1. ABOITIZ SHIPPING CORPORATION, petitioner, vs. NEW INDIA ASSURANCE COMPANY, LTD.

,
respondent.

TL;DR: The cargo of textiles consigned to General Textile, Inc. and was insured by respondent
New India was loaded into M/V P Aboitiz which sank. The seaworthiness of the vessel was
questioned by the investigator. 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. Petitioner failed to discharge this burden. Hence, the Court ruled
in favor of New India.

Facts: Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from
France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to
General Textile, Inc., in Manila and insured by respondent New India Assurance Company, Ltd.
While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.
Before departing, the vessel was advised by the Japanese Metereological Center that it was safe
to travel to its destination. But while at sea, the vessel received a report of a typhoon moving
within its path. To avoid this, the vessel changed its course. However, it was still at the fringe of
the typhoon when its hull leaked. The vessel sank, but the captain and the crew were saved.

The captain of M/V P Aboitiz filed its Marine Protest stating the wind force was at 10 to 15 knots
at the time the ship foundered and described the weather as moderate breeze, small waves,
becoming longer, fairly frequent white horses. Petitioner notified the consignee, General Textile,
of the total loss of the vessel and cargo. The latter lodged a claim with respondent for the amount
of its loss. Respondent paid General Textile and was subrogated to the rights of the latter.

Upon investigation, it was reported that the cause was the flooding of the holds brought about
by the vessel’s questionable seaworthiness. 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 to exercise extraordinary diligence in the
transport of the goods. Hence, respondent added, defendants therein breached their contract of
carriage. Franco-Belgian and Zuellig said that the cause was a fortuitous event.

The Board of Marine Inquiry exonerated the captain and crew of any administrative liability and
declared that the vessel was seaworthy and concluded that the sinking was due to vessel’s
exposure to the approaching typhoon. The CA ruled in favor of the respondent.

Issue: w/n the limited liability doctrine which limits the respondent’s award of damages to its pro
rata share in the insurance proceeds, applies in this case

Ruling: Respondent claims 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.
Monarch ruling: This Court has variedly applied the doctrine of limited liability to the same
incident—the sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of the vessel was
not due to force majeure, but to its unseaworthy condition. Therein, we found petitioner
concurrently negligent with the captain and crew. But the Court stressed that the 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 and the captain. In which case, the shipowner shall be liable to the full extent
of the damage.

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

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.
Petitioner failed to discharge this burden.

In contrast, the findings of the BMI are not deemed always binding on the courts. Besides,
exoneration of the vessel’s 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 to exercise extraordinary diligence, the determination of
which properly belongs to the courts.

Dispositive: 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.