provisions, which intentionally are extensively mentioned in this opinion, do not have that object,
for the reason that the shipowner is not the person who should suffer all the loss in case of gross average,
but it should be partitioned and distributed between the shipowner or agent and the shippers, in
proportion to their interests and the respective value of the cargo and vessel, which should be fixed
according to article 850 and the rules for their assessment, stated in article 854 previously cited, after the
liquidation and approval thereof, and after hearing the interested parties or their representatives; and all
of these proceedings would surely be useless and unnecessary if the shipowner or the agent should have
to suffer all loss but may afterwards distribute it among those participants therein, or, what is the same
thing, if he should be compelled by law to pay the total value of the average and then partition it among
the shippers or owners of the cargo, as is maintained in said decision. And there is no doubt that this is
what is maintained in the decision, as the basis of the pronouncements made therein, because, as already
stated, in the paragraph now under discussion, it is clearly stated that the liquidation is not a condition
precedent to the enforcement of the liability of the shipowner to the shipper, whose goods may have
been jettisoned. And this is not what the law says just as it does not say that the shipowner shall be liable
to the shipper or owner of the goods, but that, on the contrary, it says that the shipowner or agent as well
as the shippers may demand liquidation from the captain and institute against him the corresponding
action to recover indemnity, that is, that he has the same right as the shippers to demand liquidation from
the captain and, in default thereof, to recover indemnification, from which it is clearly inferred that the
liquidation is a condition precedent, not to the liability of the shipowner to the shipper whose goods may
have been jettisoned, as stated in the decision in question, but to the partition which must be made
between the agent or shipowner and the shippers of the respective amount of the average. This partition,
and not that the shipowner should suffer all loss but may afterwards evade and distribute it among all
persons who should share in the average, is the real interpretation of the provisions to which reference is
made in the same decision.

Neither is it true that, as stated in said decision, the shipowner has, through the captain, the complete and
exclusive control of the crew and the sailing of the vessels, as well as of the destination of the cargo at the
end of the voyage, and that, for this reason, the principal liability for the payment of the gross average
must fall upon the shipowner.

That he does not have the complete and exclusive control of the crew is shown, among other provisions
of the same Code of Commerce, by the following articles: First, article 610, according to which, among
others, it is an inherent power in the captain to appoint or make contracts with the crew in the absence of
the agent and to propose said crew if said agent be present, but without any right on the part of the latter
to employ any individual against the captain's express refusal. This provision necessarily implies the
absolute power of the captain to take on the contract the crew, and article 634 confirms it, according to
which the captain may make up his crew with the number he may consider advisable, taking on resident
foreigners, in the absence of nationals, their number not to exceed one-fifth of the total crew, and may
even, with the consent of the consul or marine authorities, complete his crew with foreigners in foreign
ports if he should not find sufficient number of nationals, the captain being obliged to execute the
contract with said members of the crew and others who compose the complement of the vessel; and
finally, article 637 which empowers the captain, for sufficient cause, to discharge a sailor during the time
of his contract and to refuse, before setting out on a voyage without giving any reason whatever, to
permit a sailor he may have engaged from going on board, in which case he will be obliged to pay him his
wages as if he had rendered services, this indemnity to be paid from the funds of the vessel only if the
captain had acted for reasons of prudence and in the interests of safety and good service of the vessel;
but, should this not be the case, says said article, it shall be paid by the captain personally. And, if in all
that has just been stated the captain may act independently, it is obvious that the owner of the vessel or
the agent does not have, through the captain, complete and exclusive control of the crew. In short, the
captain directly exercises exclusively personal powers with respect to the crew and, for this reason, he is
personally and particularly responsible for his acts, except in the only case already mentioned, in which he
may have acted for the benefit of the vessel.

Another power inherent in the position of captain, according to article 610, is that of directing the vessel
to the port of its destination, according to the instructions he may have received from the agent, but from
this is cannot be inferred that the shipowner or agent has, through the captain, complete and exclusive
control of the navigation of the vessel, for the simple reason that the captain may not obey said
instructions and may act freely adjusting his decisions according to the circumstances of each case, as
would occur in the case of risks, damages, and accidents which we have previously discussed, cases in
which the law imposes upon the captain the obligations to which titles 4 and 5 of Book 3 refers and
indicates those cases which we have heretofore minutely discussed, in some of which he is personally
responsible, in orders the agent or shipowner, or the latter jointly with the captain, and still in others, in
which the agent is not responsible but only the captain.

Nor is it true that the shipowner, through the captain, has the complete and exclusive control of the
destination of the cargo at the end of the voyage, for article 619 says textually that the captain shall be
liable for the cargo from the time it is turned over to him at the dock, or afloat alongside the ship, at the
port of loading, until he delivers it on the shore or on the discharging wharf, of the port of unloading,
unless the contrary has been expressly agreed upon, and that, according to article 620, he is not liable for
the damages caused to the vessel or to the cargo by reason offorce majeure, and article 625 adds that the
captain, under his personal liability, as soon as he arrives at the port of destination, upon obtaining the
necessary permission from the health and customs officers and fulfilling the other formalities required by
the regulations of the administration, shall turn over the cargo, without any defalcation, to the consignees
and, in a proper case, the vessel, rigging, and freights to the agent. And if the captain is personally
responsible, according to the clear and positive text of said article, for the delivery of the cargo to the
consignees and, of the vessel, rigging, and freight, to the agent or shipowner, it is clear that the latter
does not have complete and exclusive control of the destination of the cargo at the end of the voyage,
because the obligation to deliver is a personal obligation of the captain, and the agent or shipowner, just
as any of the consignees, may demand said liability with respect to the vessel, rigging, and freight from
the captain. And that responsibility of the captain cannot be confused with the provision contained in
article 618 of the same Code in favor of the agent, and that of the latter in favor of third persons who may
have contracted with him, because in said article 618 are specifically mentioned the cases of responsibility
to which the same article refers, and the responsibility of the captain from the moment the cargo is
delivered to him until its unloading is specially declared in article 619 and even more particularly in article
625 which says that said responsibility is a personal responsibility of the captain.

It cannot, therefore, be inferred from all the provisions of the Code, that the evident intention thereof is to
impose the principal responsibility upon the shipowner, as stated in the decision of the majority; and, if
the law is to be complied with, it is useless effort to show its truth, by invoking the general provisions of
the Code of Commerce, which govern the relations between the captain and the shipowner or the agent
and those of one or the other or both with third persons who may have contracted with either of them, or
by invoking those which deal with gross averages, as one of the damages and accidents and maritime
commerce, because, in the first, there is no declaration expressly made upon the subject, and, in the
second, what is established and declared is precisely the contrary, for the shipowner or agent has, just as
the shippers, the right of action against the captain to enforce his responsibility and to be indemnified by
him for the damages occasioned to them by reason of the failure of the captain to comply with the
obligations imposed upon him by law with respect to the adjustment, liquidation, and distribution of the
average, and with respect to the disposition and delivery of the goods saved to the shippers, before the
payment by the latter of their aliquot part in the partition of the average, or without their having filed a
sufficient bond to answer for the cargo, for the reason that, according to article 619, he is responsible for
the cargo from the moment he takes charge thereof at the port of loading until its delivery at the port of
unloading and, according to article 625, he is, under his personal liability, obliged to deliver the cargo,
without defalcation, to the consignees or shippers and, in the proper case, the vessel, rigging, and freight
to the agent upon the arrival at the port of destination. This shows, in relation to the provisions of articles
866 and 868, already cited, that the captain of the vessel should be personally liable to the owners of the
goods averaged for the damages which were incurred by them, by reason of his delay or negligence in
requiring a goods of the shippers before delivery to them of the goods saved, this supposing that they
are obliged to do so, instead of proceeding to the adjustment, liquidation, and distribution of the gross
average, inasmuch as the purpose of the law is to exact said personal responsibility for the due delivery to
the consignees or shippers of the cargo.

The plaintiff, therefore, should have brought said action, if he had any, for the recovery of the amount
claimed in the complaint, not against the defendant, owner of the vessel Batangueo, but against the
captain thereof, and said defendant cannot and should not be sentenced to pay to the plaintiff the sum
stated in the decision of this court which, with some modification as to the amount thereof, affirms the
judgment of the trial court; and there is more reason for this assertion because that sum is, according to
said decision, what the plaintiff should receive in the partition and distribution of the gross average in
question and, yet, it does not appear that the corresponding liquidation, and, consequently, the division
and distribution of said average, has already been made, as required by the provisions of the Code of
Commerce in the articles mentioned at the beginning.

Regretting that I have to dissent from the respectable opinion of the majority, I am of the opinion, for the
reasons above stated, that the judgment appealed from should be reversed and the defendant should be
absolved from the complaint.

YU CON, plaintiff-appellee,
vs.
GLICERIO IPIL, NARCISO LAURON, and JUSTO SOLAMO, defendants-appellants.

Felix Sevilla y Macam for appellants.

Juan Singson and Dionisio Jakosalem for appellee.

ARAULLO, J.:

The purpose of the action brought in these proceedings is to enable the plaintiff to recover from the
defendants jointly and severally the sum of P450, which had been delivered by the plaintiff to the first and
third of the above-named defendants, master and supercargo, respectively, of
a banca named Maria belonging to the second defendant, to be carried, together with various
merchandise belonging to the plaintiff, from the port of Cebu to the town of Catmon of the Province of
Cebu. By virtue of the contract executed between the said second defendant and the plaintiff, the money
and merchandise were to be transported by the said craft between the points above-named in
consideration of the payment of a certain sum for each voyage. The money disappeared from said craft
during the night of October 18, 1911, while it was anchored in the port of Cebu and ready to sail for its
destination, Catmon, and was not afterwards found. The plaintiff based his action on the charge that the
disappearance of said sum was due to the abandonment, negligence, or voluntary breach, on the part of
the defendants, of the duty they had in respect to the safe-keeping of the aforementioned sum.

The defendants, besides denying the allegations of the complaint, pleaded in special defense that the
plaintiff, at his own expense and under his exclusive responsibility, chartered the said banca, the property
of the defendant Lauron, for the fixed period of three days, at the price of P10 per diem, and that, through
the misfortune, negligence, or abandonment of the plaintiff himself, the loss complained of occurred,
while said banca was at anchor in the port of Cebu, and was caused by theft committed by unknown
thieves. They further alleged that said defendant Lauron, the owner of the banca merely placed this craft
at the disposal of the plaintiff for the price and period agreed upon, and did not go with the banca on its
voyage from Catmon to Cebu. As a counterclaim, the defendants also asked that the plaintiff be ordered
to pay the freight agreed upon, which had not yet been paid, amounting to P80, plus the sum of P70, as
an indemnity for the losses and damages caused them by the attachment of the banca, issued at the
instance of the plaintiff upon filing his complaint. They also prayed for the additional sum of P100, for the
deterioration of the said banca, and also that of P200 for other deterioration suffered by the same since
November, 1911, and which had not bee paid for. Finally, the defendants asked to be absolved from the
complaint.

Before commencing the hearing of this case, the defendants made a verbal motion asking that the
plaintiff be declared in default, with respect to the counterclaim filed by them in their answer. On the
same date, the plaintiff presented his answer to said counter claim, denying each and all of the allegations
thereof and of the defendants' special defense. The aforementioned motion was overruled by the court,
and the defendants excepted.

At the termination of the trial, the court, in view of the evidence adduced, held that there was no room to
doubt that the sole cause of the disappearance of the money from the said banca was the negligence of
the master and the supercargo, the defendants Ipil and Solamo, respectively, and that the defendant
Narciso Lauron was responsible for that negligence, as owner of the banca, pursuant to articles 589, 587,
and 618 of the Code of Commerce, the plaintiff therefore being entitled to recover the amount lost.
Judgment was rendered on April 20, 1914, in favor of the plaintiff and against the defendants jointly and
severally for the sum of P450, with interest thereon at the rage of 6 per cent per annum from the date of
filing of the complaint, October 24, 1911, with costs. The plaintiff was absolved from the defendant's
counterclaim. From this judgment the defendants excepted and at the same time moved for a new trial.
Their motion was denied, to which ruling they also excepted, and, through the proper bill of exceptions,
entered and appeal to this Supreme Court. In their brief they allege that the trial court erred:

1. In applying articles 586, 587, and 618 of the Code of Commerce in favor of the plaintiff;

2. In overruling the motion for default presented by the defendants and in sentencing the
defendants jointly and severally to pay the plaintiff the amount mentioned in the judgment; and

3. In absolving the plaintiff from the defendant's counterclaim.

The evidence shows that the plaintiff Yu Con, a merchant and a resident of the town of San Nicolas, of the
city of Cebu, engaged in the sale of cloth and domestic articles and having a share in a shop, or small
store, situated in the town of Catmon, of said province, had several times chartered from the defendant
Narciso Lauron, a banca named Maria belonging to the latter, of which Glicerio Ipil was master and Justo
Solamo, supercargo, for the transportation of certain merchandise and some money to and from the said
town and the port of Cebu, that, on or about the 17th of October, 1911, the plaintiff chartered the
said banca from the defendant Lauron for the transportation of various merchandise from the port of
Cebu to Catmon, at the price of P45 for the round trip, which merchandise was loaded on board the said
craft which was then at anchor in front of one of the graded fills of the wharf of said port; that in the
afternoon of the following day, he delivered to the other two defendants, Ipil, and Solamo, master and
supercargo, respectively, of the afore-named banca, the sum of P450, which was in a trunk belonging to
the plaintiff and was taken charge of by said two defendants, who received this money from the plaintiff,
for the purpose of its delivery to the latter's shop in Catmon for the purchase of corn in this town; that
while the money was still in said truck abroad the vessel, on the night of the said 18th of October, the
time scheduled for the departure of the Maria from the port of Cebu, said master and said supercargo
transferred the P450 from the plaintiff's trunk, where it was, to theirs, which was in a stateroom of
the banca, from which stateroom both the trunk and the money disappeared during that same night, and
that the investigations, made to ascertain their whereabouts, produced no result.

The facts are also admitted by the aforementioned master and supercargo, two of the defendants, that
they received from the plaintiff said P450, which sum was in the latter's own trunk which was placed
outside the stateroom of the banca, for the reason, as they said, that there was no room for it inside the
stateroom; that these defendants therefore transferred said money to their trunk, which was inside the
stateroom, and that this trunk and the P450 therein contained disappeared from the boat during the night
of that same day; that said sum had not been found or returned to the plaintiff; that the plaintiff, being on
the banca in the afternoon of that day, when his trunk containing the P450 was carried aboard, and seeing
that said two defendants, who had the key of the trunk, has removed said sum to their trunk inside the
stateroom, charged them to take special care of the money; that the master Ipil assured the plaintiff that
there was no danger of the money being lost; and that, final, during the night in question, both the
master and the supercargo and four cabin-boys were aboard the banca.
It was likewise proven by the affidavits made by the master Ipil, the supercargo Solamo, and the cabin-
boys of said vessel, Juan Quiamco and Gabriel Basang, before the provincial fiscal of Cebu on the day
following the commission of the theft, which affidavits were presented at the trial as Exhibits A, 3, 4, and 5,
and by the testimony given at the trial by the defendants Ipil and Solamo, that both said cabin-boys and
the other two, Simeon Solamo, and said cabin-boys ad the other two, Simeon Solamo, and Eulalio
Quiamco, knew of the existence of the money in the trunk inside the stateroom and witnessed its removal
to said trunk from the plaintiff's; that the last two cabin- boys above-named, in company with the master
and the supercargo, conveyed the plaintiff's trunk, in which the money was previously contained, from the
plaintiff's shop to the banca; and that no person not belonging to the vessel knew that the money was in
the trunk inside said stateroom.

According to the testimony of the master Ipil himself he slept outside the stateroom that night, but a
cabin-boy named Gabriel slept inside. The latter, however, was not presented by the defendants to be
examined in regard to this point, nor does it appear that he testified in respect thereto in his affidavit,
Exhibit 5, before referred to, presented by the defendant's own counsel. The master Ipil and the
supercargo Solamo also testified that they left the cabin-boy Simeon Solamo on guard that night; but this
affirmation was not corroborated by Solamo at the trial, for he was not introduced as a witness, and only
his affidavit, Exhibit 2, taken before the fiscal of Cebu on the day following the commission of the crime,
was presented by the defendants. This affidavit, which should have been admitted and not rejected, as
was done by the court and excepted to by the defendants, shows that Simeon Solamo stated that he was
not designated to do guard duty that night, but that on the morning of the said 19th of October, that is,
the next day, all agreed that affiant should say that he was on guard, though it was not true that he was.

Finally, said two defendants, the master and the supercargo, gave no satisfactory explanation in regard to
the disappearance of the trunk and the money therein contained, from the stateroom in which the trunk
was, nor as to who stole or might have stolen it. The master of the banca merely testified that they, he and
the supercargo, did to know who the robbers were, for, when the robbery was committed, they were
sound asleep, as they were tired, and that he believed that the guard Simeon also fell asleep because he,
too, was tired. The second defendant gave the same testimony. Both of them testified that the small
window of the stateroom had been broken, and the first of them, i.e., the master, stated that all the
window-blinds had been removed from the windows, as well as part of the partition in which they were,
and that the trunk in which the money was contained could have been passed through said small window,
because, as this witness himself had verified, the Chinaman's trunk, which differed but a little from the one
stolen, could be passed through the same opening. The chief pilot of the harbor of Cebu, Placido Sepeda,
who officially visited the said banca, also stated that the small wooden window of the stateroom was
broken, and that he believed that in breaking it much noise must have been produced. However, no
evidence whatever was offered by counsel for the defendants to prove that it might have been possible to
remove the trunk from the stateroom through the opening made by the breaking of the small window,
neither was the size of the trunk proven, in relation to the Chinaman's to which the defendant master
referred in his testimony, so that it might be verified whether the statement made by the latter was true,
viz., that it might have been possible to remove from the stateroom through said opening the trunk in
which the P450 were contained, which sum, the same as the trunk, its container, had not been found, in
spite of the investigation made for the purpose. Furthermore, it was not proven, nor is there any
circumstantial evidence to show, that the robbery in question was committed by persons not belonging to
the craft.

It is therefore beyond all doubt that the loss or disappearance, on the night aforementioned, of the P450,
the property of the plaintiff, which, were in the possession of the defendants, the master and the
supercargo of the banca Maria, occurred through the manifest fault and negligence of said defendants,
for, not only did they fail to take the necessary precautions in order that the stateroom containing the
trunk in which they kept the money should be properly guarded by members of the crew and put in such
condition that it would be impossible to steal the trunk from it or that persons not belonging to the vessel
might force an entrance into the stateroom from the outside, but also they did not expressly station some
person inside the stateroom for the guarding and safe-keeping of the trunk, for it was not proven that the
cabin-boy Gabriel slept there, as the master of the vessel, Ipil, stated, nor that the other Cabin-boy,
Simeon Solamo, was on guard that night, for the latter contradicted the statements made by the two
defendants on this point. On the contrary, it was proven by the master's own statement that all the people
of the vessel, including himself and the supercargo Solamo, slept soundly that night; which fact cannot, in
any manner, serve them as an excuse, nor can it be accepted as an explanation of the statement that they
were not aware of what was then occuring on board, if the trunk was actually stolen by outsiders and
removed through the small window of the stateroom, a detail which also was not proven, but, on the
contrary, increases their liability, because it is very strange that none of them, who were six and were
around or near the stateroom, should have heard the noise which the robbers must have made in
breaking its window. All of these circumstances, together with that of its having been impossible to know
who took the trunk and the money and the failure to recover the one or the other make the conduct of
the two defendants and of the other members of the crew of banca, eminently supicious and prevent our
holding that the disappearance or loss of the money was due to a fortuitous event, to force majeure, or
that it was an occurrence which could not have been foreseen, or which, if foreseen, was inevitable.

It is unquestionable that the defendants Glicerio Ipil and Justo Solamo were the carriers of the said P450
belonging to the plaintiff, and that they received this sum from the latter for the purpose of delivering it
to the store of the town of Catmon, to which it had been consigned. Under such circumstances, said
defendants were the depositaries of the money.lawphi1.net

Manresa, in his Commentaries on the Civil Code (Vol. 10, p. 773), in treating of the provisions of the said
code concerning transportation by sea and by land of both persons and things, says:

Liability of carriers. In order that a thing may be transported, it must be delivered to the carrier,
as the Code says. From the time it is delivered to the carrier or shipper until it is received by the
consignee, the carrier has it in his possession, as a necessary condition for its transportation, and
is obliged to preserve and guard it; wherefore it is but natural and logical that he should be
responsible for it.

The Code discovers in the relation of all these elements the factors which go to make up the
conception of a trust, and, taking into account that the delivery of the thing on the part of the
shipper is unavoidable, if the transportation is to take place, esteem that, at least in certain
respects, such trusts are necessary.

The said two defendants being the depositaries of the sum in question, and they having failed to exercise
for its safe-keeping the diligence required by the nature of the obligation assumed by them and by the
circumstances of the time and the place, it is evident that, in pursuance of the provisions of articles 1601
and 1602, in their relation to articles 1783 and 1784, and as prescribed in articles 1770, of the Civil Code,
they are liable for its loss or misplacement and must restore it to the plaintiff, together with the
corresponding interest thereon as an indemnity for the losses and damages caused him through the loss
of the said sum.

With respect to the other defendant, Narciso Lauron, as he was the owner of the vessel in which the loss
or misplacement of the P450 occurred, of which vessel, as aforestated, Glicerio Ipil was master and Justo
Solamo, supercargo, both of whom were appointed to, or chosen for, the positions they held, by the
defendant himself, and, as the aforementioned sum was delivered to the said master, Ipil, and the
merchandise to be transported by means of said vessel from the port of Cebu to the town of Catmon was
laden by virtue of a contract executed by and between the plaintiff and the owner of the vessel, Narciso
Lauron, it behooves us to examine whether the latter, also, should be held to be liable, as requested by
the plaintiff in his complaint.

Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the
port of Cebu to Catmon, and had been equipped and victualed for this purpose by its owner, Narciso
Lauron, with whom, as aforesaid, the plaintiff contracted for the transportation of the merchandise which
was to be carried, on the date hereinabove mentioned, from the port of Cebu to the town of Catmon.

For legal purposes, that is, for the determination of the nature and effect of the relations created between
the plaintiff, as owner of the merchandise laden on said craft and of the money that was delivered to the
master, Ipil, and the defendant Lauron, as owner of the craft, the latter was a vessel, according to the
meaning and construction given to the word vessel in the Mercantile Code, in treating of maritime
commerce, under Title 1,
Book 3.
 The word vessel serves to designate every kind of craft by whatever particular or technical name it
may now be known or which nautical advancements may give it in the future. (Commentaries on
the Code of Commerce, in the General Review of Legislation and Jurisprudence, founded by D.
Jose Reus y Garcia, Vol., 2 p. 136.)

According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of craft,
considering solely the hull.

Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the word "ship"
and "vessels," says, in his work aforecited, that these terms designate every kind of craft, large or small,
whether belonging to the merchant marine or to the navy. And referring to their juridical meaning, he
adds: "This does not differ essentially from the grammatical meaning; the words "ship" and "vessel" also
designate every craft, large or small, so long as it be not an accessory of another, such as the small boat of
a vessel, of greater or less tonnage. This definition comprises both the craft intended for ocean or for
coastwise navigation, as well as the floating docks, mud lighters, dredges, dumpscows or any other
floating apparatus used in the service of an industry or in that of maritime commerce. . . ." (Vol. 1, p. 389.)

According to the foregoing definitions, then, we should that the banca called Maria, chartered by the
plaintiff Yu Con from the defendant Narciso Lauron, was a "vessel", pursuant to the meaning this word has
in mercantile law, that is, in accordance with the provisions of the Code of Commerce in force.

Glicerio Ipil, the master of the said banca Maria, must also be considered as its captain, in the legal
acceptation of this word.

The same Code of Commerce in force in these Islands compares, in its article 609, masters with captains. It
is to be noted that in the Code of Commerce of Spain the denomination of arraeces is not included in said
article as equivalent to that of masters, as it is in the Code of these Islands.

Commenting on said article, the aforementioned General Review of Legislation and Jurisprudence says:

The name of captain or master is given, according to the kind of vessel, to the person in charge of
it.

The first denomination is applied to those who govern vessels that navigate the high seas or ships
of large dimensions and importance, although they be engaged in the coastwise trade.

Masters are those who command smaller ships engaged exclusively in the coastwise trade.

For the purposes of maritime commerce, the words "captain" and "master" have the same
meaning; both being the chiefs or commanders of ships. (Vol. 2, p. 168.)

Article 587 of the Code of Commerce in force provides:

The agent shall be civilly liable for the indemnities in favor of third persons which arise from the
conduct of the captain in the care of the goods which the vessel carried; but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the freight he may have
earned during the trip.

Article 618 of the same Code also prescribes:

The captain shall be civilly liable to the agent and the latter to the third persons who may have
made contracts with the former

1. For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence
on his part, If a misdemeanor or crime has been committed he shall be liable in accordance with
the Penal Code.

2. For all the thefts committed by the crew, reserving his right of action against the guilty parties.
The Code of Commerce previous to the one now in force, to wit, that of 1829, in its article 624, provided
that the agent or shipowner should not be liable for any excesses which, during the navigation, might be
committed by the captain and crew, and that, for the reason of such excesses, it was only proper to bring
action against the persons and property of those found guilty.

Estasen, in his work on the Institutes of Mercantile Law (Vol. 4, p. 280), makes the following remarks, in
referring to the exposition of reasons presented by the Code Commission which prepared and presented
for approval the Code of Commerce now in force, in which exposition of reasons were set forth the
fundamental differences between the provisions contained in both codes, with respect to the subject-
matter now under discussion. He says:

Another very important innovation introduced by the Code is that relative to the liability for
misdemeanors and crimes committed by the captain or by members of the crew. This is a matter
of the greatest importance on which a variety of opinions has been expressed by different juris-
consults.

The old code declares the captain civilly liable for all damage sustained by the vessel or its cargo
through lack of skill or care on his part, through violations of the law, or through unlawful acts
committed by the crew. As regards the agent or shipowners, it declares in unmistakeable terms
that he shall in no wise be liable for any excesses which, during the navigation, may be committed
by the captain and the crew.

Upon an examination, in the light of the principles of modern law, of the standing legal doctrine
on the non-liability of the shipowner for the unlawful acts, that is, the crimes or quasi crimes,
committed by the captain and the crew, it is observed that it cannot be maintained in the
absolute and categorical terms in which it is formulated.

It is well and good that the shipowner be not held criminally liable for such crimes or quasi
crimes; but the cannot be excused from liability for the damage and harm which, in consequence
of those acts, may be suffered by the third parties who contracted with the captain, in his double
capacity of agent and subordinate of the shipowner himself. In maritime commerce, the shippers
and passengers in making contracts with the captain do so through the confidence they have in
the shipowner who appointed him; they presume that the owner made a most careful
investigation before appointing him, and, above all, they themselves are unable to make such an
investigation, and even though they should do so, they could not obtain complete security,
inasmuch as the shipowner can, whenever he sees fir, appoint another captain instead.

The shipowner is in the same case with respect to the members of the crew, for, though he does
not appoint directly, yet, expressly or tacitly, he contributes to their appointment.

On the other hand, if the shipowner derives profits from the results of the choice of the captain
and the crew, when the choice turns out successful, it is also just that he should suffer the
consequences of an unsuccessful appointment, by application of the rule of natural law contained
in the Partidas, viz., that he who enjoys the benefits derived from a thing must likewise suffer the
losses that ensue therefrom.

Moreover, the Penal Code contains a general principle that resolves the question under
consideration, for it declares that such persons as undertake and carry on any iondustry shall be
civilly liable, in default of those who may be criminally liable, for the misdemeanors and crimes
committed by their subordinates in the discharge of their duties.

The Code of Commerce in force omits the declaration of non-liability contained in the old code,
and clearly makes the shipowner liable civilly for the loss suffered by those who contracted with
the captain, in consequence of the misdemeanors and crimes committed by the latter or by the
members of the crew.

It is therefore evident that, in accordance with the provisions of the Code of Commerce in force, which are
applicable to the instance case, the defendant Narciso Lauron, as the proprietor and owner of the craft of
which Glicerio Ipil was the master and in which, through the fault and negligence of the latter and of the
supercago Justo Solamo, there occurred the loss, theft, or robbery of the P450 that belonged to the
plaintiff and were delivered to said master and supercargo, a theft which, on the other hand, as shown by
the evidence, does not appear to have been committed by a person not belonging to the craft, should, for
said loss or theft, be held civilly liable to the plaintiff, who executed with said defendant Lauron the
contract for the transportation of the merchandise and money aforementioned between the port of Cebu
and the town of Catmon, by means of the said craft.

Therefore, the trial court did not err in so holding in the judgement appealed from.

The plaintiff having filed his answer to the cross-complaint as soon as the defendant presented their
motion for] a declaration of the plaintiff's default in connection with said cross-complaint, and it being
optional with the court to make in such cases the declaration of default, as provided in section 129 of the
Code of Civil Procedure, the said court did not incur the second error assigned by the appellants in their
brief.

Lastly, as the banca Maria did not make the trip she should have made from the port of Cebu to the town
of Catmon, on the occasion in question, through cases chargeable, as has been seen, to the captain and
the supercargo of said banca, to wit, because of the loss, theft of robbery of the P450 belonging to the
plaintiff, and as a contract was made for the transportation of the said sum and the merchandise from one
of said points to the other, for the round trip, and not through payment by the plaintiff of the wages due
the crew for each day, as alleged by the defendants, for the proofs presented by the latter in regard to
this point were insufficient, as the trial court so held, neither did the latter incur error in overruling the
cross-complaint formulated by the defendants in their answer against the plaintiff.

Therefore, and for all the reasons above set forth, we affirm the judgment appealed from, with the costs
of this instance against the appellants. So ordered.

TEODORO R. YANGCO, ETC., petitioner,

vs.
MANUEL LASERNA, ET AL., respondents.

Claro M. Recto for petitioner.

Powell & Vega for respondents.

MORAN, J.:

At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner
here, Teodoro R. Yangco, left the port of Romblon on its retun trip to Manila. Typhoon signal No. 2 was
then up, of which fact the captain was duly advised and his attention thereto called by the passengers
themselves before the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to
7 inches below the surface of the water. Baggage, trunks and other equipments were heaped on the
upper deck, the hold being packed to capacity. In addition, the vessel carried thirty sacks of crushed
marble and about one hundred sacks of copra and some lumber. The passengers, numbering about 180,
were overcrowded, the vessel's capacity being limited to only 123 passengers. After two hours of sailing,
the boat encountered strong winds and rough seas between the islands of Banton and Simara, and as the
waves splashed the ladies' dresses, the awnings were lowered. As the sea became increasingly violent, the
captain ordered the vessel to turn left, evidently to return to port, but in the manuever, the vessel was
caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers died in the
mishap, among them being Antolin Aldaa and his son Victorioso, husband and son, respectively, of
Emilia Bienvenida who, together with her other children and a brother-in-law, are respondents in G.R. No.
47447; Casiana Laserna, the daughter of respondents Manuel Laserna and P.A. de Laserna in G.R. 47448;
and Genaro Basaa, son of Filomeno Basaa, respondent in G.R. No. 47449. These respondents instituted
in the Court of First Instance of Capiz separate civil actions against petitioner here to recover damages for
the death of the passengers aforementioned. The court awarded the heirs of Antolin and Victorioso
Aldana the sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro Basana, also P590.
After the rendition of the judgment to this effcet, petitioner, by a verified pleading, sought to abandon th
evessel to the plainitffs in the three cases, together with all its equipments, without prejudice to his right
to appeal. The abandonment having been denied, an appeal was taken to the Court of Appeals, wherein
all the judgmnets were affirmed except that which sums was increased to P4,000. Petitioner, now
deceased, appealed and is here represented by his legal representative.

Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent,
notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held
liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this
question is controlled by the provisions of article 587 of the Code of Commerce. Said article reads:

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

The provisions accords a shipowner or agent the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon "the vessel with all her
equipments and the freight it may have earned during the voyage." It is true that the article appears to
deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the
captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in
no way indicates the true extent of such liability. The consensus of authorities is to the effect that
notwithstanding the language of the aforequoted provision, the benefit of limited liability therein
provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on said
article, said:

La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono,
si se atiende a lo escrito, solo se refiere a las indemnizaciones a que dierQe lugar la conducta del
Capitan en la custodia de los efectos que cargo en el buque.

Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades
nacidas de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos
evidente y, para fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de
motivos:

"El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio
maritimo, que quedaran mas asegurados ofreciendo a todo el que contrata con el naviero
o Capitan del buque, la garantia real del mismo, cualesquiera que sean las facultades o
atribuciones de que se hallen investidos." (Echavarri, Codigo de Comercio, Tomo 4, 2. a
ed., pags. 483-484.)

A cursory examination will disclose that the principle of liomited liability of a shipowner or agent is
provided for in but three articles of the Code of Commerce article 587 aforequoted and article 590 and
837. Article 590 merely reiterates the principle embodied in article 587, applies the same principle in cases
of collision, and it has been observed that said article is but "a necessary consequences of the right to
abandon the vessel given to the shipowner in article 587 of the Code, and it is one of the many
superfluities contained in the Code." (Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping
Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only articles 587 and 590 are the provisions conatined
in our Code of Commerce on the matter, and the framers of said code had intended those provisions to
embody the universal principle of limited liability in all cases. Thus, in the "Exposicon de Motivos" of the
Code of Commerce, we read:
 The present code (1829) does not determine the juridical status of the agent where such agent is
not himself the owner of the vessel. This omission is supplied by the proposed code, which
provides in accordance with the principles of maritime law that by agent it is to be understood
the person intrusted with the provisioning of the vessel, or the one who represents her in the port
in which she happens to be. This person is the only one who represents the vessel that is to
say, the only one who represents the interests of the owner of the vessel. This provision has
therefore cleared the doubt which existed as to the extent of the liability, both of the agent and of
the owner of the vessel. Such liability is limited by the proposed code to the value of the vesseland
other things appertaining thereto.

In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in such a
comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi not only
to cases of collision but also to those of shipwrecks, etc. We said:

This is the difference which exists between the lawful acts and lawful obligations of the captain
and the liability which he incurs on account of any unlawful act committed by him. In the first
case, the lawful acts and obligations of the captain beneficial to the vessel may be enforced as
against the agent for the reason that such obligations arise from te the contract of agency
(provided, however, that the captain does not exceed his authority), while as to any liability
incurred by the captain through his unlawful acts, the ship agent is simply subsidiarily civilly liable.
This liability of the agent is limited to the vessel and it does not extend further. For this reason the
Code of Commerce makes the agent liable to the extent of the value of the vessel, as the codes of
the principal maritime nations provide with the vessel, and not individually. Such is also the spirit
of our Code.

The spirit of our code s accurately set forth in a treatise on maritime law, from which we deem
proper to quote the following as the basis of this decision:lawphil.net

"That which distinguishes the maritime from the civil law and even from the mercantile
law in general is the real and hypothecary nature of the former, and the many securities of
a real nature that maritime customs from time immemorial, the laws, the codes, and the
later jurisprudence, have provided for the protection of the various and conflicting
interests which are ventured and risked in maritime expeditions, such as the interests of
the vessel and of the agent, those of the owners of the cargo and consignees, those who
salvage the ship, those who make loans upon the cargo, those of the sailors and
members of the crew as to their wages, and those of a constructor as to repairs made to
the vessel.

"As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2) the
right to retain the cargo and the embargo and detention of the vessel even in cases
where the ordinary civil law would not allow more than a personal action against the
debtor or person liable. It will be observed that these rights are correlative, and naturally
so, because if the agent can exempt himself from liability by abandoning the vessel and
freight money, thus avoiding the possibility of risking his whole fortune in the business, it
is also just that his maritime creditor may for any reason attach the vessel itself to secure
his claim without waiting for a settlement of his rights by a final judgment, even to the
prejudice of a third person.

"This repeals the civil law to such an extent that, in certain cases, where the mortgaged
property is lostno personal action lies against the owner or agent of the vessel. For
instance, where the vessel is lost the sailors and members of the crew cannot recover
their wages; in case of collision, the liability of the agent is limited as aforesaid, and in
case of shipwreck, those who loan their money on the vessel and cargo lose all their
rights and cannot claim reimbursement under the law.

"There are two reasons why it is impossible to do away with these privileges, to wit: (1)
The risk to which the thing is exposed, and (2) the real nature of the maritime law,
exclusively real, according to which the liability of the parties is limited to a thing which is
 at the mercy of the waves. If the agent is only liable with the vessel and freight money
and both may be lost through the accidents of navigation it is only just that the maritime
creditor have some means to obviating this precarious nature of his rights by detaining
the ship, his only security, before it is lost.

"The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the
same would be obliged to respect and recognize are in addition to those existing in
favor of the State by virtue of the privileges which are granted to it by all the laws
pilot, tonnate, and port dues and other similar charges, the wages of the crew earned
during the last voyage as provided in article 646 of the Code of Commerce, salvage dues
under article 842, the indemnification due to the captain of the vessel in case his contract
is terminated on account of the voluntary sale of the ship and the insolvency of the owner
as provided in article 608, and all other liabilities arising from collisions under articles 837
and 838."

We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y Gella,
asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like principle
of limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc., said:

De las responsabilities que pueden resultar como consequencia del comercio maritimo, y no solo
por hechos propios sino tambien por las que se ocasionen por los del capitan y la tripulacion,
responde frente a tercero el naviero que representa el buque; pero el derecho maritimo es sobre
todo tradicional y siguiendo un viejo principio de la Edad Media la responsabilidad del naviero se
organiza de un modo especifico y particularisimo que no encuentra similar en el derecho general
de las obligaciones.

Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era
prestar un propietario su navio para que cargase en el mercancias determinada persona, y se
hiciese a la mar, yendo al frente de la expedicion un patron del buque, que llegado al puerto de
destino se encargaba de venderlas y retornaba al de salida despues de adquirir en aquel otros
efectos que igualmente revendia a su regreso, verificado lo cual los beneficios de la expedicion se
repartian entre el dueo del buque, el cargador y el capitan y tripulantes en la proporcion
estipulada. El derecho maritimo empezo a considerar la asociacion asi formada como una
verdadera sociedad mercantil, de responsabilidad limitada, y de acuerdo con los principios que
gobiernan aquella en los casos de accidentes, abordajes, naufragios, etc., se resolvia que el dueo
del buque perdia la nave, el cargador las mercancias embarcadas y el capitan y la tripulacion su
trabajo, sin que en ningun caso el tercer acreedor pudiese reclamar mayor cantidad de ninguno
de ellos, porque su responsabilidad quedaba limitada a lo que cada uno aporto a la sociedad.
Recogidas estas ideas en el derecho comercial de tiempos posteriores, la responsabilidad del
naviero se edifico sobre aquellos principios, y derogando la norma general civil de que del
cumplimiento de sus obligaciones responde el deudor con todos sus bienes presentes y futuros,
la responsabilidad maritima se considero siempre limitada ipso jure al patrimonio de mar. Y este
es el origen de la regla trascendental de derecho maritimo segun la cual el naviero se libera de
toda responsabilidad abandonando el buque y el flete a favor de los acreedores.

From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:

Ahora bien: hasta donde se extiende esta responsabilidad del naviero? sobre que bienes
pueden los acreedores resarcirse? Esta es otra especialidad del Derecho maritimo; en el Derecho
comun la responsabilidad es limitada; tambien lo era en el antiguo Derecho maritimo romano; es
daba la actio exercitoria contra el exercitor navis sin ninguna restriccion, pero en la Edad Media
una idea nueva se introdujo en los usos maritimos. Las cargas resultantes de las expediciones
maritimas se consideraron limitadas por los propietarios de las naves a los valores
comprometidos por ellos en cada expedicion; se separo ficticiamente el patrimonio de los
navieros en dos partes que todavia se designan de una manera bastante exacta; fortuna de tierra
y fortuna de mar o flotante; y se admitio la teoria de que esta era la que respondia solo de las
deudas provinientes de los actos del capitan o de la tripulacion, es decir, que el conjunto del
patrimonio del naviero escaparia a estas cargas desde el momento en que abandonara la nave y
los fletes a los acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:

La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho comun

de ser responsable todo el que pone al frente de un establecimiento a una persona, de los daos
o perjuicios que ocasionare esta desempeando su cometido, y en que estando facultado el
naviero para la eleccion de capitan de la nave, viene a tener indirectamente culpa en la
negligencia o actos de este que o casionaron daos o perjuicios, puesto que no se aseguro de su
pericia o buena fe. Limitase, sin embargo, la responsabilidad del naviero a la perdida de la nave,
sus aparejos, y fletes devengados durante el viaje; porque no pudiendo vigilar de un modo
directo e inmediato la conducta del capitan, hubiera sido duro hacerla extensiva a todos sus
bienes que podria comprometer el capitan con sus faltas o delitos.

The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4, 259) and
Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be doubted on the
principle. It only remains to be noted that the rule of limited liability provided for in our Code of
Commerce reflects merely, or is but a restatement, imperfect though it is, of the almost universal principle
on the subject. While previously under the civil or common law, the owner of a vessel was liable to the full
amount for damages caused by the misconduct of the master, by the general maritime law of modern
Europe, the liability of the shipowner was subsequently limited to his interest in the vessel. (Norwich & N.
Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British
Parliament upon the liability of Englosh shipowners through a series of statutes beginning in 1734 with
the Act of 7 George II, chapter 15. The legislatures of Massachusetts and Maine followed suit in 1818 and
1821, and finally, Congress enacted the Limited Liability Act of March 3, 1851, embodying most of the
provisions contained in the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised
Statutes (sec. 183, Tit. 46, Code of Laws of U. S. A.) reads:

LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability of the owner of any vessel, for
any embezzlement, loss, or destruction, by any person, of any property, goods, or merchandise,
shipped or put on board of such vessel, or for any loss, damage, or injury by collision, or for any
act, matter or thing, loss, damage, or forfeiture, done, occasioned, or incurred without the privity,
or knowledge of such owner or owners, shall in no case exceed the amount or value of the
interest of such owner in such vessel, and her freight then pending.

The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in
maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v. Williams, 152 U. S. 122;
58 C. J. 634.) And it is in that spirit that the American courts construed the Limited Liability Act of
Congress whereby the immunities of the Act were applied to claims not only for lost goods but also for
injuries and "loss of life of passengers, whether arising under the general law of admiralty, or under
Federal or State statutes." (The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360;
Butler v. Boston & Savannah Steamship Co., 32 Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law.
ed. 836.) The Supreme Court of the United States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20
Law. ed. 585, 589-590, accounting for the history of the principle, clinches our exposition of the
supporting authorities:

The history of the limitation of liability of shipowners is matter of common knowledge. The
learned opinion of Judge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to be
desired on the subject. He shows that it originated in the maritime law of modern Europe; that
whilst the civil, as well as the common law, made the owner responsible to the whole extent of
damage caused by the wrongful act or negligence of the matter or crew, the maritime law only
made then liable (if personally free from blame) to the amount of their interest in the ship. So
that, if they surrendered the ship, they were discharged.

Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if
they thereby incurred the apprehension of being rendered liable to an indefinite amount by the
acts of the master and, therefore, in Holland, they had never observed the Roman Law on that
subject, but had a regulation that the ship owners should be bound no farther than the value of
their ship and freight. His words are: Navis et eorum quae in navi sunt," "the ship and goods
therein." But he is speaking of the owner's interest; and this, as to the cargo, is the freight thereon,
and in that sense he is understood by the commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1,
 p. 276; Book II, c. XI, sec. XIII. The maritime law, as codified in the celebrated French Ordonance de
la Marine, in 1681, expressed the rule thus: 'The proprietors of vessels shall be responsible for the
acts of the master, but they shall be discharged by abandoning the ship and freight.' Valin, in his
commentary on this passage, lib. 2, tit. 8, art. 2, after specifying certain engagements of the
master which are binding on the owners, without any limit of responsibility, such as contracts for
the benefit of the vessel, made during the voyage (except contracts of bottomry) says: "With
these exceptions it is just that the owner should not be bound for the acts of the master, except
to the amount of the ship and freight. Otherwise he would run the risk of being ruined by the bad
faith or negligence of his captain, and the apprehension of this would be fatal to the interests of
navigation. It is quite sufficient that he be exposed to the loss of his ship and of the freight, to
make it his interest, independently of any goods he may have on board to select a reliable
captain." Pardessus says: 'The owner is bound civilly for all delinquencies committed by the
captain within the scope of his authority, but he may discharge himself therefrom by abandoning
the ship and freight; and, if they are lost, it suffices for his discharge, to surrender all claims in
respect of the ship and its freight," such as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec.
2.

The same general doctrine is laid down by many other writers on maritime law. So that it is
evident that, by this law, the owner's liability was coextensive with his interest in the vessel and its
freight, and ceased by his abandonment and surrender of these to the parties sustaining loss.

In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held
civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases
of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a
total loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the
fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De
Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in interisland trade, is a common carrier
(De Villata v. Stanely, 32 Phil., 541), and that the relationship between the petitioner and the passengers
who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach
of contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit
such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not
appear that the vessel was insured.

Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance
with law of not, is immaterial. The vessel having totally perished, any act of abandonment would be an
idle ceremony.

Judgement is reversed and petitioner is hereby absolved of all the complaints, without costs.

CHUA YEK HONG, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR OLIT, respondents.

Francisco D. Estrada for petitioner.

Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner seeks to set aside the Decision of respondent Appellate
Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano Guno, et al.," promulgated on 3 April
1986, reversing the Trial Court and relieving private respondents (defendants below) of any liability for
damages for loss of cargo.

The basic facts are not disputed:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private
respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in coastwise
trade from the different ports of Oriental Mindoro to the Port of Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel "M/V
Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo, however, did not
reach Manila because somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized
and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against private respondents (Civil Case
No. R-3205).

In their Answer, private respondents averred that even assuming that the alleged cargo was truly loaded
aboard their vessel, their liability had been extinguished by reason of the total loss of said vessel.

On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which follows:

WHEREFORE, in view of the foregoing considerations, the court believes and so holds that
the preponderance of evidence militates in favor of the plaintiff and against the
defendants by ordering the latter, jointly and severally, to pay the plaintiff the sum of
P101,227.40 representing the value of the cargo belonging to the plaintiff which was lost
while in the custody of the defendants; P65,550.00 representing miscellaneous expenses
of plaintiff on said lost cargo; attorney's fees in the amount of P5,000.00, and to pay the
costs of suit. (p. 30, Rollo).

On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of the Code of
Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private respondents'
liability, as ship owners, for the loss of the cargo is merely co-extensive with their interest in the vessel
1
such that a total loss thereof results in its extinction. The decretal portion of that Decision reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby

REVERSED, and another one entered dismissing the complaint against defendants-
appellants and absolving them from any and all liabilities arising from the loss of 1,000
sacks of copra belonging to plaintiff-appellee. Costs against appellee.
(p. 19, Rollo).

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has availed of the
present recourse.

The basic issue for resolution is whether or not respondent Appellate Court erred in applying the doctrine
of limited liability under Article 587 of the Code of Commerce as expounded in Yangco vs. Laserna, supra.

Article 587 of the Code of Commerce provides:

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 the equipments and the freight it may have earned during the voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship owner
(Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision, therefore, both the
ship owner and ship agent are civilly and directly liable for the indemnities in favor of third persons, which
may arise from the conduct of the captain in the care of goods transported, as well as for the safety of
passengers transported Yangco vs. Laserna, supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100
Phil. 32 [1956]).

However, under the same Article, this direct liability is moderated and limited by the ship agent's or ship
owner's right of abandonment of the vessel and earned freight. This expresses the universal principle of
limited liability under maritime law. The most fundamental effect of abandonment is the cessation of the
responsibility of the ship agent/owner (Switzerland General Insurance Co., Ltd. vs. Ramirez, L-48264,
February 21, 1980, 96 SCRA 297). It has thus been held that by necessary implication, the ship agent's or
ship owner's liability is confined to that which he is entitled as of right to abandon the vessel with all her
equipment and the freight it may have earned during the voyage," and "to the insurance thereof if any"
(Yangco vs. Lasema, supra). In other words, the ship owner's or agent's liability is merely co-extensive with
his interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no liability"
expresses in a nutshell the limited liability rule. The total destruction of the vessel extinguishes maritime
liens as there is no longer any res to which it can attach (Govt. Insular Maritime Co. vs. The Insular
Maritime, 45 Phil. 805, 807 [1924]).

As this Court held:

If the ship owner or agent may in any way be held civilly liable at all for injury to or death
of passengers arising from the negligence of the captain in cases of collisions or
shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a
total loss thereof results in its extinction. (Yangco vs. Laserna, et al., supra).

The rationale therefor has been explained as follows:

The real and hypothecary nature of the liability of the ship owner or agent embodied in
the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the
prevailing conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these adverse conditions
and to encourage ship building and maritime commerce, it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to the
vessel, equipment, and freight, or insurance, if any, so that if the ship owner or agent
abandoned the ship, equipment, and freight, his liability was extinguished. (Abueg vs. San
Diego, 77 Phil. 730 [1946])

Without the principle of limited liability, a ship owner and investor in maritime commerce
would run the risk of being ruined by the bad faith or negligence of his captain, and the
apprehension of this would be fatal to the interest of navigation." Yangco vs.
Lasema, supra).

As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2) the
right to retain the cargo and the embargo and detention of the vessel even in cases
where the ordinary civil law would not allow more than a personal action against the
debtor or person liable. It will be observed that these rights are correlative, and naturally
so, because if the agent can exempt himself from liability by abandoning the vessel and
freight money, thus avoiding the possibility of risking his whole fortune in the business, it
is also just that his maritime creditor may for any reason attach the vessel itself to secure
his claim without waiting for a settlement of his rights by a final judgment, even to the
prejudice of a third person. (Phil. Shipping Co. vs. Vergara, 6 Phil. 284 [1906]).

The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to a
passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship owner
and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where the vessel is insured; and (3)
in workmen's compensation claims Abueg vs. San Diego, supra). In this case, there is nothing in the
records to show that the loss of the cargo was due to the fault of the private respondent as shipowners, or
to their concurrent negligence with the captain of the vessel.

What about the provisions of the Civil Code on common carriers? Considering the "real and hypothecary
nature" of liability under maritime law, these provisions would not have any effect on the principle of
limited liability for ship owners or ship agents. As was expounded by this Court:

In arriving at this conclusion, the fact is not ignored that the illfated, S.S. Negros, as a
vessel engaged in interisland trade, is a common carrier, and that the relationship
between the petitioner and the passengers who died in the mishap rests on a contract of
carriage. But assuming that petitioner is liable for a breach of contract of carriage, the
exclusively 'real and hypothecary nature of maritime law operates to limit such liability to
the value of the vessel, or to the insurance thereon, if any. In the instant case it does not
appear that the vessel was insured. (Yangco vs. Laserila, et al., supra).

Moreover, Article 1766 of the Civil Code provides:

Art. 1766. In all matters not regulated by this Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special laws.

In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of
Commerce and other special laws are applied. Since the Civil Code contains no provisions regulating
liability of ship owners or agents in the event of total loss or destruction of the vessel, it is the provisions
of the Code of Commerce, more particularly Article 587, that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-extensive
with his interest in the vessel such that a total loss thereof results in its extinction (Yangco vs.
Laserna, supra), and none of the exceptions to the rule on limited liability being present, the liability of
private respondents for the loss of the cargo of copra must be deemed to have been extinguished. There
is no showing that the vessel was insured in this case.

WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.

SO ORDERED.

CHUA YEK HONG, Petitioner, v. INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and
DOMINADOR OLIT, Respondents.

Francisco D. Estrada for Petitioner.

Purita Hontanosas-Cortes for Private Respondents.

SYLLABUS

1. COMMERCIAL LAW; TRANSPORTATION; LIMITED LIABILITY RULE; EXCEPTION. The Appellate Court
Decision, mentions only the ship captain as having been negligent in the performance of his duties. This is
a factual finding binding on this Court. For the exception to the limited liability rule (Article 587, Code of
Commerce) to apply, the loss must be due to the fault of the shipowner, or to the concurring negligence
of the shipowner and the captain. As we held, there is nothing in the records showing such negligence.
2. ID.; CODE OF COMMERCE; REGULATES LIABILITY OF SHIPOWNERS OR AGENTS IN CASE OF TOTAL
LOSS OR DESTRUCTION. The invocation by petitioners of Articles 1733 and 1735 of the Civil Code is
misplaced. As was stated in the Decision sought to be reconsidered, while the primary law governing the
instant case is the Civil Code, in all matters not regulated by said Code, the Code of Commerce and other
special laws shall govern. Since the Civil Code contains no provisions regulating liability of shipowners or
agents in the event of total loss or destruction of the vessel, it is the provisions of the Code of Commerce,
particularly Article 587, that governs.

RESOLUTION

MELENCIO-HERRERA, J.:

Before us is a Motion for Reconsideration of our Decision dated 30 September 1988 affirming the
judgment of the Court of Appeals dismissing the complaint against private respondents and absolving
them from any and all liability arising from the loss of 1000 sacks of copra shipped by petitioner aboard
private respondents vessel. Private respondents filed an opposition thereto.chanroblesvirtualawlibrary

Petitioner argues that this Court failed to consider the Trial Courts finding that the loss of the vessel with
its cargo was due to the fault of the shipowner or to the concurring negligence of the shipowner and the
captain.

The Appellate Court Decision, however, mentions only the ship captain as having been negligent in the
performance of his duties (p. 3, Court of Appeals Decision, p. 15, Rollo). This is a factual finding binding on
this Court. For the exception to the limited liability rule (Article 587, Code of Commerce) to apply, the loss
must be due to the fault of the shipowner, or to the concurring negligence of the shipowner and the
captain. As we held, there is nothing in the records showing such negligence (p. 6, Decision.).

The invocation by petitioners of Articles 1733 and 1735 of the Civil Code is misplaced. As was stated in the
Decision sought to be reconsidered, while the primary law governing the instant case is the Civil Code, in
all matters not regulated by said Code, the Code of Commerce and other special laws shall govern. Since
the Civil Code contains no provisions regulating liability of shipowners or agents in the event of total loss
or destruction of the vessel, it is the provisions of the Code of Commerce, particularly Article 587, that
governs.

Petitioner further contends that the ruling laid down in Eastern Shipping Lines v. IAC, Et. Al. (150 SCRA 464
[1987]) should be made to apply in the instant case. That case, however, involved foreign maritime trade
while the present case involves local inter-island shipping. The environmental set-up in the two cases,
therefore, is not on all fours.chanrobles.com.ph : virtual law library

ACCORDINGLY, petitioners Motion for Reconsideration is hereby DENIED and this denial is FINAL.

SO ORDERED.

HEIRS OF AMPARO DE LOS SANTOS, HEIRS OF ERNANIE DELOS SANTOS, HEIRS OF AMABELLA
DELOS SANTOS, HEIRS OF LENNY DELOS SANTOS, HEIRS OF MELANY DELOS SANTOS, HEIRS OF
TERESA PAMATIAN, HEIRS OF DIEGO SALEM, AND RUBEN REYES, petitioners,
vs.
HONORABLE COURT OF APPEALS AND COMPANIA MARITIMA, respondents.

Severino Z. Macavinta, Jr. for petitioners.

Dinglasan Law Office for private respondent.

MEDIALDEA. J.:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals in CA-G.R. No.
58118-R affirming the decision in Civil Case No. 74593 of the then Court of First Instance (now Regional
Trial Court), Branch XI, Manila which dismissed the petitioners' claim for damages against Compania
Maritima for the injury to and death of the victims as a result of the sinking of M/V Mindoro on
November 4, 1967.

The trial court found the antecedent facts to be as follows:

This is a complaint originally filed on October 21, 1968 (p. 1, rec.) and amended on
October 24, 1968 (p. 16 rec.) by the heirs of Delos Santos and others as pauper litigants
against the Compania Maritima, for damages due to the death of several passengers as a
result of the sinking of the vessel of defendant, the M/V 'Mindoro', on November 4, 1967.

There is no dispute in the record that the M/V 'Mindoro' sailed from pier 8 North Harbor,
Manila, on November 2,1967 at about 2:00 (should have been 6:00 p.m.) in the afternoon
bound for New Washington, Aklan, with many passengers aboard. It appears that said
vessel met typhoon 'Welming' on the Sibuyan Sea, Aklan, at about 5:00 in the morning of
November 4, 1967 causing the death of many of its passengers, although about 136
survived.

Mauricio delos Santos declared that on November 2, 1967 he accompanied his common-
law wife, Amparo delos Santos, and children, namely: Romeo, Josie, Hernani, who was 10
years old, Abella, 7 years old, Maria Lemia, 5 years old and Melany, 5 months old, to pier
8, North Harbor, Manila, to board the M/V Mindoro 'bound for Aklan. It appears that
Amparo delos Santos and the aforesaid children brought all their belongings, including
household utensils valued at P 1,000.00, with the intention of living in Aklan permanently.

As already stated, the boat met typhoon 'Welming' and due to the strong waves it sank
causing the drowning of many passengers among whom were Amparo delos Santos and
all the aforesaid children. It appears also that Teresa Pamatian and Diego Salim, who were
also passengers also drowned. Plaintiff Ruben Reyes was one of the survivors. 'The
plaintiffs presented the birth and death certificates of Amparo delos Santos and the
children (Exhs. 1, I-1, J, J-1, K, K-1, L, L-1, 0 to S, pp. 180 to 194 rec.). They also presented
copies of the manifest of passengers of the M/V 'Mindoro' on November 2,1967 (Exhs. B
& C, pp. 163 to 161 rec.).

Eliadora Crisostomo de Justo, one of the survivors, corroborated the testimony of

Mauricio delos Santos that he accompanied Amparo delos Santos and her children to the
port to board the M/V Mindoro. She is a cousin of Amparo delos Santos' husband.
According to her, when she boarded the second deck of the vessel, she saw about 200
persons therein. She tried to see whether she could be accommodated in the third deck
or first deck because the second deck was very crowded. She admitted that she was not
included in the manifest because she boarded the boat without a ticket, but she
purchased one in the vessel. She testified further that the boat was not able to reach its
destination due to its sinking. During the typhoon before the vessel sunk, she was able to
board a 'balsa'.

Ruben Reyes, the other survivor, declared that he paid for his ticket before boarding the
M/V Mindoro. At that time he had with him personal belongings and cash all in the
amount of P2,900.00. It appears that Felix Reyes Jakusalem, Teresa Pamatian and Amparo
delos Santos drowned during the sinking of the vessel. He was able to swim on (sic) an
island and was with the others, rescued later on and brought to the hospital. The
survivors were then taken ashore (Exh. M, p. 188, rec.).
Dominador Salim declared that Teresa Pamatian, his aunt and Diego Salim, his father,
drowned along with the sinking of the M/V Mindoro. Tins witness declared that he
accompanied both his father and his aunt to the pier to board the boat and at the time
Teresa Pamatian was bringing cash and personal belongings of about P250.00 worth. His
father brought with him P200.00 in cash plus some belongings. He admitted that when
his father boarded the vessel he did not have yet a ticket.

The plaintiffs further submitted in evidence a copy of a Radiogram stating among other
things that the MN Mindoro was loaded also with 3,000 cases of beer, one dump truck
and 292 various goods (Exhs. D and D-1, p. 162 rec).

In alleging negligence on the part of the vessel, plaintiffs introduced in evidence a letter
sent to the Department of Social Welfare concerning the resurvey of the M/V Mindoro
victims (Exh. F, p. 169 rec.) and a telegram to the Social Welfare Administration (Exh. G, p.
170 rec.), a resurvey of the M/V 'Mindoro' victims (Exh. H, p. 171 rec.), a complete list of
the M/V 'Mindoro' victims (Exhs. H-1 to H-8, pp. 172179 rec.), a certified true copy of the
Special Permit to the Compania Maritima issued by the Bureau of Customs limiting the
vessel to only 193 passengers (Exh. X, p. 318 rec.).

It appears that in a decision of the Board of Marine Inquiry, dated February 2, 1970, it was
found that the captain and some officers of the crew were negligent in operating the
vessel and imposed upon them a suspension and/or revocation of their license
certificates. It appears, however, that this decision cannot be executed against the captain
who perished with the vessel (Exhs. E, E-1, E-1-A, E-2 to E-9, pp. 163- 168 rec.).

Upon agreement of the parties, the plaintiffs also introduced in evidence the transcript of
stenographic notes of the testimony of Boanerjes Prado before Branch I of this Court
(Exh. U, pp. 203-220) and that of Felimon Rebano in the same branch (Exh. V, pp. 225-260
rec.).

The defendant alleges that no negligence was ever established and, in fact, the
shipowners and their officers took all the necessary precautions in operating the vessel.
Furthermore, the loss of lives as a result of the drowning of some passengers, including
the relatives of the herein plaintiff, was due to force majeure because of the strong
typhoon 'Welming.' It appears also that there was a note of marine protest in connection
with the sinking of the vessel as substantiated by affidavits (Exhs. 3, 3-A, 3-B, 3-C, 3-D, 3-
E, 3-F and 3-G rec.). On this score Emer Saul, member of the PC Judge Advocate General's
Office, brought to Court records of this case which were referred to their office by the
Board of Marine Inquiry. According to him the decision referred to by the plaintiffs was
appealed to the Department of National Defense, although he did not know the result of
the appeal. At any rate, he knew that the Department of National Defense remanded the
case to the Board of Marine Inquiry for further investigation. In the second indorsement
signed by Efren I. Plana, Undersecretary of National Defense, it is stated, among other
things, that the hearings of the Board of Marine Inquiry wherein the Philippine Coast
Guard made the decision lacked the necessary quorum as required by Section 827 of the
Tariff and Customs Code. Moreover, the decision of the Commandant of the Philippine
Coast Guard relied principally on the findings reached by the Board of Officers after an
ex-parte investigation especially in those aspects unfavorable to the captain (Exh. 1, folder
of exhibits).

It appears also that there were findings and recommendations made by the Board of
Marine Inquiry, dated March 5, 1968, recommending among other things that the captain
of the M/V 'Mindoro,' Felicito Irineo, should be exonerated. Moreover, Captain Irineo
went down with the vessel and his lips are forever sealed and could no longer defend
himself. This body also found that the ship's compliment (sic) and crew were all complete
and the vessel was in seaworthy condition. If the M/V Mindoro' sank, it was through force
majeure (Exhs. 2 & 2-A, folder of exhibits).
 Defendant also introduced in evidence the transcripts of stenographic notes of the
testimony of Francisco Punzalan, marine officer, as well as of Abelardo F. Garcia, Harbor
Pilot in Zamboanga City, in Civil Case No. Q-12473 of Branch XXVIII, Court of First
Instance of Rizal, Quezon City Branch (Exhs. 3-H & 10-H, folder of exhibits), and of Arturo
Ilagan, boat captain, in Civil Case No. Q-1 5962 of Branch V, of the same Court (Exh. 9
folder of exhibits).

It appears that five other vessels left the pier at Manila on November 2, 1967, aside from
the M/V Mindoro' (Exhs 4 & 4-A). A certification of the Weather Bureau indicated the
place of typhoon 'Welming' on November 2, 1967 (Exh. 6). A certification of the shipyard
named El Varadero de Manila stated among other things that the M/V 'Mindoro' was dry-
docked from August 25 to September 6, 1967 and was found to be in a seaworthy
condition (Exh. 5), and that the said M/V 'Mindoro' was duly inspected by the Bureau of
Customs (Exhs. 7, 7-A & 7-B). Another certification was introduced stating among other
things that the Bureau of Customs gave a clearance to the M/V 'Mindoro' after inspection
(Exh. 8 folder of exhibits). (CFI Decision, Records, pp. 468-471)

On the basis of these facts, the trial court sustained the position of private respondent Compania
Maritima (Maritima, for short) and issued a decision on March 27, 1974, to wit:

WHEREFORE, the Court finds that in view of lack of sufficient evidence, the case be, as it is
hereby DISMISSED.

For lack of evidence, the counterclaim is also hereby DISMISSED.

IT IS SO ORDERED. (Records, p. 474)

Forthwith, the petitioners' heirs and Reyes brought an appeal to the Court of Appeals. As earlier
mentioned, the appellate court affirmed the decision on appeal. While it found that there was concurring
negligence on the part of the captain which must be imputable to Maritima, the Court of Appeals ruled
that Maritima cannot be held liable in damages based on the principle of limited liability of the shipowner
or ship agent under Article 587 of the Code of Commerce.

The heirs and Reyes now come to Us with the following assignment of errors:

ERROR I

THE HONORABLE RESPONDENT COURT OF APPEALS ERRED IN NOT CONCENTRATING

TO (sic) THE PROVISION OF LAW IN THE NEW CIVIL CODE AS EXPRESSED) IN,

Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws.

ERROR II

RESPONDENT COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF THE

LOWER COURT OF ORIGIN AFTER FINDING A SERIES OF FAULTS AND NEGLIGENCE AND
IN NOT ORDERING ITS CO-RESPONDENT COMPANIA MARITIMA TO PAY THE DAMAGES
IN ACCORDANCE WITH THE LAW.

ERROR III

THE HONORABLE RESPONDENT COURT OF APPEALS ERRED TO NOTE, OBSERVE AND

COMPREHEND THAT ART. 587 OF THE CODE OF COMMERCE IS ONLY FOR THE
GOODS WHICH THE VESSEL CARRIED AND DO NOT INCLUDE PERSONS. (Rollo, p. 8)
The petition has merit. At the outset, We note that there is no dispute as to the finding of the captain's
negligence in the mishap. The present controversy centers on the questions of Maritima's negligence and
of the application of Article 587 of the Code of Commerce. The said article provides:

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

Under this provision, a shipowner or agent has the right of abandonment; and by necessary implication,
his liability is confined to that which he is entitled as of right to abandon-"the vessel with all her
equipments and the freight it may have earned during the voyage" (Yangco v. Laserna, et al., 73 Phil. 330,
332). Notwithstanding the passage of the New Civil Code, Article 587 of the Code of Commerce is still
good law. The reason lies in the peculiar nature of maritime law which is 94 exclusively real and
hypothecary that operates to limit such liability to the value of the vessel, or to the insurance thereon, if
any (Yangco v. Laserna, Ibid). As correctly stated by the appellate court, "(t)his rule is found necessary to
offset against the innumerable hazards and perils of a sea voyage and to encourage shipbuilding and
marine commerce. (Decision, Rollo, p. 29). Contrary to the petitioners' supposition, the limited liability
doctrine applies not only to the goods but also in all cases like death or injury to passengers wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts of the captain (Yangco v.
Laserna, Ibid). It must be stressed at this point that Article 587 speaks only of situations where the fault or
negligence is committed solely by the captain. In cases where the shipowner is likewise to be blamed,
Article 587 does not apply (see Manila Steamship Co., Inc. v. Abdulhanan, et al., 100 Phil. 32, 38). Such a
situation will be covered by the provisions of the New Civil Code on Common Carriers. Owing to the
nature of their business and for reasons of public policy, common carriers are tasked to observe
extraordinary diligence in the vigilance over the goods and for the safety of its passengers (Article 1733,
New Civil Code). Further, they are bound 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 (Article 1755, New Civil Code). Whenever death or injury to a passenger occurs, common
carriers are presumed to have been at fault or to have acted negligently unless they prove that they
observed extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code).

Guided by the above legal provisions, We painstakingly reviewed the records of the case and found
imprints of Maritima's negligence which compel Us to reverse the conclusion of the appellate court.

Maritima claims that it did not have any information about typhoon 'Welming' until after the boat was
already at sea. Modem technology belie such contention. The Weather Bureau is now equipped with
modern apparatus which enables it to detect any incoming atmospheric disturbances. In his summary
report on tropical cyclone 'Welming' which occurred within the Philippine Area of Responsibility, Dr.
Roman L. Kintanar, Weather Bureau Director, stated that during the periods of November 15, 1967, the
Bureau issued a total of seventeen (17) warnings or advisories of typhoon 'Welming' to shipping
companies. Additionally, he reported that:

By 11:15 a.m. of November lst, or in less than twenty four hours, the storm intensified into
a typhoon. It was by then located at 8.7 N 137.3 E with sea level pressure of 978 millibars,
an eye diameter of about 18.53 kilometers and a maximum surface wind of 139
kilometers per hour. "As it moved along in the open sea, it intensified further and by
11.07 a.m. of November 2, when its center was at 103 N 131.4 E, it had attained surface
winds of about 240 kilometers per hour. ... (Exh. Z, p. 131, Index of Exhibits, p. 11 5,
Emphasis supplied).

Considering the above report and the evidence on record showing the late departure of the ship at 6:00
p.m. (instead of the scheduled 2:00 p.m. departure) on November 2, 1967, We find it highly improbable
that the Weather Bureau had not yet issued any typhoon bulletin at any time during the day to the
shipping companies. Maritima submitted no convincing evidence to show this omission. It's evidence
showing the Weather Bureau's forecast of November 3, 1967 is not persuasive. It merely indicated the
weather bulletin of that day. Nowhere could We find any statement therein from the Weather Bureau that
it had not issued any forecast on November I and 2, 1967 (Exh. 6, Records, p. 257). Significantly, the
appellate court found that the ship's captain through his action showed prior knowledge of the typhoon.
The court said:

... It cannot be true that he was apprised of the typhoon only at about 11:00 o'clock the
following morning on November 3, 1967 when the Weather report was transmitted to
him from the Weather Bureau at which time he plotted its position. For in his radiogram
sent to defendant-appellee's office in Manila as early as 8:07 in the morning of November
3, 1967 (Exh. D) he states in the concluding portion 'still observing weather condition.'
thereby implicitly suggesting that he had known even before departure of the unusual
weather condition. ... (Decision, Rollo, p. 26)

If the captain knew of the typhoon beforehand, it is inconceivable for Maritima to be totally in the dark of
'Welming.' In allowing the ship to depart late from Manila despite the typhoon advisories, Maritima
displayed lack of foresight and minimum concern for the safety of its passengers taking into account the
surrounding circumstances of the case.

While We agree with the appellate court that the captain was negligent for overloading the ship, We,
however, rule that Maritima shares equally in his negligence. We find that while M/V Mindoro was already
cleared by the Bureau of Customs and the Coast Guard for departure at 2:00 p.m. the ship's departure
was, however, delayed for four hours. Maritima could not account for the delay because it neither checked
from the captain the reasons behind the delay nor sent its representative to inquire into the cause of such
delay. It was due to this interim that the appellate court noted that "(i)ndeed there is a great probability
that unmanifested cargo (such as dump truck, 3 toyota cars, steel bars, and 6,000 beer cases) and
passengers (about 241 more than the authorized 193 passengers) were loaded during the four (4) hour
interval" (Decision, p. 13, Rollo, p. 26). Perchance, a closer supervision could have prevented the
overloading of the ship. Maritima could have directed the ship's captain to immediately depart in view of
the fact that as of 11:07 in the morning of November 2, 1967, the typhoon had already attained surface
winds of about 240 kilometers per hour. As the appellate court stated, '(v)erily, if it were not for have
reached (its) destination and this delay, the vessel could thereby have avoided the effects of the storm"
(Decision, Rollo p. 26). This conclusion was buttressed by evidence that another ship, M/V Mangaren, an
interisland vessel, sailed for New Washington, Aklan on November 2, 1967, ahead of M/V Mindoro and
took the same route as the latter but it arrived safely (Exh. BB-2, Index of Exhibits, pp. 143-144 and Exh. 4-
A, Ibid, p. 254).

Maritima presents evidence of the seaworthy condition of the ship prior to its departure to prove that it
exercised extraordinary diligence in this case. M/V Mindoro was drydocked for about a month. Necessary
repairs were made on the ship. Life saving equipment and navigational instruments were installed.

While indeed it is true that all these things were done on the vessel, Maritima, however, could not present
evidence that it specifically installed a radar which could have allowed the vessel to navigate safely for
shelter during a storm. Consequently, the vessel was left at the mercy of ''Welming' in the open sea
because although it was already in the vicinity of the Aklan river, it was unable to enter the mouth of
Aklan River to get into New Washington, Aklan due to darkness and the Floripon Lighthouse at the
entrance of the Aklan River was not functioning or could not be seen at all (Exh. 3-H, Index of Exhibits, p.
192-195; see also Exh. 2-A, Ibid, p. 160). Storms and typhoons are not strange occurrences. In 1967 alone
before 'Welming,' there were about 17 typhoons that hit the country (Exh. M, Index of Exhibits, p. 115), the
latest of which was typhoon Uring which occurred on October 20-25, which cost so much damage to lives
and properties. With the impending threat of 'Welming,' an important device such as the radar could have
enabled the ship to pass through the river and to safety.

The foregoing clearly demonstrates that Maritima's lack of extraordinary diligence coupled with the
negligence of the captain as found by the appellate court were the proximate causes of the sinking of
M/V Mindoro.

Hence, Maritima is liable for the deaths and injury of the victims. amount of With the above finding, We
now come to the damages due to the petitioners. Ordinarily, We would remand the case to the trial court
for the reception of evidence. Considering however, that this case has been pending for almost twenty-
three (23) years now and that since all the evidence had already been presented by both parties and
received by the trial court, We resolve to decide the corresponding damages due to petitioners (see Samal
v. Court of Appeals, 99 Phil. 230; Del Castillo v. Jaymalin, L-28256, March 17, 1982, 112 SCRA 629).

In their complaint filed with the Court of First Instance, petitioners prayed for moral, actual and exemplary
damages, as well as for attorney's fees plus costs.

Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the death
of a passenger caused by the breach of contract by a common carrier is at least three thousand pesos
(P3,000.00). The prevailing jurisprudence has increased the amount of P3,000.00 to P30,000.00 (De Lima v.
Laguna Tayabas Co., L-35697-99, April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the
civil indemnity of P30,000.00 to the heirs of each of the victims. For mental anguish suffered due to the
deaths of their relatives, Maritima should also pay to the heirs the sum of P10,000.00 each as moral
damages.

In addition, it was proven at the trial that at the time of death, (1) Amparo delos Santos had with her cash
in the sum of P1,000.00 and personal belongings valued at P500.00; (2) Teresa Pamatian, cash in the sum
of P250.00 and personal belongings worth P200.00; and (3) Diego Salem, cash in the sum of P200.00 and
personal belongings valued at P100.00. Likewise, it was established that the heirs of Amparo delos Santos
and her deceased children incurred transportation and incidental expenses in connection with the trial of
this case in the amount of P500.00 while Dominador Salem, son of victim Diego Salem and nephew of
victim Teresa Pamatian spent about P100.00 for expenses at the trial. With respect to petitioner Reyes, the
evidence shows that at the time of the disaster, he had in his possession cash in the sum of P2,900.00 and
personal belongings worth P100.00. Further, due to the disaster, Reyes was unable to work for three
months due to shock and he was earning P9.50 a day or in a total sum of P855.00. Also, he spent about
P100.00 for court expenses. For such losses and incidental expenses at the trial of this case, Maritima
should pay the aforestated amounts to the petitioners as actual damages.

Reyes' claim for moral damages cannot be granted inasmuch as the same is not recoverable in damage
action based on the breach of contract of transportation under Articles 2219 and 2220 of the New Civil
Code except (1) where the mishap resulted in the death of a passenger and (2) where it is proved that the
carrier was guilty of fraud or bad faith, even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109
Phil. 712). The exceptions do not apply in this case since Reyes survived the incident and no evidence was
presented to show that Maritima was guilty of bad faith. Mere carelessness of the carrier does not per se
constitute or justify an inference of malice or bad faith on its part (Rex Taxicab Co., Inc. v. Bautista, supra).

Anent the claim for exemplary damages, We are not inclined to grant the same in the absence of gross or
reckless negligence in this case.

As regards the claim for attorney's fees, the records reveal that the petitioners engaged the services of a
lawyer and agreed to pay the sum of P 3,000.00 each on a contingent basis (see TSN'S, July 21, 1971, p.
24; November 3, 1971, pp. 18 and 29). In view hereof, We find the sum of P 10,000.00 as a reasonable
compensation for the legal services rendered.

ACCORDINGLY, the appealed decision is hereby REVERSED and judgment is hereby rendered sentencing
the private respondent to pay the following: (1) P30,000.00 as indemnity for death to the heirs of each of
the victims; (2) P10,000.00 as moral damages to the heirs of each of the victims; (3) P6,805.00 as actual
damages divided among the petitioners as follows: heirs of Amparo Delos Santos and her deceased
children, P2,000.00; heirs of Teresa Pamatian, P450.00; heirs of Diego Salem, P400.00; and Ruben Reyes,
P2,955.00; (4) P10,000.00 as attorney's fees; and (5) the costs.

SO ORDERED.
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 toforce 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 maxim stare 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.
ABOITIZ SHIPPING CORPORATION, Petitioner,
vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.

DECISION

QUISUMBING, J.:

1
For review on certiorari are the Decision dated August 29, 2002 of the Court of Appeals in CA-G.R. CV No.
2
28770 and its Resolution dated January 23, 2003 denying reconsideration. The Court of Appeals affirmed
3
the Decision dated November 20, 1989 of the Regional Trial Court of Manila in Civil Case No. 82-1475, in
favor of respondent New India Assurance Company, Ltd.

This petition stemmed from the action for damages against petitioner, Aboitiz Shipping Corporation,
arising from the sinking of its vessel, M/V P. Aboitiz, on October 31, 1980.

The pertinent facts are as follows:

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on board a
vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to General Textile, Inc., in Manila
and insured by respondent New India Assurance Company, Ltd. While in Hongkong, the cargo was
4
transferred to M/V P. Aboitiz for transshipment to Manila.

Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to travel
5
to its destination. But while at sea, the vessel received a report of a typhoon moving within its general
path. To avoid the typhoon, the vessel changed its course. However, it was still at the fringe of the
typhoon when its hull leaked. On October 31, 1980, the vessel sank, but the captain and his crew were
saved.

On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind force
was at 10 to 15 knots at the time the ship foundered and described the weather as "moderate breeze,
6
small waves, becoming longer, fairly frequent white horses."

7
Thereafter, petitioner notified the consignee, General Textile, of the total loss of the vessel and all of its
cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent paid
8
General Textile and was subrogated to the rights of the latter.

Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the sinking. In its
9
report, the surveyor concluded that the cause was the flooding of the holds brought about by the vessels
questionable seaworthiness. Consequently, respondent filed a complaint for damages against petitioner
Aboitiz, Franco-Belgian Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged
that the proximate cause of the loss of the shipment was the fault or negligence of the master and crew of
the vessel, its unseaworthiness, and the failure of defendants therein to exercise extraordinary diligence in
the transport of the goods. Hence, respondent added, defendants therein breached their contract of
10
carriage. 1avvphil.net

Franco-Belgian Services and Zuellig responded, claiming that they exercised extraordinary diligence in
handling the shipment while it was in their possession; its vessel was seaworthy; and the proximate cause
of the loss of cargo was a fortuitous event. They also filed a cross-claim against petitioner alleging that
the loss occurred during the transshipment with petitioner and so liability should rest with petitioner.

For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged that the sinking
of M/V P. Aboitiz was due to an unforeseen event and without fault or negligence on its part. It also
alleged that in accordance with the real and hypothecary nature of maritime law, the sinking of M/V P.
11
Aboitiz extinguished its liability on the loss of the cargoes.

Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to determine whether the
captain and crew were administratively liable. However, petitioner neither informed respondent nor the
trial court of the investigation. The BMI exonerated the captain and crew of any administrative liability;
and declared the vessel seaworthy and concluded that the sinking was due to the vessels exposure to the
approaching typhoon.

On November 20, 1989, the trial court, citing the Court of Appeals decision in General Accident Fire and
12
Life Assurance Corporation v. Aboitiz Shipping Corporation involving the same incident, ruled in favor of
respondent. It held petitioner liable for the total value of the lost cargo plus legal interest, thus:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of New India and against
Aboitiz ordering the latter to pay unto the former the amount of P142,401.60, plus legal interest thereon
until the same is fully paid, attorneys fees equivalent to fifteen [percent] (15%) of the total amount due
and the costs of suit.

The complaint with respect to Franco and Zuellig is dismissed and their counterclaim against New India is
likewise dismissed

13
SO ORDERED. 1avvphil.net

Petitioner elevated the case to the Court of Appeals and presented the findings of the BMI. However, on
August 29, 2002, the appellate court affirmed in toto the trial courts decision. It held that the proceedings
before the BMI was only for the administrative liability of the captain and crew, and was unilateral in
nature, hence not binding on the courts. Petitioner moved for reconsideration but the same was denied
on January 23, 2003.

Hence, this petition for review, alleging that the Court of Appeals gravely erred in:

I.

x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON THE APPLICATION OF THE
RULE ON LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837 OF THE CODE OF COMMERCE TO CASES
INVOLVING THE SINKING OF THE M/V "P. ABOITIZ;

A.

x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO., INC. ET AL. V. COURT
OF APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORPORATION, LTD.;

B.

x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER
ARTICLES 587, 590 AND 837 OF THE CODE OF COMMERCE HAD BEEN CONSIDERED AND PASSED UPON
IN ITS DECISION;

II.

x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRO-RATA SHARES IN THE
14
INSURANCE PROCEEDS FROM THE SINKING OF THE M/V "P. ABOITIZ".

Stated simply, we are asked to resolve whether the limited liability doctrine, which limits respondents
award of damages to its pro-rata share in the insurance proceeds, applies in this case.
 15
Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, contends that respondents claim for
damages should only be against the insurance proceeds and limited to its pro-rata share in view of the
doctrine of limited liability.

Respondent counters that the doctrine of real and hypothecary nature of maritime law is not applicable in
the present case because petitioner was found to have been negligent. Hence, according to respondent,
petitioner should be held liable for the total value of the lost cargo.

It bears stressing that this Court has variedly applied the doctrine of limited liability to the same incident
the sinking of M/V P. Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to settle the conflicting
pronouncements of this Court relative to the sinking of M/V P. Aboitiz. In Monarch, we said that the
16
sinking of the vessel was not due to force majeure, but to its unseaworthy condition. Therein, we found
17
petitioner concurrently negligent with the captain and crew. But the Court stressed that the
18
circumstances therein still made the doctrine of limited liability applicable.

Our ruling in Monarch may appear inconsistent with the exception of the limited liability doctrine, as
explicitly stated in the earlier part of the Monarch decision. An exception to the limited liability doctrine is
when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner
19
and the captain. In which case, the shipowner shall be liable to the full-extent of the damage. We thus
find it necessary to clarify now the applicability here of the decision in Monarch.

From the nature of their business and for reasons of public policy, common carriers are bound to observe
20
extraordinary diligence over the goods they transport according to all the circumstances of each case. In
the event of loss, destruction or deterioration of the insured goods, common carriers are responsible,
unless they can prove that the loss, destruction or deterioration was brought about by the causes
21
specified in Article 1734 of the Civil Code. In all other cases, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
22
diligence. Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be
negligent since it is tasked with the maintenance of its vessel. Though this duty can be delegated, still, the
23
shipowner must exercise close supervision over its men.

In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in the
transport of the goods it had on board in order to invoke the limited liability doctrine. Differently put, to
limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving that the
unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence presented
and the circumstances obtaining in this case, we find that petitioner failed to discharge this burden. It
initially attributed the sinking to the typhoon and relied on the BMI findings that it was not at fault.
However, both the trial and the appellate courts, in this case, found that the sinking was not due to the
typhoon but to its unseaworthiness. Evidence on record showed that the weather was moderate when the
vessel sank. These factual findings of the Court of Appeals, affirming those of the trial court are not to be
disturbed on appeal, but must be accorded great weight. These findings are conclusive not only on the
24
parties but on this Court as well.

25
In contrast, the findings of the BMI are not deemed always binding on the courts. Besides, exoneration
26
of the vessels officers and crew by the BMI merely concerns their respective administrative liabilities. It
does not in any way operate to absolve the common carrier from its civil liabilities arising from its failure
27
to exercise extraordinary diligence, the determination of which properly belongs to the courts.

Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability
28
cannot be applied. Therefore, we agree with the appellate court in sustaining the trial courts ruling that
petitioner is liable for the total value of the lost cargo.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August 29, 2002 and Resolution
dated January 23, 2003 of the Court of Appeals in CA-G.R. CV No. 28770 are AFFIRMED.

Costs against petitioner.

SO ORDERED.
PHIL-NIPPON KYOEI, CORP., Petitioner,
vs.
ROSALIA T. GUDELOSAO, on her behalf and in behalf of minor children CHRISTY MAE T.
GUDELOSAO and ROSE ELDEN T. GUDELOSAO, CARMEN TANCONTIAN, on her behalf and in behalf
of the children CAMELA B. TANCONTIAN, BEVERLY B. TANCONTIAN, and ACE B.
TANCONTIAN, Respondents.

DECISION

JARDELEZA, J.:

1
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court filed by Phil-Nippon
2
Kyoei, Corp. (Petitioner) from the Decision of the Court of Appeals (CA) dated October 4, 2007 (CA
3
Decision) and its Resolution dated January 11, 2008 in CA-G.R. SP No. 95456. The CA reinstated the Labor
4
Arbiter's Decision dated August 5, 2004 (LA Decision) with the modification, among others, that petitioner
is liable to respondents under the insurance cover it procured from South Sea Surety & Insurance Co., Inc.
(SSSICI). The CA ruled that petitioner's liability would be extinguished only upon payment by SSSICI of the
5
insurance proceeds to respondents.

Facts

Petitioner, a domestic shipping corporation, purchased a "Ro-Ro" passenger/cargo vessel "MV Mahlia" in
6
Japan in February 2003. For the vessel's one month conduction voyage from Japan to the Philippines,
petitioner, as local principal, and Top Ever Marine Management Maritime Co., Ltd. (TMCL), as foreign
principal, hired Edwin C. Gudelosao, Virgilio A. Tancontian, and six other crewmembers. They were hired
through the local manning agency of TMCL, Top Ever Marine Management Philippine Corporation
(TEMMPC). TEMMPC, through their president and general manager, Capt. Oscar Orbeta (Capt. Orbeta),
and the eight crewmembers signed separate contracts of employment. Petitioner secured a Marine
Insurance Policy (Maritime Policy No. 00001) from SSSICI over the vessel for P10,800,000.00 against loss,
damage, and third party liability or expense, arising from the occurrence of the perils of the sea for the
voyage of the vessel from Onomichi, Japan to Batangas, Philippines. This Marine Insurance Policy included
Personal Accident Policies for the eight crewmembers for P3,240,000.00 each in case of accidental death
7
or injury.

On February 24, 2003, while still within Japanese waters, the vessel sank due to extreme bad weather
condition. Only Chief Engineer Nilo Macasling survived the incident while the rest of the crewmembers,
8
including Gudelosao and Tancontian, perished.

Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate complaints for death
benefits and other damages against petitioner, TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with the
9
Arbitration Branch of the National Labor Relations Commission (NLRC).

10
On August 5, 2004, Labor Arbiter (LA) Pablo S. Magat rendered a Decision finding solidary liability
among petitioner, TEMMPC, TMCL and Capt. Orbeta. The LA also found SSSICI liable to the respondents
for the proceeds of the Personal Accident Policies and attorney's fees. The LA, however, ruled that the
liability of petitioner shall be deemed extinguished only upon SSSICI's payment of the insurance proceeds.
The dispositive portion of the LA Decision reads:

WHEREFORE, premises considered, CAPT. OSCAR ORBETA, [TEMMPC], [TMCL], and PHIL-NIPPON
KYOEI CORPORATION are hereby directed to pay solidarily the complainants as follows:
 Death Benefits Burial Expenses 10% atty's [fees]

1. ROSALIA T. GUDELOSAO: US$50,000 US$1,000 US$5,100

2. CARMEN B. TANCONTIAN: US$50,000 US$1,000 US$5,100

3. CARMELA B. TANCONTIAN: US$7,000 US$700

4. BEVERLY B. TANCONTIAN: US$7,000 US$700

5. ACE B. TANCONTIAN: US$7,000 US$700

Further, respondent SOUTH SEA SURETY & INSURANCE CO., INC. is hereby directed to pay as
beneficiaries complainants ROSALIA T. GUDELOSAO and CARMEN B. TANCONTIAN[P]3,240,000.00
each for the proceeds of the Personal Accident Policy Cover it issued for each of the deceased seafarers
EDWIN C. GUDELOSAO and VIRGILIO A. T ANCONTIAN plus 10% attorney's fees thereof at [P]324,000.00
each thereof or a total of [P]648,000.00.

Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA SURETY &
INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all the complainants is
deemed extinguished.

Any other claim is hereby dismissed for lack of merit.

11
SO ORDERED.

12
On appeal, the NLRC modified the LA Decision in a Resolution dated February 28, 2006, the dispositive
portion of which reads:

WHEREFORE, premises considered, the Appeals of Complainants and PNKC are GRANTED but only
partially in the case of Complainants' Appeal, and the Appeal of [SSSICI] is DISMISSED for lack of merit.
Accordingly, the Decision is SUSTAINED subject to the modification that [SSSICI] is DIRECTED to pay
Complainants in addition to their awarded claims, in the appealed decision, additional death benefits of
US$7,000 each to the minor children of Complainant Gudelosao, namely, Christy Mae T. Gudelosao and
Rose Elden T. Gudelosao.

As regards the other issues, the appealed Decision is SUSTAINED.

13
SO ORDERED.

The NLRC absolved petitioner, TEMMPC and TMCL and Capt. Orbeta from any liability based on the
14
limited liability rule. It, however, affirmed SSSICI's liability after finding that the Personal Accident Policies
answer for the death benefit claims under the Philippine Overseas Employment Administration Standard
15
Employment Contract (POEASEC). Respondents filed a Partial Motion for Reconsideration which the
16
NLRC denied in a Resolution dated May 5, 2006.

17
Respondents filed a petition for certiorari before the CA where they argued that the NLRC gravely
abused its discretion in ruling that TEMMPC, TMCL, and Capt. Orbeta are absolved from the terms and
conditions of the POEA-SEC by virtue of the limited liability rule. Respondents also argued that the NLRC
gravely abused its discretion in ruling that the obligation to pay the surviving heirs rests solely on SSSICI.
The CA granted the petition, the dispositive portion thereof reads:

WHEREFORE for being impressed with merit the petition is hereby GRANTED. Accordingly, the Resolution
dated February 28, 2006, and Resolution, dated May 5, 2006, of the public respondent NLRC are
hereby SET ASIDE. The Decision of the Labor Arbiter dated [August 5, 2004] is REINSTATED, subject to
the following modifications:

(1) [R]espondents CAPT. OSCAR ORBETA, [TEMMPC] and [TMCL] (the manning agency), are hereby
directed to pay solidarily the complainants as follows:
 Death Benefits Burial Expenses 10% atty's fees

ROSALIA T. GUDELOSAO: US$50,000 US$1,000 US$5,1OO

CARMEN B. TANCONTIAN: US$50,000 US$1,000 US$5,1OO

CARMELA B. TANCONTIAN: US$7,000 US$700

BEVERLY B. TANCONTIAN: US$7,000 US$700

ACE B. TANCONTIAN: US$7,000 US$700

Further, [respondents] CAPT. OSCAR ORBETA, [TEMMPC] and [TMCL] (the manning agency) are hereby
directed to pay solidarily the complainants in addition to their awarded claims, additional death benefits
of US$7,000 each to the minor children of petitioner Rosalia T. Gudelosao, namely, Christy Mae T.
Gudelosao and Rose Elden T. Gudelosao.

Respondent SOUTH SEA SURETY & INSURANCE CO., INC. is hereby directed to pay as beneficiaries
complainants ROSALIA T. GUDELOSAO and CARMEN B. TANCONTIAN [P]3,240,000.00 each for the
proceeds of the Personal Accident Policy Cover it issued for each of the deceased seafarers EDWIN C.
GUDELOSAO and VIRGILIO A. TANCONTIAN plus 10% attorney's fees thereof at [P]324,000.00 each
thereof or a total of [P]648,000.00.

Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA SURETY &
INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all the complainants is
deemed extinguished.

18
SO ORDERED.

The CA found that the NLRC erred when it ruled that the obligation of petitioner, TEMMPC and TMCL for
the payment of death benefits under the POEA-SEC was ipso facto transferred to SSSICI upon the death of
the seafarers. TEMMPC and TMCL cannot raise the defense of the total loss of the ship because its liability
19
under POEA-SEC is separate and distinct from the liability of the shipowner. To disregard the contract,
which has the force of law between the parties, would defeat the purpose of the Labor Code and the rules
and regulations issued by the Department of Labor and Employment (DOLE) in setting the minimum
20
terms and conditions of employment for the protection of Filipino seamen. The CA noted that the
benefits being claimed are not dependent upon whether there is total loss of the vessel, because the
21
liability attaches even if the vessel did not sink. Thus, it was error for the NLRC to absolve TEMMPC and
TMCL on the basis of the limited liability rule.

Significantly though, the CA ruled that petitioner is not liable under the POEA-SEC, but by virtue of its
22
being a shipowner. Thus, petitioner is liable for the injuries to passengers even without a determination
of its fault or negligence.1wphi1 It is for this reason that petitioner obtained insurance from SSSICI - to
protect itself against the consequences of a total loss of the vessel caused by the perils of the sea.
Consequently, SSSICI's liability as petitioner's insurer directly arose from the contract of insurance against
23
liability (i.e., Personal Accident Policy). The CA then ordered that petitioner's liability will only be
24
extinguished upon payment by SSSICI of the insurance proceeds.

25
Petitioner filed a Motion for Reconsideration dated November 5, 2007 but this was denied by the CA in
26
its Resolution dated January 11, 2008. On the other hand, since SSSICI did not file a motion for
27
reconsideration of the CA Decision, the CA issued a Partial Entry of Judgment stating that the decision
became final and executory as to SSSICI on October 27, 2007.

Hence, this petition where petitioner claims that the CA erred in ignoring the fundamental rule in
Maritime Law that the shipowner may exempt itself from liability by abandoning the vessel and freight it
may have earned during the voyage, and the proceeds of the insurance if any. Since the liability of the
shipowner is limited to the value of the vessel unless there is insurance, any claim against petitioner is
limited to the proceeds arising from the insurance policies procured from SSSICI. Thus, there is no reason
in making petitioner's exoneration from liability conditional on SSSICI's payment of the insurance
proceeds.
 28
On December 8, 2008, TEMMPC filed its Manifestation informing us of TEMMPC and TMCL's Joint
29
Motion to Dismiss the Petition and the CA's Resolution dated January 11, 2008 granting it. The dismissal
30
is based on the execution of the Release of All Rights and Full Satisfaction Claim (Release and Quitclaim)
on December 14, 2007 between respondents and TEMMPC, TMCL, and Capt. Orbeta. In a
31
Resolution dated January 28, 2009, we noted that TEMMPC, TMCL, and Capt. Orbeta will no longer
comment on the Petition.

32
On the other hand, SSSICI filed its Comment to the petition dated September 3, 2010. It alleged that the
NLRC has no jurisdiction over the insurance claim because claims on the Personal Accident Policies did
not arise from employer-employee relations. It also alleged that petitioner filed a complaint for sum of
33
money in the Regional Trial Court (RTC) of Manila, Branch 46, where it prays for the payment of the
insurance proceeds on the individual Marine Insurance Policy with a Personal Accident Policy covering the
34
crewmembers of MV Mahlia. This case was eventually dismissed and is now subject of an appeal before
35
the CA. SSSICI prays that this matter be considered in resolving the present case.

Issues

I. Whether the doctrine of real and hypothecary nature of maritime law (also known as the limited liability
rule) applies in favor of petitioner.

II. Whether the CA erred in ruling that the liability of petitioner is extinguished only upon SSSICI's
payment of insurance proceeds.

Discussion

I. Liability under the POEA

Standard Employment Contract.

At the outset, the CA erred in absolving petitioner from the liabilities under the POEA-SEC. Petitioner was
the local principal of the deceased seafarers for the conduction trip of MV Mahlia. Petitioner hired them
through TMCL, which also acted through its agent, TEMMPC. Petitioner admitted its role as a principal of
36 37
its agents TMCL, TEMMPC and Capt. Orbeta in their Joint Partial Appeal before the NLRC. As such, it is
solidarily liable with TEMMPC and TMCL for the benefits under the POEA-SEC.

Doctrine of limited liability is not

applicable to claims under POEA-SEC.

In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the
Code of Commerce, viz:

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

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

Each part-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 the shipowners in the cases prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances and freightage earned during
the voyage.

Article 83 7 applies the limited liability rule in cases of collision. Meanwhile, Articles 587 and 590 embody
the universal principle of limited liability in all cases wherein the shipowner or agent may be properly held
38
liable for the negligent or illicit acts of the captain. These articles precisely intend to limit the liability of
the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage,
39
provided that the owner or agent abandons the vessel. When the vessel is totally lost, in which case
abandonment is not required because there is no vessel to abandon, the liability of the shipowner or
40
agent for damages is extinguished. Nonetheless, the limited liability rule is not absolute and is without
exceptions. It does not apply in cases: (1) where the injury or death to a passenger is due either to the
fault of the shipowner, or to the concurring negligence of the shipowner and the captain; (2) where the
41
vessel is insured; and (3) in workmen's compensation claims.

42
In Abueg v. San Diego, we ruled that the limited liability rule found in the Code of Commerce is
inapplicable in a liability created by statute to compensate employees and laborers, or the heirs and
dependents, in cases of injury received by or inflicted upon them while engaged in the performance of
their work or employment, to wit:

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of
the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship,
equipment, and freight, his liability was extinguished.

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of,
a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the
loss of the ship as a result of collision; nor the responsibility for wages of the crew, but a liability created
by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them,
while engaged in the performance of their work or employment, or the heirs and dependents of such
laborers and employees in the event of death caused by their employment. Such compensation has
nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in
the cost of production which must be included in the budget of any well-managed
43
industry. (Underscoring supplied.)

We see no reason why the above doctrine should not apply here.

44
Act No. 3428, otherwise known as The Workmen's Compensation Act is the first law on workmen's
compensation in the Philippines for work-related injury, illness, or death. This was repealed on November
45
1, 1974 by the Labor Code, and was further amended on December 27, 1974 by Presidential Decree No.
46
626. The pertinent provisions are now found in Title II, Book IV of the Labor Code on Employees
Compensation and State Insurance Fund.

The death benefits granted under Title II, Book IV of the Labor Code are similar to the death benefits
47
granted under the POEA-SEC. Specifically, its Section 20(A)(l) and (4)(c) provides that:

1. In case of work-related death of the seafarer, during the term of his contract the employer shall pay his
beneficiaries the Philippine Currency equivalent to the amount of Fifty Thousand US dollars (US$50,000)
and an additional amount of Seven Thousand US dollars (US$7,000) to each child under the age of
twenty-one (21) but not exceeding four (4) children, at the exchange rate prevailing during the time of
payment.

xxx

4. The other liabilities of the employer when the seafarer dies as a result of work-related injury or illness
during the term of employment are as follows:

xxx
c. The employer shall pay the beneficiaries of the seafarer the [Philippine] currency equivalent to the
amount of One Thousand US dollars (US$1,000) for burial expenses at the exchange rate prevailing during
the time of payment.

Akin to the death benefits under the Labor Code, these benefits under the POEA-SEC are given when the
48
employee dies due to a work-related cause during the term of his contract. The liability of the shipowner
or agent under the POEA-SEC has likewise nothing to do with the provisions of the Code of Commerce
regarding maritime commerce. The death benefits granted under the POEA-SEC is not due to the death of
a passenger by or through the misconduct of the captain or master of the ship; nor is it the liability for the
loss of the ship as result of collision; nor the liability for wages of the crew. It is a liability created by
contract between the seafarers and their employers, but secured through the State's intervention as a
matter of constitutional and statutory duty to protect Filipino overseas workers and to secure for them the
best terms and conditions possible, in order to compensate the seafarers' heirs and dependents in the
event of death while engaged in the performance of their work or employment. The POEA-SEC prescribes
the set of standard provisions established and implemented by the POEA containing the minimum
requirements prescribed by the government for the employment of Filipino seafarers. While it is
contractual in nature, the POEA-SEC is designed primarily for the protection and benefit of Filipino
49
seamen in the pursuit of their employment on board ocean-going vessels. As such, it is deemed
50
incorporated in every Filipino seafarers' contract of employment. It is established pursuant to POEA's
power "to secure the best terms and conditions of employment of Filipino contract workers and ensure
51
compliance therewith" and "to protect the well-being of Filipino workers overseas" pursuant to Article
52 53
17 of the Labor Code as amended by Executive Order (EO) Nos. 797 and 247.

But while the nature of death benefits under the Labor Code and the POEA-SEC are similar, the death
benefits under the POEA-SEC are intended to be separate and distinct from, and in addition to, whatever
benefits the seafarer is entitled to under Philippine laws, including those benefits which may be claimed
54
from the State Insurance Fund.

Thus, the claim for death benefits under the POEA-SEC is the same species as the workmen's
compensation claims under the Labor Code both of which belong to a different realm from that of
Maritime Law. Therefore, the limited liability rule does not apply to petitioner's liability under the POEA-
SEC.

Nevertheless, the Release and Quitclaim benefit petitioner as a solidary debtor.

All the same, the Release and Quitclaim executed between TEMMPC, TMCL and Capt. Oscar Orbeta, and
respondents redounded to the benefit of petitioner as a solidary debtor.

Petitioner is solidarily liable with TEMMPC and TMCL for the death benefits under the POEA-SEC. The
basis of the solidary liability of the principal with the local manning agent is found in the second
55
paragraph of Section 10 of the Migrant Workers and Overseas Filipino Act of 1995, which, in part,
provides: "[t]he liability of the principal/employer and the recruitment/placement agency for any and all
claims under this section shall be joint and several." This provision, is in tum, implemented by Section 1
(e)(8), Rule 2, Part II of the POEA Rules and Regulations Governing the Recruitment and Employment of
Seafarers, which requires the undertaking of the manning agency to "[a]ssume joint and solidary liability
with the employer for all claims and liabilities which may arise in connection with the implementation of
the employment contract [and POEA-SEC]."

We have consistently applied the Civil Code provisions on solidary obligations, specifically Articles
56 57 58 59
1217 and 1222, to labor cases. We explained in Varorient Shipping Co., Inc. v. NLRC the nature of the
solidary liability in labor cases, to wit:

x x x The POEA Rules holds her, as a corporate officer, solidarily liable with the local licensed manning
agency. Her liability is inseparable from those of Varorient and Lagoa. If anyone of them is held liable then
all of them would be liable for the same obligation. Each of the solidary debtors, insofar as the
creditor/s is/are concerned, is the debtor of the entire amount; it is only with respect to his co-
debtors that he/she is liable to the extent of his/her share in the obligation. Such being the case,
the Civil Code allows each solidary debtor, in actions filed by the creditor/s, to avail himself of all
defenses which are derived from the nature of the obligation and of those which are personal to
him, or pertaining to his share. He may also avail of those defenses personally belonging to his co-
debtors, but only to the extent of their share in the debt. Thus, Varorient may set up all the defenses
pertaining to Colarina and Lagoa; whereas Colarina and Lagoa are liable only to the extent to which
Varorient may be found liable by the court. The complaint against Varorient, Lagoa and Colarina is
founded on a common cause of action; hence, the defense or the appeal by anyone of these solidary
debtors would redound to the benefit of the others.

xxx

x x x If Varorient were to be found liable and made to pay pursuant thereto, the entire obligation would
already be extinguished even if no attempt was made to enforce the judgment against Colarina.
Because there existed a common cause of action against the three solidary obligors, as the acts and
omissions imputed against them are one and the same, an ultimate finding that Varorient was not
liable would, under these circumstances, logically imply a similar exoneration from liability for
60
Colarina and Lagoa, whether or not they interposed any defense. (Emphasis supplied.)

Thus, the rule is that the release of one solidary debtor redounds to the benefit of the
61
others. Considering that petitioner is solidarily liable with TEMMPC and TMCL, we hold that the Release
and Quitclaim executed by respondents in favor of TEMMPC and TMCL redounded to petitioner's benefit.
Accordingly, the liabilities of petitioner under Section 20(A)(l) and (4)(c) of the POEA-SEC to respondents
are now deemed extinguished. We emphasize, however, that this pronouncement does not foreclose the
right of reimbursement of the solidary debtors who paid (i.e., TEMMPC and TMCL) from petitioner as their
co-debtor.

II. Liability under the Personal

Accident Policies.

The NLRC has jurisdiction over the

claim on the Personal Accident
Policies.

We find that the CA correctly upheld the NLRC's jurisdiction to order SSSICI to pay respondents the value
of the proceeds of the Personal Accident Policies.

The Migrant Workers and Overseas Filipinos Act of 1995 gives the Labor Arbiters of the NLRC the original
and exclusive jurisdiction over claims arising out of an employer-employee relationship or by virtue of any
law or contract involving Filipino workers for overseas deployment, including claims for actual, moral,
exemplary and other forms of damage. It further creates a joint and several liability among the principal or
employer, and the recruitment/placement agency, for any and all claims involving Filipino workers, viz:

SEC. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of
the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction
to hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims
arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino
workers for overseas deployment including claims for actual, moral, exemplary and other forms of
damages. Consistent with this mandate, the NLRC shall endeavor to update and keep abreast with the
developments in the global services industry.

The liability of the principal/employer and the recruitment/placement agency for any and all claims under
this section shall be joint and several. This provision shall be incorporated in the contract for overseas
employment and shall be a condition precedent for its approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be answerable for all money claims or damages
that may be awarded to the workers. If the recruitment/placement agency is a juridical being, the
corporate officers and directors and partners as the case may be, shall themselves be jointly and solidarily
liable with the corporation or partnership for the aforesaid claims and damages. x x x (Emphasis supplied.)
 62
In Finman General Assurance Corp. v. Inocencio, we upheld the jurisdiction of the POEA to determine a
surety's liability under its bond. We ruled that the adjudicatory power to do so is not vested with the
Insurance Commission exclusively. The POEA (now the NLRC) is vested with quasi-judicial powers over all
cases, including money claims, involving employer-employee relations arising out of or by virtue of any
63
law or contract involving Filipino workers for overseas employment. Here, the award of the insurance
proceeds arose out of the personal accident insurance procured by petitioner as the local principal over
the deceased seafarers who were Filipino overseas workers. The premiums paid by petitioner were, in
64
actuality, part of the total compensation paid for the services of the crewmembers. Put differently, the
labor of the employees is the true source of the benefits which are a form of additional compensation to
them. Undeniably, such claim on the personal accident cover is a claim under an insurance
contract involving Filipino workers for overseas deployment within the jurisdiction of the NLRC.

It must also be noted that the amendment under Section 37-A of the Migrant Workers and Overseas
Filipinos Act of 1995 on Compulsory Insurance Coverage does not apply.1wphi1 The amendment
requires the claimant to bring any question or dispute in the enforcement of any insurance policy before
the Insurance Commission for mediation or adjudication. The amendment, however, took effect on May 8,
2010 long after the Personal Accident Policies in this case were procured in 2003. Accordingly, the NLRC
has jurisdiction over the claim for proceeds under the Personal Accident Policies.

In any event, SSSICI can no longer assail its liability under the Personal Accident Policies. SSSICI failed to
file a motion for reconsideration on the CA Decision. In a Resolution dated April 24, 2008, the CA certified
in a Partial Entry of Judgment that the CA Decision with respect to SSSICI has become final and executory
65
and is recorded in the Book of Entries of Judgments. A decision that has acquired finality becomes
immutable and unalterable. This quality of immutability precludes the modification of a final judgment,
even if the modification is meant to correct erroneous conclusions of fact and law. This holds true whether
the modification is made by the court that rendered it or by the highest court in the land. Thus, SSSICI's
liability on the Personal Accident Policies can no longer be disturbed in this petition.

SSSICI 's liability as insurer under the

Personal Accident Policies is direct.

We, however, find that the CA erred in ruling that "upon payment of [the insurance] proceeds to said
widows by respondent SOUTH SEA SURETY & INSURANCE CO., INC., respondent PHIL-NIPPON
66
CORPORATION's liability to all the complainants is deemed extinguished."

This ruling makes petitioner's liability conditional upon SSSICI's payment of the insurance proceeds. In
doing so, the CA determined that the Personal Accident Policies are casualty insurance, specifically one of
liability insurance. The CA determined that petitioner, as insured, procured from SSSICI the Personal
Accident Policies in order to protect itself from the consequences of the total loss of the vessel caused by
the perils of the sea. The CA found that the liabilities insured against are all monetary claims, excluding
the benefits under the POEA-SEC, of respondents in connection with the sinking of the vessel.

We rule that while the Personal Accident Policies are casualty insurance, they do not answer for
petitioner's liabilities arising from the sinking of the vessel. It is an indemnity insurance procured by
petitioner for the benefit of the seafarers. As a result, petitioner is not directly liable to pay under the
policies because it is merely the policyholder of the Personal Accident Policies.

67
Section 176 (formerly Sec. 174) of The Insurance Code defines casualty insurance as follows:

SEC. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within
the scope of other types of insurance such as fire or marine. It includes, but is not limited to,
employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and
other substantially similar kinds of

insurance. (Emphasis supplied.)

Based on Section 176, casualty insurance may cover liability or loss arising from accident or
mishap.1wphi1 In a liability insurance, the insurer assumes the obligation to pay third party in whose
68
favor the liability of the insured arises. On the other hand, personal accident insurance refers to
69
insurance against death or injury by accident or accidental means. In an accidental death policy, the
70
accident causing the death is the thing insured against.

Notably, the parties did not submit the Personal Accident Policies with the NLRC or the CA. However,
based on the pleadings submitted by the parties, SSSICI admitted that the crewmembers of MV Mahlia
71
are insured for the amount of P3,240,000.00, payable upon the accidental death of the crewmembers. It
further admitted that the insured risk is the loss of life or bodily injury brought about by the violent
72
external event or accidental means. Based on the foregoing, the insurer itself admits that what is being
insured against is not the liability of the shipowner for death or injuries to passengers but the death of the
seafarers arising from accident.

73
The liability of SSSICI to the beneficiaries is direct under the insurance contract. Under the contract,
petitioner is the policyholder, with SSSICI as the insurer, the crewmembers as the cestui que vie or the
74
person whose life is being insured with another as beneficiary of the proceeds, and the latter's heirs as
beneficiaries of the policies. Upon petitioner's payment of the premiums intended as additional
compensation to the crewmembers, SSSICI as insurer undertook to indemnify the crewmembers'
75
beneficiaries from an unknown or contingent event. Thus, when the CA conditioned the extinguishment
of petitioner's liability on SSSICI's payment of the Personal Accident Policies' proceeds, it made a finding
that petitioner is subsidiarily liable for the face value of the policies. To reiterate, however, there is no
basis for such finding; there is no obligation on the part of petitioner to pay the insurance proceeds
because petitioner is, in fact, the obligee or policyholder in the Personal Accident Policies. Since petitioner
is not the party liable for the value of the insurance proceeds, it follows that the limited liability rule does
not apply as well.

One final note. Petitioner's claim that the limited liability rule and its corresponding exception (i.e., where
the vessel is insured) apply here is irrelevant because petitioner was not found liable under tort or quasi-
delict. Moreover, the insurance proceeds contemplated under the exception in the case of a lost vessel are
76
the insurance over the vessel and pending freightage for the particular voyage. It is not the insurance in
favor of the seafarers, the proceeds of which are intended for their beneficiaries. Thus, if ever petitioner is
liable for the value of the insurance proceeds under tort or quasi-delict, it would be from the Marine
Insurance Policy over the vessel and not from the Personal Accident Policies over the seafarers.

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated October 4, 2007 and the
Resolution dated January 11, 2008 of the Court of Appeals are AFFIRMED WITH THE FOLLOWING
MODIFICATIONS:

(1) The death benefits are limited to the amount granted under the Release of All Rights and Full
Satisfaction of Claim dated December 14, 2007 executed between respondents and Top Ever Marine
Management Company Ltd., Top Ever Marine Management Philippine Corporation, and Captain Oscar Or
beta;

(2) As a solidary co-debtor, petitioner's liability to respondents under the POEA-SEC is also extinguished
by virtue of the Release of All Rights and Full Satisfaction of Claim dated December 14, 2007; and

(3) The last paragraph of the dispositive portion of the CA Decision dated October 4, 2007 stating:
"Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA SURETY &
INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all the complainants is
deemed extinguished ... " is DELETED.

SO ORDERED.
G.R. No. 160088 July 13, 2011

AGUSTIN P. DELA TORRE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION, RAMON "BOY"
LARRAZABAL, PHILIPPINE TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA
TORRE, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 160565

PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA TORRE, Petitioners,

vs.
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON "BOY"
LARRAZABAL, Respondents.

DECISION

MENDOZA, J.:

1
These consolidated petitions for review on certiorari seek to reverse and set aside the September 30,
2 3
2002 Decision and September 18, 2003 Resolution of the Court of Appeals (CA) in CA-G.R. CV No.
4
36035, affirming in toto the July 10, 1991 Decision of the Regional Trial Court, Branch 60, Angeles City
(RTC). The RTC Decision in Civil Case No. 4609, an action for Sum of Money and Damages, ordered the
defendants, jointly and severally, to pay various damages to the plaintiff.

The Facts:

Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with the
5
Philippine Coast Guard. On February 1, 1984, Concepcion entered into a "Preliminary Agreement" with
Roland de la Torre (Roland) for the dry-docking and repairs of the said vessel as well as for its charter
6
afterwards. Under this agreement, Concepcion agreed that after the dry-docking and repair of LCT-
Josephine, it "should" be chartered for 10,000.00 per month with the following conditions:

1. The CHARTERER will be the one to pay the insurance premium of the vessel

2. The vessel will be used once every three (3) months for a maximum period of two (2) weeks

3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by
the FIRST PARTY (referring to Roland) for the maximum period of two (2) years

4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel.
[Underscoring Supplied]

7
On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation (PTSC), represented by
8
Roland, entered into a "Contract of Agreement," wherein the latter would charter LCT-Josephine
retroactive to May 1, 1984, under the following conditions:

a. Chartered amount of the vessel 20,000.00 per month effective May 1, 1984;

j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the
vessel and the balance shall be paid every month in the amount of 10,000.00, to be deducted
from the rental amount of the vessel;
 k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY
(PTSC/ Roland) has the option for first priority to purchase the vessel. If the SECOND PARTY
(PTSC/Roland) refuses the offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY
(PTSC/Roland) enough time to turn over the vessel so as not to disrupt previous commitments;

l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of
the SECOND PARTY (PTSC/Roland) decide to stop operating;

m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such termination of contract;

n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY
(PTSC/Roland); (Underscoring Supplied]

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single
9
proprietorship owned by Rolands father, Agustin de la Torre (Agustin). The following are the terms and
10
conditions of that "Contract of Agreement:"

a. Chartered amount of the vessel 30,000.00 per month effective August, 1984;

b. Downpayment of the 50% upon signing of the contract and the balance every end of the
month;

c. Any cost for the additional equipment to be installed on the vessel will be borne by the FIRST
PARTY (PTSC/ Roland) and the cost of the equipment will be deductible from the monthly rental
of the vessel;

d. In the event the vessel is grounded or other [force majeure] that will make the vessel non-
opera[xx]ble, the rental of the vessel shall be suspended from the start until the vessel will be
considered operational;

e. The cost for the dry-docking and/or repair of vessel shall not exceed 200,000.00, any excess
shall be borne by the SECOND PARTY (TSL/Agustin);

f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the
duration of the usage;

g. All cost for the necessary repair of the vessel shall be on the account of the SECOND PARTY
(TSL/Agustin);

h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the event
the SECOND PARTY (TSL/Agustin) decides to stop operating;

j. The FIRST PARTY (PTSC/Roland) will terminate the services of all vessels crew and the SECOND
PARTY (TSL/Agustin) shall have the right to replace and rehire the crew of the vessel.

k. Insurance premium of the vessel will be divided equally between the FIRST PARTY
(PTSC/Rolando) and the SECOND PARTY (TSL/ Agustin). [Underscoring supplied]

On November 22, 1984, TSL, this time represented by Roland per Agustins Special Power of
11
Attorney, sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo
12
consisting of sand and gravel to Leyte. The following were agreed upon in that contract, to wit:

1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the SECOND
PARTY (Larrazabal) for and in consideration on the sum of FIVE THOUSAND FIVE HUNDRED (
5,500.00) PESOS, Philippine currency per day charter with the following terms and conditions.

2. That the CHARTERER should pay 2,000.00 as standby pay even that will made (sic) the vessel
non-opera[xx]ble cause[d] by natur[al] circumstances.
 3. That the CHARTERER will supply the consumed crude oil and lube oil per charter day.

4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and
unloading of cargo load on the vessel.

5. That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of
contract.

6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in advance
and the balance should be paid weekly. [Underscoring Supplied]

On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel,
Leyte. The vessel was beached near the NDC Wharf. With the vessels ramp already lowered, the
unloading of the vessels cargo began with the use of Larrazabals payloader. While the payloader was on
the deck of the LCT-Josephine scooping a load of the cargo, the vessels ramp started to move downward,
13
the vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephine sank.

Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that
14
negotiations were underway for the refloating of his vessel. Unfortunately, this did not materialize.

For this reason, Concepcion was constrained to institute a complaint for "Sum of Money and Damages"
against PTSC and Roland before the RTC. PTSC and Roland filed their answer together with a third-party
complaint against Agustin. Agustin, in turn, filed his answer plus a fourth-party complaint against
Larrazabal. The latter filed his answer and counterclaim but was subsequently declared in default by the
15
RTC. Eventually, the fourth-party complaint against Larrazabal was dismissed when the RTC rendered its
16
decision in favor of Concepcion on July 10, 1991. In said RTC decision, the following observations were
written:

The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show: (1) that the payloader
was used to unload the cargo of sand and gravel; (2) that the payloader had to go inside the vessel and
scoop up a load; (3) that the ramp according to Roland de la Torre, "was not properly put into peak (sic)
such that the front line will touch the bottom, particularly will touch the sea x x x"; (4) that "the tires (of the
payloader) will be submerged to (sic) the sea"; (5) that according to Sungayan "the ramp of the vessel was
moving down"; (6) that the payloader had to be maneuvered by its operator who dumped the load at the
side of the vessel; (7) that the dumping of the load changed the stability of the vessel and tilted it to the
starboard side; and (8) that the tilting caused the sliding of the cargo toward that side and opened the
17
manhole through which seawater rushed in.

Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin, also
admitted at the trial that it was TSL/Agustin, through its crew, who was in-charge of LCT-Josephines
operations although the responsibility of loading and unloading the cargo was under Larrazabal. Thus, the
RTC declared that the "efficient cause of the sinking of the LCT-JOSEPHINE was the improper lowering or
positioning of the ramp," which was well within the charge or responsibility of the captain and crew of the
18
vessel. The fallo of the RTC Decision reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

1. The defendants, Philippine Trigon Shipping Corporation and Roland de la Torre, and the third-
party defendant, Agustin de la Torre, shall pay the plaintiff, jointly and severally, the sum of EIGHT
HUNDRED FORTY-ONE THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND EIGHTY SIX
CENTAVOS ( 841,386.86) as the value of the LCT JOSEPHINE with interest thereon at the legal
rate of 6% per annum from the date of demand, that is from March 14, 1985, the date when
counsel for the defendant Philippine Trigon Shipyard Corporation answered the demand of the
plaintiff, until fully paid;

2. The defendants, Philippine Trigon Shipyard Corporation and Roland de la Torre, shall pay to the
plaintiff the sum of NINETY THOUSAND PESOS ( 90,000.00) as unpaid rentals for the period from
May 1, 1984, to November, 1984, and the sum of ONE HUNDRED SEVENTY THOUSAND PESOS (
 170,000.00) as lost rentals from December, 1984, to April 30, 1986, with interest on both amounts
at the rate of 6% per annum also from demand on March 14, 1985, until fully paid;

3. The defendants and the third-party defendant shall likewise pay to the plaintiff jointly and
severally the sum of TWENTY-FIVE THOUSAND PESOS ( 25,000.00) as professional fee of
plaintiffs counsel plus FIVE HUNDRED PESOS ( 500.00) per appearance of said counsel in
connection with actual trial of this case, the number of such appearances to be determined from
the records of this case;

4. The defendants counterclaim for the unpaid balance of plaintiffs obligation for the dry-
docking and repair of the vessel LCT JOSEPHINE in the amount of TWENTY-FOUR THOUSAND
THREE HUNDRED FOUR PESOS AND THIRTY-FIVE CENTAVOS ( 24,304.35), being valid, shall be
deducted from the unpaid rentals, with interest on the said unpaid balance at the rate of 6% per
annum from the date of the filing of the counter-claim on March 31, 1986;

5. The counter-claim of the defendants in all other respects, for lack of merit, is hereby
DISMISSED;

6. The fourth-party complaint against the fourth-party defendant, Ramon Larrazabal, being
without basis, is likewise DISMISSED; and

7. The defendants and third-party defendant shall pay the costs.

19
SO ORDERED.

Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in agreement with the findings
of the RTC, affirmed its decision in toto.

Still not in conformity with the CA findings against them, Agustin, PTSC and Roland came to this Court
through these petitions for review. In G.R. No. 160088, petitioner Agustin raises the following issues:

AGUSTINS STATEMENT OF THE ISSUES

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF THE SINKING OF
LCT JOSEPHINE IS THE NEGLIGENCE OF THE PETITIONER (Agustin) AND THE RESPONDENTS
TRIGON (PTSC) AND DE LA TORRE (Roland).

II

THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON LARRAZABAL AS

SOLELY LIABLE FOR THE LOSS AND SINKING OF LCT JOSEPHINE.

III

THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN TAKING JUDICIAL NOTICE
OF THE CHARACTERISTICS OF THE LCT JOSEPHINE AND PAYLOADER WITHOUT INFORMING THE
PARTIES OF THEIR INTENTION.

IV

THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND SOLIDARILY LIABLE
WITH THE RESPONDENTS TRIGON AND DE LA TORRE DESPITE THE FACT THAT SUCH KIND OF
LIABILITY IS NOT DULY ALLEGED IN THE COMPLAINT OF RESPONDENT CONCEPCION AND NOT
ONE OF THE ISSUES TRIED BY THE PARTIES.

V
 THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED ON CULPA
CONTRACTUAL.

VI

THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER FROM LIABILITY BASED ON
THE LIMITED LIABILITY RULE.

VII

THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE CODE OF
20
COMMERCE ON THE LIABILITY OF THE SHIP CAPTAIN.

On the other hand, in G.R. No. 160565, PTSC and Roland submit the following issues:

PTSC and ROLANDS STATEMENT OF THE ISSUES

I.

DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE PROVISIONS OF THE CIVIL
CODE OF THE PHILIPPINES PARTICULARLY ON CONTRACTS, LEASE, QUASI-DELICT AND
DAMAGES INSTEAD OF THE PROVISIONS OF THE CODE OF COMMERCE ON MARITIME
COMMERCE IN ADJUDGING PETITIONERS LIABLE TO PRIVATE RESPONDENT CONCEPCION.

II.

DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE FINDINGS OF FACT OF
THE TRIAL COURT.

III.

DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR IN EXCESS OF ITS JURISDICTION IN APPRECIATING THE FACTS OF THE
CASE.

IV.

DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS JOINTLY AND

SEVERALLY LIABLE WITH RESPONDENT AGUSTIN DE LA TORRE, ERRxx WHEN IT MADE FINDINGS
OF FACT AND CONCLUSIONS OF LAW WHICH ARE BEYOND THE ISSUES SET FORTH AND
21
CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE PARTIES.

From the foregoing, the issues raised in the two petitions can be categorized as: (1) those referring to the
factual milieu of the case; (2) those concerning the applicability of the Code of Commerce, more
specifically, the Limited Liability Rule; and (3) the question on the solidary liability of the petitioners.

As regards the issues requiring a review of the factual findings of the trial court, the Court finds no
compelling reason to deviate from the rule that findings of fact of a trial judge, especially when affirmed
22
by the appellate court, are binding before this Court. The CA, in reviewing the findings of the RTC, made
these observations:

We are not persuaded that the trial Court finding should be set aside. The Court a quo sifted through the
records and arrived at the fact that clearly, there was improper lowering or positioning of the ramp, which
was not at "peak," according to de la Torre and "moving down" according to Sungayan when the
payloader entered and scooped up a load of sand and gravel. Because of this, the payloader was in
danger of being lost (submerged) and caused Larrazabal to order the operator to go back into the vessel,
according to de la Torres version, or back off to the shore, per Sungayan. Whichever it was, the fact
remains that the ramp was unsteady (moving) and compelled action to save the payloader from
submerging, especially because of the conformation of the sea and the shore. x x x.

xxx

The contract executed on June 20, 1984, between plaintiff-appellee and defendants-appellants showed
that the services of the crew of the owner of the vessel were terminated. This allowed the charterer,
defendants-appellants, to employ their own. The sub-charter contract between defendants-appellants
Philippine Trigon Shipyard Corp. and third-party defendant-appellant Trigon Shipping Lines showed
similar provision where the crew of Philippine Trigon had to be terminated or rehired by Trigon Shipping
Lines. As to the agreement with fourth-party Larrazabal, it is silent on who would hire the crew of the
vessel. Clearly, the crew manning the vessel when it sunk belonged to third-party defendant-appellant.
Hubart Sungayan, the acting Chief Mate, testified that he was hired by Agustin de la Torre, who in turn
admitted to hiring the crew. The actions of fourth-party defendant, Larrazabal and his payloader operator
23
did not include the operation of docking where the problem arose. [Underscoring supplied]

Similarly, the Court has examined the records at hand and completely agree with the CA that the factual
findings of the RTC are in order.

With respect to petitioners position that the Limited Liability Rule under the Code of Commerce should
be applied to them, the argument is misplaced. The said rule has been explained to be that of the real and
hypothecary doctrine in maritime law where the shipowner or ship agents liability is held as merely co-
24
extensive with his interest in the vessel such that a total loss thereof results in its extinction. In this
jurisdiction, this rule is provided in three articles of the Code of Commerce. These are:

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

---

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

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

---

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

Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to
abandon the vessel given to the shipowner or ship agent under the first provision Article 587. Similarly,
Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-owned by
25
several persons. Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce is
Article 587. Now, the latter is quite clear on which indemnities may be confined or restricted to the value
of the vessel pursuant to the said Rule, and these are 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." Thus,
what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent or
even the charterer in case of demise or bareboat charter.

The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the
Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense. In
26
Yangco v. Laserna, this Court, through Justice Moran, wrote:
The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in
maritime commerce.

x x x.

Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they
thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the
27
master, x x x.

28
Later, in the case of Monarch Insurance Co., Inc. v. CA, this Court, this time through Justice Sabino R. De
Leon, Jr., again explained:

No vessel, no liability, expresses in a nutshell the limited liability rule. The shipowners or agents liability
is merely coextensive with his interest in the vessel such that a total loss thereof results in its extinction.
The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which
it can attach. This doctrine is based on the real and hypothecary nature of maritime law which has its
origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage
shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or
29
agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any.

In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be supported
and encouraged to pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability
Rule against him who, in the first place, should be the one benefitting from the said rule. In distinguishing
the rights between the charterer and the shipowner, the case of Yueng Sheng Exchange and Trading Co. v.
30
Urrutia & Co. is most enlightening. In that case, no less than Chief Justice Arellano wrote:

The whole ground of this assignment of errors rests on the proposition advanced by the appellant
company that the charterer of a vessel, under the conditions stipulated in the charter party in question, is
the owner pro hac vice of the ship and takes upon himself the responsibilities of the owner.

xxx

If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of the Cebu, then they
must respond for the damages claimed, because the owner and the agent are civilly responsible for the
acts of the captain.

But G. Urrutia & Co. could not in any way exercise the powers or rights of an agent. They could not
represent the ownership of the vessel, nor could they, in their own name and in such capacity, take judicial
or extrajudicial steps in all that relates to commerce; thus if the Cebu were attached, they would have no
legal capacity to proceed to secure its release; speaking generally, not even the fines could or ought to be
paid by them, unless such fines were occasioned by their orders. x x x.

The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia & Co., as charterers of
the vessel, did not put the latter in the place of the former, nor make them agents of the owner or owners
of the vessel. With relation to those agents, they retained opposing rights derived from the charter party
of the vessel, and at no time could they be regarded by the third parties, or by the authorities, or by the
courts, as being in the place of the owners or the agents in matters relating to the responsibilities
31
pertaining to the ownership and possession of the vessel. x x x.

In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step into
the shoes of the shipowner or even the ship agent because there remains conflicting rights between the
former and the real shipowner as derived from their charter agreement. The Court again quotes Chief
Justice Arellano:

Their (the charterers) possession was, therefore, the uncertain title of lease, not a possession of the
owner, such as is that of the agent, who is fully subrogated to the place of the owner in regard to the
32
dominion, possession, free administration, and navigation of the vessel.
Therefore, even if the contract is for a bareboat or demise charter where possession, free administration
and even navigation are temporarily surrendered to the charterer, dominion over the vessel remains with
the shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the former,
can never set up the Limited Liability Rule against the very owner of the vessel. Borrowing the words of
Chief Justice Artemio V. Panganiban, "Indeed, where the reason for the rule ceases, the rule itself does not
33
apply."

The Court now comes to the issue of the liability of the charterer and the sub-charterer.

In the present case, the charterer and the sub-charterer through their respective contracts of
agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The vessel was
likewise manned by the charterer and later by the sub-charterers people. With the complete and
exclusive relinquishment of possession, command and navigation of the vessel, the charterer and later the
sub-charterer became the vessels owner pro hac vice. Now, and in the absence of any showing that
the vessel or any part thereof was commercially offered for use to the public, the above
agreements/charter parties are that of a private carriage where the rights of the contracting parties are
34
primarily defined and governed by the stipulations in their contract.

Although certain statutory rights and obligations of charter parties are found in the Code of Commerce,
these provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none
of the provisions found in the Code of Commerce deals with the specific rights and obligations between
the real shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil
35
Code to supply the deficiency. Thus, the RTC and the CA were both correct in applying the statutory
provisions of the New Civil Code in order to define the respective rights and obligations of the opposing
parties.

Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion for
36
the dry-docking and repair of LCT-Josephine, is liable under Article 1189 of the New Civil Code. There is
no denying that the vessel was not returned to Concepcion after the repairs because of the provision in
the Preliminary Agreement that the same "should" be used by Roland for the first two years. Before the
vessel could be returned, it was lost due to the negligence of Agustin to whom Roland chose to sub-
charter or sublet the vessel.

37 38
PTSC is liable to Concepcion under Articles 1665 and 1667 of the New Civil Code. As the charterer or
lessee under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return the
thing leased and it was liable for the deterioration or loss of the same.

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under
39
Article 1651 of the New Civil Code. Although he was never privy to the contract between PTSC and
Concepcion, he remained bound to preserve the chartered vessel for the latter. Despite his non-inclusion
in the complaint of Concepcion, it was deemed amended so as to include him because, despite or in the
40
absence of that formality of amending the complaint to include him, he still had his day in court as he
was in fact impleaded as a third-party defendant by his own son, Roland the very same person who
represented him in the Contract of Agreement with Larrazabal.1avvphi1

(S)ince the purpose of formally impleading a party is to assure him a day in court, once the protective
mantle of due process of law has in fact been accorded a litigant, whatever the imperfection in form, the
41
real litigant may be held liable as a party.

42
In any case, all three petitioners are liable under Article 1170 of the New Civil Code. The necessity of
insuring the LCT-Josephine, regardless of who will share in the payment of the premium, is very clear
under the Preliminary Agreement and the subsequent Contracts of Agreement dated June 20, 1984 and
August 1, 1984, respectively. The August 17, 1984 letter of Concepcions representative, Rogelio L.
Martinez, addressed to Roland in his capacity as the president of PTSC inquiring about the insurance of
the LCT-Josephine as well as reiterating the importance of insuring the said vessel is quite telling.

August 17, 1984

Mr. Roland de la Torre
President
Phil. Trigon Shipyard Corp.
Cebu City

Dear Sir:

In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I wish to inquire regarding
the insurance of said vessel to wit:

1. Name of Insurance Company

2. Policy No.

3. Amount of Premiums

4. Duration of coverage already paid

Please send a Xerox copy of policy to the undersigned as soon as possible.

In no case shall LCT JOSEPHINE sail without any insurance coverage.

Hoping for your (prompt) action on this regard.

Truly yours,

(sgd)ROGELIO L. MARTINEZ
43
Owners representative

Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the time
when it was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in
clear contravention of their respective agreements. Certainly, they should now all answer for the loss of
the vessel.

WHEREFORE, the petitions are DENIED.

SO ORDERED.