Transportation Law- Case Law

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TRANSPORTATION LAW- CASE LAW
I.

NON-USE OF ORIGINAL CONTRACTED ROUTE: NOTICE OF LOSS


SAVELLANO ET. AL v SAVILLO (G.R No. 151783; July 8, 2003)

FACTS:
On October 27, 1991, at around 1:45 p.m., petitioners Savellano (mayor, former COMELEC Chairman, &
RTC judge), Virginia, and Deogracias (VG, Ilocos Sur) departed from San Francisco, USA on board
Northwest Airlines (NW) Flight 27, Business Class, bound for Manila, Philippines using the NW round-trip
tickets which were issued at [respondent's] Manila ticketing office. They were expected to arrive at NAIA,
Manila on October 29, 1991 or after 12 hours of travel. However, after 2 ½ hours, pilot made an
emergency landing at Seattle upon announcement that a fire started in one of the plane’s engines.
Petitioners and the other passengers proceeded to Gate 8 of the Seattle Airport where they were
instructed to go home to Manila the next day, 'using the same boarding passes with the same seating
arrangements'. Respondent's shuttle bus thereafter brought all passengers to the Seattle Red Lion Hotel
where they were billeted by, and at the expense of respondent.
Petitioners who were travelling as a family were assigned one room at the hotel. At around 12:00
midnight, they were awakened by a phone call from [respondent's] personnel who advised them to be at
the Seattle Airport by 7:00 a.m. (Seattle time) the following day, October 28, 1991, for departure. To
reach the airport on time, the NW shuttle bus fetched them early, making them skip the 6:30 a.m. hotel
breakfast. Prior to leaving the hotel, however, [petitioners] met at the lobby Col. Roberto Delfin, a Filipino
co-passenger who was also travelling Business Class, who informed them that he and some passengers
were leaving the next day, October 29, 1991, on board the same plane with the same itinerary.
When petitioners reached the Seattle Airport, [respondent's] ground stewardess belatedly advised them
that instead of flying to Manila they would have to board NW Flight 94, a DC-10 plane, bound for a 3-hour
flight to Los Angeles for a connecting flight to Manila. When [Petitioner] Savellano insisted theirs was a
direct flight to Manila, the female ground stewardess just told them to hurry up as they were the last
passengers to board.In Los Angeles, [petitioners] and the other passengers became confused for while
'there was a sort of a board' which announced a Seoul-Bangkok flight, none was posted for a Manila
flight. It was only after they complained to the NW personnel that the latter 'finally changed the board to
include Manila.'
Before boarding NW Flight 23 for Manila via Seoul, petitioners encountered another problem. Their three
small handcarried items which were not padlocked as they were merely closed by zippers were 'not
allowed' to be placed inside the passengers' baggage compartments of the plane by an arrogant NW
ground stewardess. On petitioners ‘arrival at the NAIA, Manila where they saw Col. Delfin and his wife as
well as the other passengers of the distressed flight who unlike them [petitioners] who left Seattle on
October 28, 1991, left Seattle on October 29, 1991, they were teased for taking the longer and tiresome
route to the Philippines. Furthermore, when petitioners claimed their luggage at the baggage carousel,
they discovered that the would-have-been handcarried items which were not allowed to be placed inside
the passengers' baggage compartment had been ransacked and the contents thereof stolen.
Petitioner filed a case for damages, claiming that they suffered inconvenience, embarrassment, and
humiliation for taking a longer route. RTC granted them moral and actual damages, crediting petitioners’
claim that that they were excluded from the Seattle-Tokyo-Manila flight to accommodate several
Japanese passengers bound for Japan. And as basis of its award of actual damages arising from the
allegedly lost articles contained in the would-have-been handcarried[luggage, the RTC, passing on the
lack of receipts covering the same, took judicial notice of the Filipinos' practice of often bringing home o
for friends and relatives. CA however reversed.

ISSUES:
1. Whether or not petitioners’ discriminatory bump-off constitutes breach by respondent
airline of its air-carriage contract
2. Whether or not petitioners are entitled to actual, moral and exemplary damages —
including attorney's fees — as a consequence
3. Whether or not petitioners can claim the value of the alleged lost items/baggage
HELD:
1. YES.
a. “Carrier may without notice substitute alternate carriers or aircraft or may alter or omit stopping
places shown on the ticket in case of necessity.” (provisions of the airline ticket)
b. UNILATERAL CHANGE: NOT PERMITTED
The Court finds that there is nothing there authorizing Northwest to decide unilaterally, after the
distressed flight landed in Seattle, what other stopping places petitioners should take and when they
should fly. True, Condition 9 on the ticket allowed respondent to substitute alternate carriers or aircraft
without notice. However, nothing there permits shuttling passengers — without so much as a by yourleave — to stopping places that they have not been previously notified of, much less agreed to or been
prepared for. Substituting aircrafts or carriers without notice is entirely different from changing stopping
places or connecting cities without notice.
The ambiguities in the contract, being one of adhesion, should be construed against the party that
caused its preparation — in this case, respondent. Since the conditions enumerated on the ticket do not
specifically allow it to change stopping places or to fly the passengers to alternate connecting cities
without consulting them, then it must be construed to mean that such unilateral change was not
permitted.
The basis of the Complaint was the way respondent allegedly treated petitioners like puppets that could
be shuttled to Manila via Los Angeles and Seoul without their consent.12 Undeniably, it did not take the
time to explain how it would be meeting its contractual obligation to transport them to their final
destination. Its employees merely hustled the confused petitioners into boarding one plane after another
without giving the latter a choice from other courses of action that were available. It unilaterally decided
on the most expedient way for them to reach their final destination.
c. NO NECESSITY OF ALTERATION
The change in petitioners' flight itinerary does not fall under the situation covered by the phrase "may
alter or omit stopping places shown on the ticket in case of necessity." A case of necessity must first be
proven. The burden of proving it necessarily fell on respondent. This responsibility it failed to discharge.
Petitioners do not question the stop in Seattle. The airplane engine trouble that developed during the
flight bound for Tokyo from San Francisco definitely merited the "necessity" of landing the plane at some
place for repair — in this case, Seattle — but not that of shuttling petitioners to other connecting points
thereafter without their consent.
Northwest failed to show a "case of necessity" for changing the stopping place from Tokyo to Los Angeles
and Seoul. It is a fact that some of the passengers on the distressed flight continued on to the Tokyo
(Narita) connecting place. No explanation whatsoever was given to petitioners as to why they were not
similarly allowed to do so. It may be that the Northwest connecting flight from Seattle to Tokyo to Manila

could no longer accommodate them. Yet it may also be that there were other carriers that could have
accommodated them for these sectors of their journey, and whose route they might have preferred to
the more circuitous one unilaterally chosen for them by respondent.
When, as a result of engine malfunction, a commercial airline is unable to ferry its passengers on the
original contracted route, it nonetheless has the duty of fulfilling its responsibility of carrying them to
their contracted destination on the most convenient route possible. Failing in this, it cannot just
unilaterally shuttle them, without their consent, to other routes or stopping places outside of the
contracted sectors.
2.

YES (actual, nominal); NO (moral, exemplary)
a. ACTUAL DAMAGES: ARTICLE 1170 & 2201 (NCC)
b. MORAL DAMAGES: NO BAD FAITH ( ARTICLE 2219)
There is no persuasive evidence that they were maliciously singled out to fly the Seattle-Los AngelesSeoul-Manila route. It appears that the passengers of the distressed flight were randomly divided into
two groups. One group was made to take the Tokyo-Manila flight; and the other, the Los Angeles-SeoulManila flight. The selection of who was to take which flight was handled via the computer reservation
system, which took into account only the passengers' final destination.
The records show that respondent was impelled by sincere motives to get petitioners to their final
destination by whatever was the most expeditious course — in its judgment, if not in theirs. Though they
claim that they were not accommodated on Flight 27 from Seattle to Tokyo because respondent had
taken on Japanese passengers, petitioners failed to present convincing evidence to back this allegation.
In the absence of convincing evidence, we cannot find respondent guilty of bad faith.
In a breach of contract, such damages are not awarded if the defendant is not shown to have acted
fraudulently or with malice or bad faith. Insufficient to warrant the award of moral damages is the fact
that complainants suffered economic hardship, or that they worried and experienced mental anxiety.
c. EXEMPLARY DAMAGES: NO ACT IN A “WANTON, FRAUDULENT, OPPRESIVE OR
MALEVOLENT MANNER” (ARTICLE 2232)
At most, it can only be found guilty of having acted without first considering and weighing all other
possible courses of actions it could have taken, and without consulting petitioners and securing their
consent to the new stopping places.
The unexpected and sudden requirement of having to arrange the connecting flights of every single
person in the distressed plane in just a few hours, in addition to the Northwest employees' normal
workload, was difficult to satisfy perfectly. We cannot find respondent liable for exemplary damages for
its imperfection of neglecting to consult with the passengers beforehand.
d. NOMINAL DAMAGES (ARTICLES 2221 & 2222)
Nominal damages are recoverable if no actual, substantial or specific damages were shown to have
resulted from the breach. The amount of such damages is addressed to the sound discretion of the court,
taking into account the relevant circumstances.
In the present case, we must consider that petitioners suffered the inconvenience of having to wake up
early after a bad night and having to miss breakfast; as well as the fact that they were business class
passengers. They paid more for better service; thus, rushing them and making them miss their small
comforts was not a trivial thing. We also consider their social and official status. Victorino Savellano was
a former mayor, regional trial court judge and chairman of the Commission on Elections. Virginia B.
Savellano was the president of five rural banks, and Deogracias Savellano was then the incumbent vice

governor of Ilocos Sur. Hence, it will be proper to grant one hundred fifty thousand pesos (P150,000) as
nominal damages28 to each of them, in order to vindicate and recognize their right29 to be notified and
consulted before their contracted stopping place was changed.
3.

NO.
a. FAILURE TO GIVE TIMELY NOTICE OF LOSS
The Conditions printed on the airline ticket plainly read:
"2.
Carriage hereunder is subject to the rules and limitations relating to liability
established by the Warsaw Convention unless such carriage is not `International carriage' as
defined by that Convention.
"7.
Checked baggage will be delivered to bearer of the baggage check. In case of damage
to baggage moving in international transportation complaint must be made in writing to
carrier forthwith after discovery of damage, and at the latest, within 7 days from receipt; in
case of delay, complaint must be made within 21 days from date the baggage was delivered.
The pertinent provisions of the Rules Relating to International Carriage by Air (Warsaw Convention) state:
"Article 26
1.
Receipt by the person entitled to delivery of luggage or goods without complaint is
prima facie evidence that the same have been delivered in good condition and in accordance
with the document of carriage.
2.
In case of damage, the person entitled to delivery must complain to the carrier
forthwith after the discovery of the damage, and, at the latest, within three days from the
date of receipt in the case of luggage and seven days from date of receipt in the case of
goods. In the case of delay the complaint must be made at the latest within fourteen days
from the date on which the luggage or goods have been placed at his disposal.
3.
Every complaint must be made in writing upon the document of carriage or by
separate notice in writing dispatched within the times aforesaid.
4.
Failing complaint within the times aforesaid, no action shall lie against the carrier,
save in the case of fraud on his part."
After allegedly finding that their luggage had been ransacked, petitioners never lodged a complaint with
any Northwest airport personnel. Neither did they mention the alleged loss of their valuables in their
November 22, 1991 demand letter.31 Hence, in accordance with the parties' contract of carriage, no
claim can be heard or admitted against respondent with respect to alleged damage to or loss of
petitioners' baggage.

II.

APPLICABILITY OF PERIODS OF PRESCRIPTION: ARTICLE 29 OF THE WARSAW CONVENTION
AND ARTICLE 1146


PHILIPPINE AIRLINES INC V SAVILLO (GR No. 149547; July 4, 2008)

FACTS:
Private respondent Simplicio Griño was invited to participate in the 1993 ASEAN Seniors Annual Golf
Tournament held in Jakarta, Indonesia. He and several companions decided to purchase their respective
passenger tickets from PAL with the following points of passage: MANILA-SINGAPORE-JAKARTASINGAPORE-MANILA. Private respondent and his companions were made to understand by PAL that its
plane would take them from Manila to Singapore, while Singapore Airlines would take them from
Singapore to Jakarta.
On 3 October 1993, private respondent and his companions took the PAL flight to Singapore and arrived
at about 6:00 o’clock in the evening. Upon their arrival, they proceeded to the Singapore Airlines office
to check-in for their flight to Jakarta scheduled at 8:00 o’clock in the same evening. Singapore Airlines

rejected the tickets of private respondent and his group because they were not endorsed by PAL. It was
explained to private respondent and his group that if Singapore Airlines honored the tickets without PAL’s
endorsement, PAL would not pay Singapore Airlines for their passage. Private respondent tried to
contact PAL’s office at the airport, only to find out that it was closed.
Stranded at the airport in Singapore and left with no recourse, private respondent was in panic and at a
loss where to go; and was subjected to humiliation, embarrassment, mental anguish, serious anxiety,
fear and distress. Eventually, private respondent and his companions were forced to purchase tickets
from Garuda Airlines and board its last flight bound for Jakarta. When they arrived in Jakarta at about
12:00 o’clock midnight, the party who was supposed to fetch them from the airport had already left and
they had to arrange for their transportation to the hotel at a very late hour. After the series of nervewracking experiences, private respondent became ill and was unable to participate in the tournament.
Upon his return to the Philippines, private respondent brought the matter to the attention of PAL. He
sent a demand letter to PAL on and another to Singapore but both airlines disowned liability and blamed
each other for the fiasco. Hence, private respondent filed a Complaint for Damages before the RTC
seeking compensation for moral damages in the amount of P1,000,000.00 and attorney’s fees.
Instead of filing an answer to private respondent’s Complaint, PAL filed a Motion to Dismiss[8] dated 18
September 1998 on the ground that the said complaint was barred on the ground of prescription under
Section 1(f) of Rule 16 of the Rules of Court. PAL argued that the Warsaw Convention, particularly Article
29 thereof,governed this case, as it provides that any claim for damages in connection with the
international transportation of persons is subject to the prescription period of two years. Since the
Complaint was filed on 15 August 1997, more than three years after PAL received the demand letter on
25 January 1994, it was already barred by prescription.
RTC issued an Order denying the Motion to Dismiss. It maintained that the provisions of the Civil Code
and other pertinent laws of the Philippines, not the Warsaw Convention, were applicable to the present
case. CA affirmed.
The Court of Appeals, in its assailed Decision dated 17 August 2001, likewise dismissed the Petition for
Certiorari filed by PAL and affirmed the 9 June 1998 Order of the RTC. It pronounced that the application
of the Warsaw Convention must not be construed to preclude the application of the Civil Code and other
pertinent laws. By applying Article 1144 of the Civil Code,[13] which allowed for a ten-year prescription
period, the appellate court declared that the Complaint filed by private respondent should not be
dismissed.
ISSUE: Whether or not the complaint was already barred by prescription
HELD: NO.
1.

SCOPE AND APPLICABILITY OF WARSAW CONVENTION
It applies to “all international transportation of persons, baggage or goods performed by any aircraft for
hire.” It seeks to accommodate or balance the interests of passengers seeking recovery for personal
injuries and the interests of air carriers seeking to limit potential liability. It employs a scheme of strict
liability favoring passengers and imposing damage caps to benefit air carriers. The cardinal purpose of
the Warsaw Convention is to provide uniformity of rules governing claims arising from international air
travel; thus, it precludes a passenger from maintaining an action for personal injury damages under local
law when his or her claim does not satisfy the conditions of liability under the Convention.
Article 19 of the Warsaw Convention provides for liability on the part of a carrier for “damages
occasioned by delay in the transportation by air of passengers, baggage or goods.” Article 24 excludes

other remedies by further providing that in the cases covered by articles 18 and 19, any action for
damages, however founded, can only be brought subject to the conditions and limits set out in this
convention.” Therefore, a claim covered by the Warsaw Convention can no longer be recovered under
local law, if the statute of limitations of two years has already lapsed.
2.

CLAIM BASED ONLY ON BREACH OF CONTRACT OF CARRIAGE, DELAY: WARSAW
CONVENTION
EMOTIONAL HARM RESULTING FROM GROSS NEGLIGENCE: CIVIL CODE APPLICABLE
Private respondent’s Complaint alleged that both PAL and Singapore Airlines were guilty of gross
negligence, which resulted in his being subjected to “humiliation, embarrassment, mental anguish,
serious anxiety, fear and distress.” The emotional harm suffered by the private respondent as a result of
having been unreasonably and unjustly prevented from boarding the plane should be distinguished from
the actual damages which resulted from the same incident. Under the Civil Code provisions on tort, such
emotional harm gives rise to compensation where gross negligence or malice is proven.
In the case at hand, Singapore Airlines barred private respondent from boarding the Singapore Airlines
flight because PAL allegedly failed to endorse the tickets of private respondent and his companions,
despite PAL’s assurances to respondent that Singapore Airlines had already confirmed their passage.
While this fact still needs to be heard and established by adequate proof before the RTC, an action based
on these allegations will not fall under the Warsaw Convention, since the purported negligence on the
part of PAL did not occur during the performance of the contract of carriage but days before the
scheduled flight. Thus, the present action cannot be dismissed based on the statute of limitations
provided under Article 29 of the Warsaw Convention.
Had the present case merely consisted of claims incidental to the airlines’ delay in transporting their
passengers, the private respondent’s Complaint would have been time-barred under Article 29 of the
Warsaw Convention. However, the present case involves a special species of injury resulting from the
failure of PAL and/or Singapore Airlines to transport private respondent from Singapore to Jakarta – the
profound distress, fear, anxiety and humiliation that private respondent experienced when, despite PAL’s
earlier assurance that Singapore Airlines confirmed his passage, he was prevented from boarding the
plane and he faced the daunting possibility that he would be stranded in Singapore Airport because the
PAL office was already closed.
3. ACTION NOT YET PRESCRIBED (ARTICLE 1146)
Art. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict.
Private respondent’s Complaint was filed with the RTC on 15 August 1997, which was less than four years
since PAL received his extrajudicial demand on 25 January 1994. Thus, private respondent’s claims have
not yet prescribed and PAL’s Motion to Dismiss must be denied.

MARITIME COMMERCE
I.

DUTIES OF CAPTAIN
 INTER-ORIENT MARITIME ENTERPRISE V NLRC (GR No. 115286; August 11, 1994)
FACTS:
Private respondent Captain Rizalino Tayong, a licensed Master Mariner with experience in commanding
ocean-going vessels, was employed by petitioners Trenda World Shipping (Manila), Inc. and Sea Horse
Ship Management, Inc. through petitioner Inter-Orient Maritime Enterprises, Inc. as Master of the vessel
M/V Oceanic Mindoro, for a period of one (1) year, as evidenced by an employment contract. On 15 July

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

Petitioners, in their answer to the complaint, denied that they had illegally dismissed Captain Tayong.
Petitioners alleged that he had refused to sail immediately to South Africa to the prejudice and damage
of petitioners. According to petitioners, as a direct result of Captain Tayong's delay, petitioners' vessel
was placed "off-hire" by the charterers for twelve (12) hours. This meant that the charterers refused to
pay the charter hire or compensation corresponding to twelve (12) hours, amounting to US$15,500.00,
due to time lost in the voyage. They stated that they had dismissed private respondent for loss of trust
and confidence.
The POEA dismissed Captain Tayong's complaint and held that there was valid cause for his untimely
repatriation. The decision of the POEA placed considerable weight on petitioners' assertion that all the
time lost as a result of the delay was caused by Captain Tayong and that his concern for the oxygen and
acetylene was not legitimate as these supplies were not necessary or indispensable for running the
vessel. The POEA believed that the Captain had unreasonably refused to follow the instructions of
petitioners and their representative, despite petitioners' firm assurances that the vessel was seaworthy
for the voyage to South Africa. NLRC reversed finding that Captain Tayong had not been afforded an
opportunity to be heard and that no substantial evidence was adduced to establish the basis for
petitioners' loss of trust or confidence in the Captain. The NLRC declared that he had only acted in
accordance with his duties to maintain the seaworthiness of the vessel and to insure the safety of the
ship and the crew.
ISSUE: Whether or not Captain Tayong was validly dismissed
HELD: NO.
1. CAPTAIN OF VESSEL: CONFIDENTIAL AND MANAGERIAL EMPLOYEE
It is well settled in this jurisdiction that confidential and managerial employees cannot be arbitrarily
dismissed at any time, and without cause as reasonably established in an appropriate investigation. 15
Such employees, too, are entitled to security of tenure, fair standards of employment and the protection
of labor laws. The captain of a vessel is a confidential and managerial employee within the meaning of
the above doctrine.
2. DUTIES/FUNCTIONS/AUTHORITY OF MASTER OR CAPTAIN
A master or captain, for purposes of maritime commerce, is one who has command of a vessel. A captain
commonly performs three (3) distinct roles: (1) he is a general agent of the shipowner; (2) he is also
commander and technical director of the vessel; and (3) he is a representative of the country under
whose flag he navigates. Of these roles, by far the most important is the role performed by the captain
as commander of the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive
Officer" [CEO] of a present-day corporate enterprise) has to do with the operation and preservation of
the vessel during its voyage and the protection of the passengers (if any) and crew and cargo.
In his role as general agent of the shipowner, the captain has authority to sign bills of lading, carry goods
aboard and deal with the freight earned, agree upon rates and decide whether to take cargo. The ship
captain, as agent of the shipowner, has legal authority to enter into contracts with respect to the vessel
and the trading of the vessel, subject to applicable limitations established by statute, contract or
instructions and regulations of the shipowner. To the captain is committed the governance, care and
management of the vessel. 18 Clearly, the captain is vested with both management and fiduciary
functions.

3. CAPTAIN HAS DISCRETION TO PERFORM ACTS NECESSARY FOR THE PROTECTION AND
PRESERVATION UNDER HIS

CHARGE
A ship's captain must be accorded a reasonable measure of discretionary authority to decide what the
safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage. The
captain is held responsible, and properly so, for such safety. He is right there on the vessel, in command
of it and (it must be presumed) knowledgeable as to the specific requirements of seaworthiness and the
particular risks and perils of the voyage he is to embark upon. The applicable principle is that the captain
has control of all departments of service in the vessel, and reasonable discretion as to its navigation. 20
It is the right and duty of the captain, in the exercise of sound discretion and in good faith, to do all
things with respect to the vessel and its equipment and conduct of the voyage which are reasonably
necessary for the protection and preservation of the interests under his charge, whether those be of the
shipowners, charterers, cargo owners or of underwriters. It is a basic principle of admiralty law that in
navigating a merchantman, the master must be left free to exercise his own best judgment. The
requirements of safe navigation compel us to reject any suggestion that the judgment and discretion of
the captain of a vessel may be confined within a straitjacket, even in this age of electronic
communications. 22 Indeed, if the ship captain is convinced, as a reasonably prudent and competent
mariner acting in good faith that the shipowner's or ship agent's instructions (insisted upon by radio or
telefax from their offices thousands of miles away) will result, in the very specific circumstances facing
him, in imposing unacceptable risks of loss or serious danger to ship or crew, he cannot casually seek
absolution from his responsibility, if a marine casualty occurs, in such instructions.
4. CAPTAIN TAYONG’S DECISION REGARDING NECESSITY OF DELIVERY OF SUPPLIES: WELL
FOUNDED
There had been, Mr. Clark stated, a disruption in the normal functioning of the vessel's turbo-charger 19
and economizer and that had prevented the full or regular operation of the vessel. Thus, Mr. Clark
relayed to Captain Tayong instructions to "maintain reduced RPM" during the voyage to South Africa,
instead of waiting in Singapore for the supplies that would permit shipboard repair of the malfunctioning
machinery and equipment.
The word "necessity" when applied to mercantile affairs, where the judgment must in the nature of
things be exercised, cannot, of course, mean an irresistible compelling power. What is meant by it in
such cases is the force of circumstances which determine the course a man ought to take. Thus, where
by the force of circumstances, a man has the duty cast upon him of taking some action for another, and
under that obligation adopts a course which, to the judgment of a wise and prudent man, is apparently
the best for the interest of the persons for whom he acts in a given emergency, it may properly be said
of the course so taken that it was in a mercantile sense necessary to take it.
In this connection, it is specially relevant to recall that, according to the report of Mr. Robert Clark,
Technical Director of petitioner Sea Horse Ship Management, Inc., the Oceanic Mindoro had stopped in
mid-ocean for six (6) hours and forty-five (45) minutes on its way to Singapore because of its leaking
economizer. 27 Equally relevant is the telex dated 2 August 1989 sent by Captain Tayong to Sea Horse
after Oceanic Mindoro had left Singapore and was en route to South Africa. In this telex, Captain Tayong
explained his decision to Sea Horse in the following terms:
I CAPT. R.D. TAYONG RE: UR PROBLEM IN SPORE (SINGAPORE) I EXPLAIN AGN TO YOU THAT WE ARE
INSECURITY/DANGER TO SAIL IN SPORE W/OUT HAVING SUPPLY OF OXY/ACET. PLS UNDERSTAND HV
PLENTY TO BE DONE REPAIR FM MAIN ENGINE LIKE TURBO CHARGER PIPELINE, ECONOMIZER LEAKAGE N
ETC WE COULD NOT FIX IT W/OUT OXY/ACET ONBOARD. I AND MR. CLARK WE CONTACTED EACH OTHER
BY PHONE IN PAPAN N HE ADVSED US TO SAIL TO RBAY N WILL SUPPLY OXY/ACET UPON ARRIVAL RBAY
HE ALSO EXPLAINED TO MY C/E HOW TO FIND THE REMEDY W/OUT OXY/ACET BUT C/E HE DISAGREED
MR. CLARK IDEA, THAT IS WHY WE URG REQUEST[ED] YR KIND OFFICE TO ARRANGE SUPPLY OXY/ACET

BEFORE SAILING TO AVOID RISK/DANGER OR DELAY AT SEA N WE TOOK PRECAUTION UR TRIP FOR 16
DAYS FM SPORE TO RBAY. PLS. UNDERSTAND UR SITUATION. 28 (Emphasis partly in source and partly
supplied)
Under all the circumstances of this case, we, along with the NLRC, are unable to hold that Captain
Tayong's decision (arrived at after consultation with the vessel's Chief Engineer) to wait seven (7) hours
in Singapore for the delivery on board the Oceanic Mindoro of the requisitioned supplies needed for the
welding-repair, on board the ship, of the turbo-charger and the economizer equipment of the vessel,
constituted merely arbitrary, capricious or grossly insubordinate behavior on his part. In the view of the
NLRC, that decision of Captain Tayong did not constitute a legal basis for the summary dismissal of
Captain Tayong and for termination of his contract with petitioners prior to the expiration of the term
thereof. We cannot hold this conclusion of the NLRC to be a grave abuse of discretion amounting to an
excess or loss of jurisdiction; indeed, we share that conclusion and make it our own.
Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery of the needed supplies
before sailing from Singapore, and may have changed their estimate of their ability to work with him and
of his capabilities as a ship captain. Assuming that to be petitioners' management prerogative, that
prerogative is nevertheless not to be exercised, in the case at bar, at the cost of loss of Captain Tayong's
rights under his contract with petitioners and under Philippine law.
5. CAPTAIN TAYONG: DENIED DUE PROCESS
It is plain from the records of the present petition that Captain Tayong was denied any opportunity to
defend himself. Petitioners curtly dismissed him from his command and summarily ordered his
repatriation to the Philippines without informing him of the charge or charges levelled against him, and
much less giving him a chance to refute any such charge. In fact, it was only on 26 October 1989 that
Captain Tayong received a telegram dated 24 October 1989 from Inter-Orient requiring him to explain
why he delayed sailing to South Africa.
II.

DUTIES OF PILOT


FAR EASTERN SHIPPING v CA & PPA (GR No. 130068; October 1, 1998)

FACTS:
On June 20, 1980, the M/V PAVLODAR, flying under the flagship of the USSR, owned and operated by the
Far Eastern Shipping Company (FESC) arrived at the Port of Manila from Vancouver, British Columbia at
about 7:00 o'clock in the morning. The vessel was assigned Berth 4 of the Manila International Port, as its
berthing space. Captain Roberto Abellana was tasked by the Philippine Port Authority to supervise the
berthing of the vessel. Appellant Senen Gavino was assigned by the Appellant Manila Pilots' Association
(MPA) to conduct docking maneuvers for the safe berthing of the vessel to Berth No. 4.
Gavino boarded the vessel at the quarantine anchorage and stationed himself in the bridge, with the
master of the vessel, Victor Kavankov, beside him. After a briefing of Gavino by Kavankov of the
particulars of the vessel and its cargo, the vessel lifted anchor from the quarantine anchorage and
proceeded to the Manila International Port. The sea was calm and the wind was ideal for docking
maneuvers.
When the vessel reached the landmark (the big church by the Tondo North Harbor) one-half mile from
the pier, Gavino ordered the engine stopped. When the vessel was already about 2,000 feet from the
pier, Gavino ordered the anchor dropped. Kavankov relayed the orders to the crew of the vessel on the
bow. The left anchor, with two (2) shackles, were dropped. However, the anchor did not take hold as
expected. The speed of the vessel did not slacken. A commotion ensued between the crew members. A

brief conference ensued between Kavankov and the crew members. When Gavino inquired what was all
the commotion about, Kavankov assured Gavino that there was nothing to it.
After Gavino noticed that the anchor did not take hold, he ordered the engines half-astern. Abellana, who
was then on the pier apron, noticed that the vessel was approaching the pier fast. Kavankov likewise
noticed that the anchor did not take hold. Gavino thereafter gave the "full-astern" code. Before the right
anchor and additional shackles could be dropped, the bow of the vessel rammed into the apron of the
pier causing considerable damage to the pier. The vessel sustained damage too.
Philippine Ports Authority (PPA) filed a complaint for a sum of money against Far Eastern Shipping Co.,
Capt. Senen C. Gavino and the Manila Pilots' Association, praying that the defendants therein be held
jointly and severally liable to pay the plaintiff actual and exemplary damages plus costs of suit. This was
favorably ruled by the court. CA affirmed except that insofar as the existence of employer-employee
relationship.
Petitioner, in claiming that CA erred in its decision, asserts that since the MV PAVLODAR was under
compulsory pilotage at the time of the incident, it was the compulsory pilot, Capt. Gavino, who was in
command and had complete control in the navigation and docking of the vessel. It is the pilot who
supersedes the master for the time being in the command and navigation of a ship and his orders must
be obeyed in all respects connected with her navigation. Consequently, he was solely responsible for the
damage caused upon the pier apron, and not the owners of the vessel. It claims that the master of the
boat did not commit any act of negligence when he failed to countermand or overrule the orders of the
pilot because he did not see any justifiable reason to do so. In other words, the master cannot be faulted
for relying absolutely on the competence of the compulsory pilot. If the master does not observe that a
compulsory pilot is incompetent or physically incapacitated, the master is justified in relying on the pilot.
ISSUES:
1.

Whether or not pilot commercial vessel, under compulsory pilotage, solely liable for the
damage causes by the vessel to the pier, at the port of destination, for his negligence
2.
Whether or not owner of the vessel be liable likewise if the damage is caused by the
concurrent negligence of the master of the vessel and the pilot under a compulsory pilotage
1.

HELD:
NO. Both the pilot and the master of the vessel are liable.
a. PILOT: FUNCTION AND AUTHORITY
A pilot, in maritime law, is a person duly qualified, and licensed, to conduct a vessel into or out of ports,
or in certain waters. In a broad sense, the term "pilot" includes both (1) those whose duty it is to guide
vessels into or out of ports, or in particular waters and (2) those entrusted with the navigation of vessels
on the high seas. However, the term "pilot" is more generally understood as a person taken on board at a
particular place for the purpose of conducting a ship through a river, road or channel, or from a port.
Under English and American authorities, generally speaking, the pilot supersedes the master for the time
being in the command and navigation of the ship, and his orders must be obeyed in all matters
connected with her navigation. He becomes the master pro hac vice and should give all directions as to
speed, course, stopping and reversing anchoring, towing and the like. And when a licensed pilot is
employed in a place where pilotage is compulsory, it is his duty to insist on having effective control of
the vessel, or to decline to act as pilot. Under certain systems of foreign law, the pilot does not take
entire charge of the vessel, but is deemed merely the adviser of the master, who retains command and
control of the navigation even in localities where pilotage is compulsory.
b. COMPULSORY PILOTAGE: PURPOSE

It is quite common for states and localities to provide for compulsory pilotage, and safety laws have been
enacted requiring vessels approaching their ports, with certain exceptions, to take on board pilots duly
licensed under local law. The purpose of these laws is to create a body of seamen thoroughly acquainted
with the harbor, to pilot vessels seeking to enter or depart, and thus protect life and property from the
dangers of navigation.
c. COMPULSORY PILOTAGE, DUTIES: MASTER v CAPTAIN
The Port of Manila is within the Manila Pilotage District which is under compulsory pilotage pursuant to
Section 8, Article III of Philippine Ports Authority Administrative Order No. 03-85, 47 which provides that:
Sec. 8. Compulsor Pilotage Service. — For entering a harbor and anchoring thereat, or passing
through rivers or straits within a pilotage district, as well as docking and undocking at any pier/wharf,
or shifting from one berth or another, every vessel engaged in coastwise and foreign trade shall be
under compulsory pilotage. . . .
In case of compulsory pilotage, the respective duties and responsibilities of the compulsory pilot and the
master have been specified by the same regulation in this wise:
Sec. 11.
Control of vessels and liability for damage. — On compulsory pilotage grounds, the
Harbor Pilot providing the service to a vessel shall be responsible for the damage caused to a vessel
or to life and property at ports due to his negligence or fault. He can only be absolved from liability if
the accident is caused by force majeure or natural calamities provided he has exercised prudence
and extra diligence to prevent or minimize damage.
The Master shall retain overall command of the vessel even on pilotage grounds whereby he can
countermand or overrule the order or command of the Harbor Pilot on beard. In such event, any
damage caused to a vessel or to life and property at ports by reason of the fault or negligence of the
Master shall be the responsibility and liability of the registered owner of the vessel concerned
without prejudice to recourse against said Master.
Such liability of the owner or Master of the vessel or its pilots shall be determined by competent
authority in appropriate proceedings in the light of the facts and circumstances of each particular
case.
Sec. 32.
Duties and responsibilities of the Pilot or Pilots' Association. — The duties and
responsibilities of the Harbor Pilot shall be as follows:
f)
a pilot shall be held responsible for the direction of a vessel from the time he assumes his
work as a pilot thereof until he leaves it anchored or berthed safely; Provided, however, that his
responsibility shall cease at the moment the Master neglects or refuses to carry out hisorder.
Customs Administrative Order No. 15-65 issued twenty years earlier likewise provided in Chapter I
thereof for the responsibilities of pilots:
Par. XXXIX. — A Pilot shall be held responsible for the direction of a vessel from the time he assumes
control thereof until he leaves it anchored free from shoal: Provided, That his responsibility shall
cease at the moment the master neglects or refuses to carry out his instructions.
Par. XLIV. — Pilots shall properly and safely secure or anchor vessels under their control when
requested to do so by the master of such vessels.

d. PRESUMPTION OF FAULT AGAINST MOVING VESSEL: COLLISION WITH A STATIONARY
OBJECT
The evidentiary rule in American jurisprudence that there is a presumption of fault against a moving
vessel that strikes a stationary object such as a dock or navigational aid. In admiralty, this presumption
does more than merely require the ship to go forward and produce some evidence on the presumptive
matter. The moving vessel must show that it was without fault or that the collision was occasioned by the
fault of the stationary object or was the result of inevitable accident. It has been held that such vessel
must exhaust every reasonable possibility which the circumstances admit and show that in each, they
did all that reasonable care required. In the absence of sufficient proof in rebuttal, the presumption of
fault attaches to a moving vessel which collides with a fixed object and makes a prima facie case of fault
against the vessel. Logic and experience support this presumption:
The common sense behind the rule makes the burden a heavy one. Such accidents simply do not occur
in the ordinary course of things unless the vessel has been mismanaged in some way. It is nor sufficient
for the respondent to produce witnesses who testify that as soon as the danger became apparent
everything possible was done to avoid an accident.
e. PILOT: MUST EXERCISE STANDARD OF CARE AND DILIGENCE ACCORDING TO THE
CIRCUMSTANCES
He is not held to the highest possible degree of skill and care, but must have and exercise the ordinary
skill and care demanded by the circumstances, and usually shown by an expert in his profession. Under
extraordinary circumstance, a pilot must exercise extraordinary care.
f.

PILOT MUST ACT ACCORDING TO THE “COMPETENCE AND SKILL” HE CLAIMS/HOLDS TO
REPRESENT: OTHERWISE, HE IS NEGLIGENT

An act may be negligent if it is done without the competence that a reasonable person in the position of
the actor would recognize as necessary to prevent it from creating an unreasonable risk of harm to
another. Those who undertake any work calling for special skills are required not only to exercise
reasonable care in what they do but also possess a standard minimum of special knowledge and ability.
Every man who offers his services to another, and is employed, assumes to exercise in the employment
such skills he possesses, with a reasonable degree of diligence. In all these employments where peculiar
skill is requisite, if one offers his services he is understood as holding himself out to the public as
possessing the degree of skill commonly possessed by others in the same employment, and if his
pretensions are unfounded he commits a species of fraud on every man who employs him in reliance on
his public profession.
Furthermore, there is an obligation on all persons to take the care which, under ordinary circumstances
of the case, a reasonable and prudent man would take, and the omission of that care constitutes
negligence. 65 Generally, the degree of care required is graduated according to the danger a person or
property attendant upon the activity which the actor pursues or the instrumentality which he uses. The
greater the danger the greater the degree of care required. What is ordinary under extraordinary of
conditions is dictated by those conditions; extraordinary risk demands extraordinary care. Similarly, the
more imminent the danger, the higher the degree of care.
g. CAPTAIN GAVINO: NON-COMPLIANCE OF (e) and (f)
Capt. Gavino was assigned to pilot MV Pavlodar into Berth 4 of the Manila International Port. Upon
assuming such office as compulsory pilot, Capt. Gavino is held to the universally accepted high standards

of care and diligence required of a pilot, whereby he assumes to have skill and knowledge in respect to
navigation in the particular waters over which his license extends superior to and more to be trusted than
that of the master. 57 A pilot 57 should have a thorough knowledge of general and local regulations and
physical conditions affecting the vessel in his charge and the waters for which he is licensed, such as a
particular harbor or river.
As can be gleaned from the logbook, Gavino ordered the left anchor and two (2) shackles dropped at 8:30
o'clock in the morning. He ordered the engines of the vessel stopped at 8:31 o'clock. By then,Gavino must
have realized that the anchor did not hit a hard object and was not clawed so as to reduce the momentum
of the vessel. In point of fact, the vessel continued travelling towards the pier at the same speed. Gavino
failed to react, At 8:32 o'clock, the two (2) tugboats began to push the stern part of the vessel from the
port side bur the momentum of the vessel was not contained. Still, Gavino did not react. He did not even
order the other anchor and two (2) more shackles dropped to arrest the momentum of the vessel. Neither
did he order full-astern. It was only at 8:34 o'clock, or four (4) minutes, after the anchor was dropped that
Gavino reacted. But his reaction was even (haphazard) because instead of arresting fully the momentum
of the vessel with the help of the tugboats, Gavino ordered merely "half-astern". It took Gavino another
minute to order a "full-astern". By then, it was too late. The vessel's momentum could no longer be
arrested and, barely a minute thereafter, the bow of the vessel hit the apron of the pier. Patently, Gavino
miscalculated. He failed to react and undertake adequate measures to arrest fully the momentum of the
vessel after the anchor failed to claw to the seabed. When he reacted, the same was even (haphazard).
Gavino failed to reckon the bulk of the vessel, its size and its cargo. He erroneously believed that only one
(1) anchor would suffice and even when the anchor failed to claw into the seabed or against a hard object
in the seabed, Gavino failed to order the other anchor dropped immediately. His claim that the anchor was
dropped when the vessel was only 1,000 feet from the pier is but a belated attempt to extricate himself
from the quagmire of his own insouciance and negligence. In sum, then, Appellants' claim that the
incident was caused by "force majeure" is barren of factual basis.
The harbor pilots are especially trained for this job. In the Philippines, one may not be a harbor pilot
unless he passed the required examination and training conducted then by the Bureau of Custom, under
Customs Administrative Order No. 15-65, now under the Philippine Ports Authority under PPA
Administrative Order 63-85, Paragraph XXXIX of the Customs Administrative Order No. 15-65 provides
that "the pilot shall be held responsible for the direction of the vessel from the time he assumes control
thereof, until he leaves it anchored free from shoal: Provided, that his responsibility shall cease at
the.moment the master neglects or refuse(s) to carry out his instructions." The overall direction regarding
the procedure for docking and undocking the vessel emanates from the harbor pilot. In the present
recourse, Gavino failed to live up to his responsibilities and exercise reasonable care or that degree of
care required by the exigencies of the occasion. Failure on his part to exercise the degree of care
demanded by the circumstances is negligence (Reese versus Philadelphia & RR Co. 239 US 363, 60 L ed.
384, 57 Am Jur, 2d page 418). 67
Negligence in manuevering the vessel must be attributed to Capt. Senen Gavino. He was an experienced
pilot and by this time should have long familiarized himself with the depth of the port and the distance he
could keep between the vessel and port in order to berth safely.
h. MASTER OF SHIP-STILL IN COMMAND OF VESSEL DESPITE COMPULSORY PILOTAGE: MUST
INTERFERE IN CASE OF INCOMPETENCY OF PILOT
While it is indubitable that in exercising his functions a pilot is in sole command of the ship 69 and
supersedes the master for the time being in the command and navigation of a ship and that he becomes
master pro hac vice of a vessel piloted by him, there is overwhelming authority to the effect that the
master does not surrender his vessel to the pilot and the pilot is not the master. The master is still in
command of the vessel notwithstanding the presence of a pilot. There are occasions when the master

may and should interfere and even displace the pilot, as when the pilot is obviously incompetent or
intoxicated and the circumstances may require the master to displace a compulsory pilot because of
incompetency or physical incapacity. If, however, the master does nor observe that a compulsory pilot is
incompetent or physically incapacitated, the master is justified in relying on the pilot, but not blindly.
The master is not wholly absolved from his duties while a pilot is on board his vessel, and may advise with
or offer suggestions to him. He is still in command of the vessel, except so far as her navigation is
concerned, and must cause the ordinary work of the vessel to be properly carried on and the usual
precaution taken. Thus, in particular, he is bound to see that there is sufficient watch on deck, and that
the men are attentive to their duties, also that engines are stopped, towlines cast off, and the anchors
clear and ready to go at the pilot's order.
i.

CAPT. KABANCOV (MASTER): NEGLIGENT

Although negligence on the part of Capt. Gavino is evident; but Capt. Kabancov is no less responsible for
the allision. His unconcerned lethargy as master of the ship in the face of troublous exigence constitutes
negligence.
A perusal of Capt. Kabankov's testimony makes it apparent that he was remiss in the discharge of his
duties as master of the ship, leaving the entire docking procedure up to the pilot, instead of maintaining
watchful vigilance over this risky maneuver. In fact, in his testimony, Capt. Kavankov admitted that all
throughour the man(eu)vering procedures he did not notice anything was going wrong, and even
observed that the order given to drop the anchor was done at the proper time. He even ventured the
opinion that the accident occurred because the anchor failed to take hold but that this did not alarm him
because there was still time to drop a second anchor.
Under normal circumstances, the abovementioned facts would have caused the master of a vessel to
take charge of the situation and see to the man(eu)vering of the vessel himself. Instead, Capt. Kavankov
chose to rely blindly upon his pilot, who by this time was proven ill-equipped to cope with the situation.
It is apparent that Gavino was negligent but Far Eastern's employee Capt. Kavankov was no lesss
responsible for as master of the vessel he stood by the pilot during the man(eu)vering procedures and
was privy to every move the latter made, as well as the vessel's response to each of the commands. His
choice to rely blindly upon the pilot's skills, to the point that despite being appraised of a notice of alert
he continued to relinquish control of the vessel to Gavino, shows indubitably that he was not performing
his duties with the diligence required of him and therefore may be charged with negligence along with
defendant Gavino.
As correctly affirmed by the Court of Appeals —
In the present recourse, Captain Viktor Kavankov had been a mariner for thirty-two years before the
incident. When Gavino was (in) the command of the vessel, Kavankov was beside Gavino, relaying the
commands or orders of Gavino to the crewmembers-officers of the vessel concerned. He was thus fully
aware of the docking maneuvers and procedure Gavino undertook to dock the vessel. Irrefragably,
Kavankov was fully aware of the bulk and size of the vessel and its cargo as well as the weight of the
vessel. Kavankov categorically admitted that, when the anchor and two (2) shackles were dropped to the
sea floor, the claws of the anchor did not hitch on to any hard object in the seabed. The momentum of
the vessel was not arrested. The use of the two (2) tugboats was insufficient. The momentum of the
vessel, although a little bit arrested, continued (sic) the vessel going straightforward with its bow
towards the port (Exhibit "A-1 ). There was thus a need for the vessel to move "full-astern" and to drop
the other anchor with another shackle or two (2), for the vessel to avoid hitting the pier. Kavankov
refused to act even as Gavino failed to act. Even as Gavino gave mere "half-astern" order, Kavankov
supinely stood by. The vessel was already about twenty (20) meters away from the pier when Gavino

gave the "full-astern" order. Even then, Kavankov did nothing to prevent the vessel from hitting the pier
simply because he relied on the competence and plan of Gavino. While the "full-astern'' maneuver
momentarily arrested the momentum of the vessel, it was, by then, too late. All along, Kavankov stood
supinely beside Gavino, doing nothing but relay the commands of Gavino. Inscrutably, then, Kavankov
was negligent.
In sum, where a compulsory pilot is in charge of a ship, the master being required to permit him to
navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the
dury of the master to refuse to permit the pilot to act. But if no such reasons are present, then the
master is justified in relying upon the pilot, but not blindly. Under the circumstances of this case, if a
situation arose where the master, exercising that reasonable vigilance which the master of a ship should
exercise, observed, or should have observed, that the pilot was so navigating the vessel that she was
going, or was likely to go, into danger, and there was in the exercise of reasonable care and vigilance an
opportunity for the master to intervene so as to save the ship from danger, the master should have
acted accordingly. The master of a vessel must exercise a degree of vigilance commensurate with the
circumstances.
2. YES.
In general, a pilot is personally liable for damages caused by his own negligence or default to the owners
of the vessel, and to third parties for damages sustained in a collision. Such negligence of the pilot in the
performance of duty constitutes a maritime tort. At common law, a shipowner is not liable for injuries
inflicted exclusively by the negligence of a pilot accepted by a vessel compulsorily. The exemption from
liability for such negligence shall apply if the pilot is actually in charge and solely in fault. Since, a pilot is
responsible only for his own personal negligence, he cannot be held accountable for damages
proximately caused by the default of others, or, if there be anything which concurred with the fault of
the pilot in producing the accident, the vessel master and owners are liable.
Since the colliding vessel is prima facie responsible, the burden of proof is upon the party claiming
benefit of the exemption from liability. It must be shown affirmatively that the pilot was at fault, and that
there was no fault on the part of the officers or crew, which might have been conducive to the damage.
The fact that the law compelled the master to take the pilot does not exonerate the vessel from liability.
The parties who suffer are entitled to have their remedy against the vessel that occasioned the damage,
and are not under necessity to look to the pilot from whom redress is not always had for compensation.
The owners of the vessel are responsible to the injured party for the acts of the pilot, and they must be
left to recover the amount as well as they can against him. It cannot be maintained that the
circumstance of having a pilot on board, and acting in conformity to his directions operate as a discharge
of responsibility of the owners. 90 Except insofar as their liability is limited or exempted by statute, the
vessel or her owner are liable for all damages caused by the negligence or other wrongs of the owners or
those in charge of the vessel. Where the pilot of a vessel is not a compulsory one in the sense that the
owner or master of the vessel are bound to accept him, but is employed voluntarily, the owners of the
vessel are, all the more, liable for his negligent act.
Except insofar as their liability is limited or exempted by statute, the vessel or her owners are liable for
all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel. As
a general rule, the owners or those in possession and control of a vessel and the vessel are liable for all
natural and proximate damages caused to persons or property by reason of her negligent management
or navigation.
III. MARITIME CONTRACTS: MARITIME LIENS
 CRESCENT PETROLEUM LTD v MV LOK MAHESHWARI (GR. 155014; November 11, 2005)

FACTS:
Respondent M/V “Lok Maheshwari” (Vessel) is an oceangoing vessel of Indian registry that is owned by
respondent Shipping Corporation of India (SCI), a corporation organized and existing under the laws of
India and principally owned by the Government of India. It was time-chartered by respondent SCI to
Halla Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel
through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further sub-chartered the Vessel
to Portserv Limited (Portserv). Both Transmar and Portserv are corporations organized and existing
under the laws of Canada.
On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a
corporation organized and existing under the laws of Canada that is engaged in the business of selling
petroleum and oil products for the use and operation of oceangoing vessels, to deliver marine fuel oils
(bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request through an advice
via facsimile dated November 2, 1995. As security for the payment of the bunker fuels and related
services, petitioner Crescent received two (2) checks in the amounts of US$100,000.00 and
US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Marine Petrobulk Limited (Marine
Petrobulk), another Canadian corporation, for the physical delivery of the bunker fuels to the Vessel.
On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to US$103,544
inclusive of barging and demurrage charges to the Vessel at the port of Pioneer Grain, Vancouver,
Canada. The Chief Engineer Officer of the Vessel duly acknowledged and received the delivery receipt.
Marine Petrobulk issued an invoice to petitioner Crescent for the US$101,400.00 worth of the bunker
fuels. Petitioner Crescent issued a check for the same amount in favor of Marine Petrobulk, which check
was duly encashed.
Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21, 1995 to
“Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V ‘Lok
Maheshwari’” in the amount of US$103,544.00 with instruction to remit the amount on or before
December 1, 1995. The period lapsed and several demands were made but no payment was received.
Also, the checks issued to petitioner Crescent as security for the payment of the bunker fuels were
dishonored for insufficiency of funds. As a consequence, petitioner Crescent incurred additional
expenses of US$8,572.61 for interest, tracking fees, and legal fees.
While the Vessel was docked at the port of Cebu City, petitioner Crescent instituted an action with the
RTC “for a sum of money with prayer for temporary restraining order and writ of preliminary attachment”
against respondents Vessel and SCI, Portserv and/or Transmar. This was favorably ruled upon the trial
court and defendants were held joint and severally liable. CA however reversed for want of jurisdiction on
the ground of forum non conveniens considering that the parties are foreign corporations which are not
doing business in the Philippines.” Petitioner rejects the applicability of said doctrine and now alleges,
among others, that Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters
for the enforcement of a maritime lien against said vessel and/or its owners and operators, which is
expressly granted by law, the Ship Mortgage Acts as well as the Code of Commerce.
ISSUE: Whether or not the dismissal of case is proper
HELD:
1. RTC HAS JURISDICTION
a. ADMIRALTY AND MARITIME JURISDICTION OF RTC
Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise exclusive
original jurisdiction “(i)n all actions in admiralty and maritime where the demand or claim exceeds two

hundred thousand pesos (P200,000) or in Metro Manila, where such demand or claim exceeds four
hundred thousand pesos (P400,000).”
b. TESTS IN DETERMINING WHETHER A CASE FALLS WITHIN (1): LOCATIONAL TEST AND
SUBJECT MATTER TEST
In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a
foreign port to a vessel of foreign registry that is owned, chartered and sub-chartered by foreign entities.
Two (2) tests have been used to determine whether a case involving a contract comes within the
admiralty and maritime jurisdiction of a court - the locational test and the subject matter test. The
English rule follows the locational test wherein maritime and admiralty jurisdiction, with a few
exceptions, is exercised only on contracts made upon the sea and to be executed thereon. This is totally
rejected under the American rule where the criterion in determining whether a contract is maritime
depends on the nature and subject matter of the contract, having reference to maritime service and
transactions.
c. SUBJECT MATTER TEST: PREFERRED
In International Harvester Company of the Philippines v. Aragon, we adopted the American rule and held
that “(w)hether or not a contract is maritime depends not on the place where the contract is made and
is to be executed, making the locality the test, but on the subject matter of the contract, making the true
criterion a maritime service or a maritime transaction.”
d. NATURE OF INSTANT CASE: WITHIN JURISDICTION OF RTC
A contract for furnishing supplies like the one involved in this case is maritime and within the jurisdiction
of admiralty. It may be invoked before our courts through an action in rem or quasi in rem or an action in
personam.
“Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcing not only
the liens created under Section 580 but also for the collection of any kind of lien whatsoever.”In the
Philippines, we have a complete legislation, both substantive and adjective, under which to bring an
action in rem against a vessel for the purpose of enforcing liens. The substantive law is found in Article
580 of the Code of Commerce. The procedural law is to be found in Article 584 of the same Code. The
result is, therefore, that in the Philippines any vessel – even though it be a foreign vessel – found in any
port of this Archipelago may be attached and sold under the substantive law which defines the right, and
the procedural law contained in the Code of Commerce by which this right is to be enforced. But where
neither the law nor the contract between the parties creates any lien or charge upon the vessel, the only
way in which it can be seized before judgment is by pursuing the remedy relating to attachment under
Rule 59 [now Rule 57] of the Rules of Court.
2. CRESCENT: NOT ENTITLED TO MARITIME LIEN
a. BASIS FOR CLAIM OF EXISTENCE OF MARITIME LIEN
Petitioner Crescent bases its claim of a maritime lien on Sections 21, 22 and 23 of Presidential Decree
No. 1521 (P.D. No. 1521), also known as the Ship Mortgage Decree of 1978, viz:
Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. - Any person furnishing repairs,
supplies, towage, use of dry dock or maritime railway, or other necessaries, to any vessel, whether
foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner,
shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary
to allege or prove that credit was given to the vessel.

Sec. 22. Persons Authorized to Procure Repairs, Supplies and Necessaries. - The following persons shall
be presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or
marine railway, and other necessaries for the vessel: The managing owner, ship’s husband, master or
any person to whom the management of the vessel at the port of supply is entrusted. No person
tortuously or unlawfully in possession or charge of a vessel shall have authority to bind the vessel.
Sec. 23. Notice to Person Furnishing Repairs, Supplies and Necessaries. - The officers and agents of a
vessel specified in Section 22 of this Decree shall be taken to include such officers and agents when
appointed by a charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the
vessel; but nothing in this Decree shall be construed to confer a lien when the furnisher knew, or by
exercise of reasonable diligence could have ascertained, that because of the terms of a charter party,
agreement for sale of the vessel, or for any other reason, the person ordering the repairs, supplies, or
other necessaries was without authority to bind the vessel therefor.
b. TEST IN DETERMINING
JURISPRUDENCE

EXISTENCE

OF

MARITIME

LIEN:

APPLICABILITY

OF

US

P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted “to accelerate the growth and
development of the shipping industry” and “to extend the benefits accorded to overseas shipping under
Presidential Decree No. 214 to domestic shipping.” It is patterned closely from the U.S. Ship Mortgage
Act of 1920 and the Liberian Maritime Law relating to preferred mortgages. Notably, Sections 21, 22 and
23 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 are identical to Subsections P, Q, and R,
respectively, of the U.S. Ship Mortgage Act of 1920, which is part of the Federal Maritime Lien Act.
Hence, U.S. jurisprudence finds relevance to determining whether P.D. No. 1521 or the Ship Mortgage
Decree of 1978 applies in the present case.
The various tests used in the U.S. to determine whether a maritime lien exists are the following:
One. “In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in
a foreign port, whether such lien exists, or whether the court has or will exercise jurisdiction,
depends on the law of the country where the supplies were furnished, which must be
pleaded and proved.” This principle was laid down in the 1888 case of The Scotia,[16]
reiterated in The Kaiser Wilhelm II (1916), in The Woudrichem (1921) and in The City of
Atlanta (1924).
Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor
methodologies as the law of the place of supply.
In Lauritzen v. Larsen, a Danish seaman, while temporarily in New York, joined the crew of a ship of
Danish flag and registry that is owned by a Danish citizen. He signed the ship’s articles providing that
the rights of the crew members would be governed by Danish law and by the employer’s contract with
the Danish Seamen’s Union, of which he was a member. While in Havana and in the course of his
employment, he was negligently injured. He sued the shipowner in a federal district court in New York
for damages under the Jones Act. In holding that Danish law and not the Jones Act was applicable, the
Supreme Court adopted a multiple-contact test to determine, in the absence of a specific Congressional
directive as to the statute’s reach, which jurisdiction’s law should be applied. The following factors were
considered: (1) place of the wrongful act; (2) law of the flag; (3) allegiance or domicile of the injured; (4)
allegiance of the defendant shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7)
law of the forum.
Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. International Terminal
Operating Co. again considered a foreign seaman’s personal injury claim under both the Jones Act and

the general maritime law. The Court held that the factors first announced in the case of Lauritzen were
applicable not only to personal injury claims arising under the Jones Act but to all matters arising under
maritime law in general.
Hellenic Lines, Ltd. v. Rhoditis was also a suit under the Jones Act by a Greek seaman injured aboard a
ship of Greek registry while in American waters. The ship was operated by a Greek corporation which
has its largest office in New York and another office in New Orleans and whose stock is more than 95%
owned by a U.S. domiciliary who is also a Greek citizen. The ship was engaged in regularly scheduled
runs between various ports of the U.S. and the Middle East, Pakistan, and India, with its entire income
coming from either originating or terminating in the U.S. The contract of employment provided that
Greek law and a Greek collective bargaining agreement would apply between the employer and the
seaman and that all claims arising out of the employment contract were to be adjudicated by a Greek
court. The U.S. Supreme Court observed that of the seven factors listed in the Lauritzen test, four were
in favor of the shipowner and against jurisdiction. In arriving at the conclusion that the Jones Act applies,
it ruled that the application of the Lauritzen test is not a mechanical one. It stated thus: “[t]he
significance of one or more factors must be considered in light of the national interest served by the
assertion of Jones Act jurisdiction. (footnote omitted) Moreover, the list of seven factors in Lauritzen was
not intended to be exhaustive. x x x [T]he shipowner’s base of operations is another factor of
importance in determining whether the Jones Act is applicable; and there well may be others.”
The principles enunciated in these maritime tort cases have been extended to cases involving unpaid
supplies and necessaries such as the cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture,[25]
and Comoco Marine Services v. M/V El Centroamericano.
Three. The factors provided in Restatement (Second) of Conflicts of Law have also been
applied, especially in resolving cases brought under the Federal Maritime Lien Act. Their
application suggests that in the absence of an effective choice of law by the parties, the
forum contacts to be considered include: (a) the place of contracting; (b) the place of
negotiation of the contract; (c) the place of performance; (d) the location of the subject
matter of the contract; and (e) the domicile, residence, nationality, place of incorporation
and place of business of the parties.
In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield, an admiralty action in rem was
brought by an American supplier against a vessel of Norwegian flag owned by a Norwegian Company
and chartered by a London time charterer for unpaid fuel oil and marine diesel oil delivered while the
vessel was in U.S. territory. The contract was executed in London. It was held that because the bunker
fuel was delivered to a foreign flag vessel within the jurisdiction of the U.S., and because the invoice
specified payment in the U.S., the admiralty and maritime law of the U.S. applied. The U.S. Court of
Appeals recognized the modern approach to maritime conflict of law problems introduced in the
Lauritzen case. However, it observed that Lauritzen involved a torts claim under the Jones Act while the
present claim involves an alleged maritime lien arising from unpaid supplies. It made a disclaimer that
its conclusion is limited to the unique circumstances surrounding a maritime lien as well as the statutory
directives found in the Maritime Lien Statute and that the initial choice of law determination is
significantly affected by the statutory policies surrounding a maritime lien. It ruled that the facts in the
case call for the application of the Restatement (Second) of Conflicts of Law. The U.S. Court gave much
significance to the congressional intent in enacting the Maritime Lien Statute to protect the interests of
American supplier of goods, services or necessaries by making maritime liens available where traditional
services are routinely rendered. It concluded that the Maritime Lien Statute represents a relevant policy
of the forum that serves the needs of the international legal system as well as the basic policies
underlying maritime law. The court also gave equal importance to the predictability of result and
protection of justified expectations in a particular field of law. In the maritime realm, it is expected that
when necessaries are furnished to a vessel in an American port by an American supplier, the American

Lien Statute will apply to protect that supplier regardless of the place where the contract was formed or
the nationality of the vessel.
The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery I[29] where the
American court refused to apply the Federal Maritime Lien Act to create a maritime lien for goods and
services supplied by foreign companies in foreign ports. In this case, a Swedish company supplied radio
equipment in a Spanish port to refurbish a Panamanian vessel damaged by fire. Some of the contract
negotiations occurred in Spain and the agreement for supplies between the parties indicated Swedish
company’s willingness to submit to Swedish law. The ship was later sold under a contract of purchase
providing for the application of New York law and was arrested in the U.S. The U.S. Court of Appeals also
held that while the contacts-based framework set forth in Lauritzen was useful in the analysis of all
maritime choice of law situations, the factors were geared towards a seaman’s injury claim. As in Gulf
Trading, the lien arose by operation of law because the ship’s owner was not a party to the contract
under which the goods were supplied. As a result, the court found it more appropriate to consider the
factors contained in Section 6 of the Restatement (Second) of Conflicts of Law. The U.S. Court held that
the primary concern of the Federal Maritime Lien Act is the protection of American suppliers of goods and
services. The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah.
c. IN THE INSTANT CASE: NO MARITIME LIEN EXISTS
First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under one –
the law of the forum. All other elements are foreign – Canada is the place of the wrongful act, of the
allegiance or domicile of the injured and the place of contract; India is the law of the flag and the
allegiance of the defendant shipowner. Balancing these basic interests, it is inconceivable that the
Philippine court has any interest in the case that outweighs the interests of Canada or India for that
matter.
Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors under
Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S., P.D. No. 1521 or
the Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers and was not
intended to create a lien from a contract for supplies between foreign entities delivered in a foreign port.
Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritime lien exists
would not promote the public policy behind the enactment of the law to develop the domestic shipping
industry. Opening up our courts to foreign suppliers by granting them a maritime lien under our laws
even if they are not entitled to a maritime lien under their laws will encourage forum shopping.
Finally. The submission of petitioner is not in keeping with the reasonable expectation of the parties to
the contract. Indeed, when the parties entered into a contract for supplies in Canada, they could not
have intended the laws of a remote country like the Philippines to determine the creation of a lien by the
mere accident of the Vessel’s being in Philippine territory.
d. PETITIONER SHOULD HAVE ATTEMPTED TO PROVE EXISTENCE OF MARITIME LIEN UNDER
CANADIAN LAW
In light of the interests of the various foreign elements involved, it is clear that Canada has the most
significant interest in this dispute. The injured party is a Canadian corporation, the sub-charterer which
placed the orders for the supplies is also Canadian, the entity which physically delivered the bunker fuels
is in Canada, the place of contracting and negotiation is in Canada, and the supplies were delivered in
Canada.
The arbitration clause contained in the Bunker Fuel Agreement which states that New York law governs
the “construction, validity and performance” of the contract is only a factor that may be considered in

the choice-of-law analysis but is not conclusive. As in the cases of Gulf Trading and Swedish Telecom, the
lien that is the subject matter of this case arose by operation of law and not by contract because the
shipowner was not a party to the contract under which the goods were supplied.
It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis for the
existence of a maritime lien. To the end, it insisted on its theory that Philippine law applies. Petitioner
contends that even if foreign law applies, since the same was not properly pleaded and proved, such
foreign law must be presumed to be the same as Philippine law pursuant to the doctrine of processual
presumption.
Thus, we are left with two choices: (1) dismiss the case for petitioner’s failure to establish a cause of
action[31] or (2) presume that Canadian law is the same as Philippine law. In either case, the case has
to be dismissed.
It is well-settled that a party whose cause of action or defense depends upon a foreign law has the
burden of proving the foreign law. Such foreign law is treated as a question of fact to be properly
pleaded and proved. Petitioner Crescent’s insistence on enforcing a maritime lien before our courts
depended on the existence of a maritime lien under the proper law. By erroneously claiming a maritime
lien under Philippine law instead of proving that a maritime lien exists under Canadian law, petitioner
Crescent failed to establish a cause of action.
e. DOCTRINE OF PROCESSIONAL PRESUMPTION: STILL NO MARITIME LIEN EXISTS ON
NECESSARIES
Even if we apply the doctrine of processual presumption, the result will still be the same. Under P.D. No.
1521 or the Ship Mortgage Decree of 1978, the following are the requisites for maritime liens on
necessaries to exist: (1) the “necessaries” must have been furnished to and for the benefit of the
vessel; (2) the “necessaries” must have been necessary for the continuation of the voyage of the vessel;
(3) the credit must have been extended to the vessel; (4) there must be necessity for the extension of
the credit; and (5) the necessaries must be ordered by persons authorized to contract on behalf of the
vessel.[34] These do not avail in the instant case.
First. It was not established that benefit was extended to the vessel. While this is presumed when the
master of the ship is the one who placed the order, it is not disputed that in this case it was the subcharterer Portserv which placed the orders to petitioner Crescent.[35] Hence, the presumption does not
arise and it is incumbent upon petitioner Crescent to prove that benefit was extended to the vessel.
Petitioner did not.
Second. Petitioner Crescent did not show any proof that the marine products were necessary for the
continuation of the vessel.
Third. It was not established that credit was extended to the vessel. It is presumed that “in the absence
of fraud or collusion, where advances are made to a captain in a foreign port, upon his request, to pay for
necessary repairs or supplies to enable his vessel to prosecute her voyage, or to pay harbor dues, or for
pilotage, towage and like services rendered to the vessel, that they are made upon the credit of the
vessel as well as upon that of her owners.”[36] In this case, it was the sub-charterer Portserv which
requested for the delivery of the bunker fuels. The issuance of two checks amounting to US$300,000 in
favor of petitioner Crescent prior to the delivery of the bunkers as security for the payment of the
obligation weakens petitioner Crescent’s contention that credit was extended to the Vessel.
We also note that when copies of the charter parties were submitted by respondents in the Court of
Appeals, the time charters between respondent SCI and Halla and between Halla and Transmar were
shown to contain a clause which states that “the Charterers shall provide and pay for all the fuel except

as otherwise agreed.” This militates against petitioner Crescent’s position that Portserv is authorized by
the shipowner to contract for supplies upon the credit of the vessel.
Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed where it
appears that the repairs and supplies were necessary for the ship and that they were ordered by the
master. This presumption does not arise in this case since the fuels were not ordered by the master and
there was no proof of necessity for the supplies.
Finally. The necessaries were not ordered by persons authorized to contract in behalf of the vessel as
provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 - the managing owner,
the ship’s husband, master or any person with whom the management of the vessel at the port of supply
is entrusted. Clearly, Portserv, a sub-charterer under a time charter, is not someone to whom the
management of the vessel has been entrusted. A time charter is a contract for the use of a vessel for a
specified period of time or for the duration of one or more specified voyages wherein the owner of the
time-chartered vessel retains possession and control through the master and crew who remain his
employees. Not enjoying the presumption of authority, petitioner Crescent should have proved that
Portserv was authorized by the shipowner to contract for supplies. Petitioner failed.
IV.



LIMITED LIABILITY RULE
PHILIPPINE SHIPPING COMPANY v VERGARA (G.R. No. L-1600 June 1, 1906)
FACTS:
The Philippine Shipping Company, the owner of the steamship Nuestra Sra. de Lourdes, claims an
indemnification of 44,000 pesos for the loss of the said ship as a result of a collision. Ynchusti & Co. also
claimed 24,705.64 pesos as an indemnification for the loss of the cargo of hemp and coprax carried by
the said ship on her last trip. The defendant, Francisco Garcia Vergara, was the owner of the steamship
Navarra, which collided with the Lourdes.
The court below found that the steamship Lourdes was sailing in accordance with law, but that the
Navarra was not, and was therefore responsible for the collision. The court also found as a fact that "both
ships with their respective cargoes were entirely lost." Construing article 837 of the Code Commerce, the
court below held "that the defendant was not responsible to the plaintiff for the value of the steamship
Lourdes, with the costs against the latter."
Appellant Philippine Shipping Company, contends that the defendant should pay to 18,000 pesos, the
value of the Navarra at the time of its loss; and that it was immaterial whether the Navarra had been
entirely lost, provided her value at the time she was lost could be ascertained, since the extent of the
liability of the owner of the colliding vessel for the damages resulting from the collision is to be
determined in accordance with such value.
ISSUE: Whether or not defendant was liable for value of its vessel at the time of collision
even though the latter was entirely lost
HELD: No.
1. PROVISIONS APPLICABLE: ARTICLE 837; ARTICLE 587; ARTICLE 590
Article 837 of the Code Commerce provides:
"The civil liability contracted by the shipowners in the cases prescribed in this section shall be
understood as limited to the value of the vessel with all her equipment and all the freight money
earned during the voyage."

This section is a necessary consequence 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.
Art. 587.
The agent shall also the 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.
ART. 590.
The part 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 article 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.
2. DIFFERENCE: LAWFUL ACTS AND LAWFUL OBLIGATION OF CAPTAIN v UNLAWFUL ACTS
COMMITTED BY HIM; LIMITED LIABILITY OF AGENT IN LATTER CASE
This is the difference which exist between the lawful acts and lawful obligation 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 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 agent liable to the extent of the value
of the vessel, as to the codes of the principal maritime nations provided, with the vessel, and not
individually. Such is also the spirit of our code.
3. “REAL NATURE” OF MARITIME LAW; CORRELATIVE RIGHTS OF AN AGENT
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 interest 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 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.
Conversely, 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 of obviating this
precarious nature of his rights by detaining the ship, his only security, before it is lost.
4. NO CLAIM OR PERSONAL ACTION AGAINST OWNER OR AGENT IF VESSEL IS LOST:
EXCEPTION TO CIVIL LAW
This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost
no 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 can not recover their wages; in case of collision, the liability of the
agent is limited as aforesaid, and in case of shipwrecks, those who loan their money on the vessel and
cargo lose all their rights and cannot claim reimbursement under the law.
5. IN THE INSTANT CASE: DEFENDANT’S LIABILITY IS EXINGUISHED
Defendant is liable for the indemnification to which the plaintiff is entitled by reason of the collision, but
he is not required to pay such indemnification of the reason that the obligation thus incurred has been
extinguished on account of the loss of the thing bound for the payment thereof.
There is no doubt that if the Navarra had not been entirely lost, the agent, having held liable for the
negligence of the captain of the vessel, could have abandoned her with all her equipment and the freight
money earned during the voyage, thus bringing himself within the provisions of the article 837 in so far
as the subsidiary civil liability is concerned. This abandonment which would have amounted to an offer
of the value of the vessel, of her equipment, and freight money earned could not have been refused, and
the agent could not have been personally compelled, under such circumstances, to pay the 18,000
pesos, the estimated value of the vessel at the time of the collision.
 Yangco v Laserna (G.R. No. L-47447-47449; October 29, 1941)
FACTS:
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner
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. Hence, respondents instituted civil actions against petitioner here to recover damages for
the death of the passengers. 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 the vessel 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.

ISSUE: 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
HELD: No.
1. LIMITED LIABILITY: PURPOSE AND HISTORY
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. 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 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.
2. LIMITED LIABILITY OF SHIPOWNER/ AGENTS: CONSEQUENCE OF RIGHT TO ABANDON;
APPLICABLE IN ALL CASES--WHERE CAPTAIN WAS NEGLIGENT/ COMMITTED NEGLIGENT
ACTS/ SHIPWRECK (1)
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.
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.
3. WHO IS AN AGENT
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 vessel and other things appertaining thereto.
4. IN THE INSTANT CASE, LIABILITY OF SHIPOWNER/AGENT EXTINGUISHED: LOSS OF VESSEL;
NOT INSURED
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 coextensive 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.



Loadstar Shipping v CA (G.R. No. 131621; September 28, 1999)

FACTS:
LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the certain goods for shipment
which were insured for the same amount with MIC against various risks including "TOTAL LOSS BY TOTAL
OF THE LOSS THE VESSEL." The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc.
(PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del
Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its
shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer,
MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation
receipt therefor.
MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the
fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the
insurance proceeds from the loss the vessel directly to MIC, said amount to be deducted from MIC's claim
from LOADSTAR. LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of
action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped as a party
defendant after it paid the insurance proceeds to LOADSTAR.
The court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the
court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto. LOADSTAR
now invokes, among others, the principle of limited liability.
ISSUE: Whether or not the principle of limited liability of ship owners/ agents applicable in
this case
HELD: No.
PRINCIPLE: INAPPLICABLE IF SHIP OWNER/ AGENT IS AT FAULT OR NEGLIGENT
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in
this case. The doctrine of limited liability does not apply where there was negligence on the part of the
vessel owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and
in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not
sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.


Monarch Insurance et.al v CA (G.R. No. 92735; June 8, 2000)

All three consolidated cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a
common carrier owned and operated by Aboitiz, sank on her voyage from Hong Kong to Manila on
October 31, 1980. Seeking indemnification for the loss of their cargoes, the shippers, their successors-ininterest, and the cargo insurers such as the instant petitioners filed separate suits against Aboitiz before
the Regional Trial Courts. The claims numbered one hundred and ten (110) for the total amount of
P41,230,115.00 which is almost thrice the amount of the insurance proceeds of P14,500,000.00 plus
earned freight of 500,000.00 according to Aboitiz. To this day, some of these claims, including those of
herein petitioners, have not yet been settled.

ISSUE: Whether or not the principle of limited liability of ship owners/ agents is applicable in
this case (in order stay the execution of the judgments for full indemnification of the losses
suffered by the petitioners as a result of the sinking of the M/V P. Aboitiz)
HELD: Yes. (See No. 3)
1. PRINCIPLE OF LIMITED LIABILITY: NATURE AND EXCEPTIONS
"No vessel, no liability," expresses in a nutshell the limited liability rule. The shipowner'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. 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 agent arising from the operation of a ship to the vessel, equipment, and freight, or
insurance, if any.
Contrary to the petitioners' theory that the limited liability rule has been rendered obsolete by the
advances in modern technology which considerably lessen the risks involved in maritime trade, this
Court continues to apply the said rule in appropriate cases. This is not to say, however, that the limited
liability rule is without exceptions, namely: (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 vessel is insured; and (3) in workmen's compensation claims.
2. BURDEN OF PROVING ABSENCE OF NEGLIGENCE NOT DISCHARGED
The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the
sinking of its vessel in the face of the foregoing expert testimony constrains us to hold that Aboitiz was
concurrently at fault and/or negligent with the ship captain and crew of the M/V P. Aboitiz. This is in
accordance with the rule that in cases involving the limited liability of shipowners, the initial burden of
proof of negligence or unseaworthiness rests on the claimants. However, once the vessel owner or any
party asserts the right to limit its liability, the burden of proof as to lack of privity or knowledge on its
part with respect to the matter of negligence or unseaworthiness is shifted to it. This burden, Aboitiz had
unfortunately failed to discharge. That Aboitiz failed to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or negligence should not however mean that
the limited liability rule will not be applied to the present cases. The peculiar circumstances here demand
that there should be no strict adherence to procedural rules on evidence lest the just claims of
shippers/insurers be frustrated.
3. BUT PRINCIPLE OF LIMITED LIABILITY STILL APPLICABLE THOUGH VESSEL WAS INSURED
The rule on limited liability should be applied in accordance with the latest ruling in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., promulgated on January 21,
1993, that claimants be treated as "creditors in an insolvent corporation whose assets are not enough to
satisfy the totality of claims against it." To do so, the Court set out in that case the procedural guidelines:
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 completed its action earlier than the rest. Thus, execution of judgment in
earlier completed cases, even these 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.
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 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.
4. ORDER FOR CONSOLIDATION OF CLAIMS DISREGARDED: LIABILITY FOR MORAL DAMAGES
There is no record that Aboitiz. has instituted such action or that it has deposited in trust the insurance
proceeds and freightage earned. The pendency of the instant cases before the Court is not a reason for
Aboitiz to disregard the aforementioned order of the Court. In fact, had Aboitiz complied therewith, even
these cases could have been terminated earlier. We are inclined to believe that instead of filing the suit
as directed by this Court, Aboitiz tolerated the situation of several claimants waiting to gel hold of its
insurance proceeds, which, if correctly handled must have multiplied in amount by now. By its failure to
abide by the order of this Court, it had caused more damage to the claimants over and above that which
they have endured as a direct consequence of the sinking of the M/V P. Aboitiz. It was obvious that from
among the many cases filed against it over the years, Aboitiz was waiting for a judgment that might
prove favorable to it, in blatant violation of the basic provisions of the Civil Code on abuse of rights.
Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims singly rather than exert
effort towards the consolidation of all claims. Consequently, courts have arrived at conflicting decisions
while claimants waited over the years for a resolution of any of the cases that would lead to the eventual
resolution of the rest. Aboitiz failed to give the claimants their due and to observe honesty and good
faith in the exercise of its rights.
Aboitiz' blatant disregard of the order of this Court in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd. 84 cannot be anything but, willful on its part. An act is
considered willful if it is done with knowledge of its injurious effect; it is not required that the act be done
purposely to produce the injury. Aboitiz is well aware that by not instituting the said suit, it caused the
delay in the resolution of all claims against it. Having willfully caused loss or injury to the petitioners in a
manner that is contrary to morals, good customs or public policy, Aboitiz is liable for damages to the
latter.
Thus, for its contumacious act of defying the order of this Court to file the appropriate action to
consolidate all claims for settlement, Aboitiz must be held liable for moral damages which may be
awarded in appropriate cases under the Chapter on human relations of the Civil Code (Articles 19 to 36).


Abotiz Shipping v New India Assurance (G..R. No. 156978 ; May 2, 2006)

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 Meteorological 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 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 crews were
saved.
The captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind force was at 10 to 15 knots
at the time the ship foundered and described the weather as "moderate breeze, small waves, becoming
longer, fairly frequent white horses." 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 General Textile and was subrogated to the rights of the latter.
Respondent hired a surveyor, Perfect, Lambert and Company who concluded that the cause was the
flooding of the holds brought about by the vessel’s questionable seaworthiness. Consequently,
respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian Services and the
latter’s local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that the proximate cause of the loss of
the shipment was the fault or negligence of the master and crew of the vessel, its unseaworthiness, and
the failure of defendants therein to exercise extraordinary diligence in the transport of the goods. Hence,
respondent added, defendants therein breached their contract of carriage. For its part, petitioner argued
against the ship’s unseaworthiness and also alleged that in accordance with the real and hypothecary
nature of maritime law, the sinking of M/V P. Aboitiz extinguished its liability on the loss of the cargoes.
ISSUE: Whether or not the principle of limited liability of ship owners/ agents is applicable in
this case
HELD: No.
1. TO AVAIL PRINCIPLE: PROOF OF EXERCISE OF EXTRAORDINARY DILIGENCE OF COMMON
CARRIERS, UNSEAWORTHINESS MUST NOT BE THRU PETITIONER’S FAULT OR NEGLIGENCE
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.
2. PETITIONER FAILED TO DISCHARGE BURDEN: PETITIONER LIABLE FOR TOTAL VALUE OF
CARGO
Considering the evidence presented and the circumstances obtaining in this case, we find that petitioner
failed to discharge this burden. It initially attributed the sinking to the typhoon and relied on the BMI
findings that it was not at fault. However, both the trial and the appellate courts, in this case, found that
the sinking was not due to the typhoon but to its unseaworthiness. Evidence on record showed that the
weather was moderate when the vessel sank. These factual findings of the Court of Appeals, affirming
those of the trial court are not to be disturbed on appeal, but must be accorded great weight. These
findings are conclusive not only on the parties but on this Court as well.24

In contrast, the findings of the BMI are not deemed always binding on the courts. 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.
Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability
cannot be applied. Therefore, we agree with the appellate court in sustaining the trial court’s ruling that
petitioner is liable for the total value of the lost cargo.
V.

DOCTRINE OF INSCRUTABLE FAULT; DOCTRINE OF LAST CLEAR CHANCE NOT APPLICABLE
IM MARITIME COLLISSION


Williams v Yangco (G.R. No. L-8325; March 10, 1914)

FACTS:
The steamer Subic, owned by the defendant, collided with the lunch Euclid owned by the plaintiff, in the
Bay of Manila at an early hour on the morning of January 9, 1911, and the Euclid sank five minutes
thereafter. This action was brought to recover the value of the Euclid. The trial court found that both
vessels were responsible for the collision and jointly liable for the loss resulting from the sinking of the
launch. Counsel for the plaintiff, insisted that under the doctrine of "the last clear chance," the defendant
should be held liable because, as he insists, even if the officers on board the plaintiff's launch were
negligence in failing to exhibit proper lights and in failing to take the proper steps to keep out of the path
of the defendant's vessel, nevertheless the officers on defendant's vessel, by the exercise of due
precautions might have avoided the collision by a very simple manuever.
ISSUES:
1. Whether or not vessels are jointly liable for loss
2. Whether or not defendant is solely liable under the doctrine of last clear chance
HELD:
1. No.
It will be seen that the trial judge was of opinion that the vessels were j ointly liable for the loss resulting
from the sinking of the launch. But actions for damages resulting from maritime collisions are governed
in this jurisdiction by the provisions of section 3, title 4, Book III of the Code of Commerce, and among
these provisions we find the following:
ART. 827.
If both vessels may be blamed for the collision, each one shall be liable for its own
damages, and both shall be jointly responsible for the loss and damages suffered by their
cargoes.
In disposing of this case the trial judge apparently had in mind that portion of the section which treats of
the joint liability of both vessels for loss or damages suffered by their cargoes. In the case at bar,
however, the only loss incurred was that of the launch Euclid itself, which went to the bottom soon after
the collision. Manifestly, under the plain terms of the statute, since the evidence of record clearly
discloses, as found by the trail judge, that "both vessels may be blamed for the collision," each one must
be held may be blamed for its own damages, and the owner of neither one can recover from the other in
an action for damages to his vessel.
2. No.

DOCTRINE OF LAST CLEAR CHANCE NOT APPLICABLE IM MARITIME COLLISSION WHERE ONE
DID NOT DISCOVER PERILOUS SITUATION IN ORDER TO AVOID IT
In cases of a disaster arising from the mutual negligence of two parties, the party who has a last clear
opportunity of avoiding the accident, notwithstanding the negligence of his opponent, is considered
wholly responsible for it under the common-law rule of liability as applied in the courts of common law of
the United States. But this rule (which is not recognized in the courts of admiralty in the United States,
wherein the loss is divided in cases of mutual and concurring negligence, as also where the error of one
vessel has exposed her to danger of collision which was consummated by he further rule, that where the
previous application by the further rule, that where the previous act of negligence of one vessel has
created a position of danger, the other vessel is not necessarily liable for the mere failure to recognize
the perilous situation; and it is only when in fact it does discover it in time to avoid the casualty by the
use of ordinary care, that it becomes liable for the failure to make use of this last clear opportunity to
avoid the accident. So, under the English rule which conforms very nearly to the common-law rule as
applied in the American courts, it has been held that the fault of the first vessel in failing to exhibit
proper lights or to take the proper side of the channel will relieve from liability one who negligently runs
into such vessels before he sees it; although it will not be a defense to one who, having timely warning of
the danger of collision, fails to use proper care to avoid it. In the case at bar, the most that can be said in
support of plaintiff's contention is that there was negligence on the part of the officers on defendant's
vessel in failing to recognize the perilous situation created by the negligence of those in charge of
plaintiff's launch, and that had they recognized it in time, they might have avoided the accident. But
since it does not appear from the evidence that they did, in fact, discover the perilous situation of the
launch in time to avoid the accident by the exercise of ordinary care, it is very clear that under the
above set out limitation to the rule, the plaintiff cannot escape the legal consequences of the
contributory negligence of his launch, even were we to hold that the doctrine is applicable in the
jurisdiction, upon which point we expressly reserve our decision at this time.
VI. BILL OF LADING
 Telengtan Bros. v CA (G.R. No. 110581 ; September 21, 1994)
FACTS:
Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line for the shipment of 468
rolls of container board liners from Savannah, Georgia to Manila. The shipment was consigned to herein
petitioner La Suerte Cigar & Cigarette Factory. The contract of affreightment was embodied in Bill of
Lading No. 602 issued by the carrier to the shipper. The expenses of loading and unloading were for the
account of the consignee.
The shipment was packed in 12 container vans and loaded on board the carrier's vessel, SS Verrazano
Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten container vans were
loaded on the SS Far East Friendship, while two were loaded on the SS Hangang Glory.Shortly thereafter,
the consignee (herein petitioner) received from the shipper photocopies of the bill of lading, consular
invoice and packing list, as well as notice of the estimated time of arrival of the cargo.
Subsequently, SS Far East Friendship arrived at the port of Manila. Aside from the regular advertisements
in the shipping section of the Bulletin Today announcing the arrival of its vessels, petitioner was notified
in writing of the ship's arrival, together with information that container demurrage at the rate of P4.00
per linear foot per day for the first 5 days and P8.00 per linear foot per day after the 5th day would be
charged unless the consignee took delivery of the cargo within ten days. Then, the other vessel SS
Hangang Glory, carrying petitioner's two other vans, arrived and was discharged of its contents the next
day. On the same day the shipping agent Smith, Bell & Co. released the Delivery Permit for twelve (12)
containers to the broker upon payment of freight charges on the bill of lading.

The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the shipping
documents to the Customs Marine Division of the Bureau of Customs. But the latter refused to act on
them because the manifest of the SS Far East Friendship covered only 10 containers, whereas the bill of
lading covered 12 containers. The broker, therefore, sent back the manifest to the shipping agent with
the request that the manifest be amended. Smith, Bell & Co. refused on the ground that an amendment,
as requested, would violate §1005 of the Tariff and Customs Code relating to unmanifested cargo. Later,
however, it agreed to add a footnote reading "Two container vans carried by the SS Hangang Glory to
complete the shipment of twelve containers under the bill of lading."
On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an
employee of the IBC and filed with the Bureau of Customs. The manifest was approved for release on July
3, 1979. IBC wrote Smith, Bell & Co. to make of record that entry of the shipment had been delayed by
the error in the manifest.
On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private
respondents' collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for
removing the containers from the container yard had expired on June 26, 1979, in the case of the SS Far
East Friendship, and on July 9, in the case of the SS Hangang Glory, and that demurrage charges had
begun to run on June 27, 1979 with respect to the 10 containers on the SS Far East Friendship and on July
10, 1979 with respect to the 2 containers shipped on board the SS Hangang Glory.
Petitioner paid P47,680.00 representing the total demurrage charges on all the containers, but it was not
able to obtain its goods. On July 16, 1979 it was able to obtain the release of two containers and onJuly
17, 1979 of one more container. It was able to obtain only a partial release of the cargo because of the
breakdown of the arrastre's equipment at the container yard.
This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In addition,
on July 16, 1979, petitioner sent a letter dated July 12, 1979 to Smith, Bell & Co., requesting
reconsideration of the demurrage charges, on the ground that the delay in claiming the goods was due
to the alleged late arrival of the shipping documents, the delay caused by the amendment of the
manifest, and the fact that two of the containers arrived separately from the other ten containers.
Petitioner paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979 to secure
the release of its cargo, but still petitioner was unable to get any cargo from the remaining nine
container vans. It was only the next day, July 20, 1979, that it was able to have two more containers
released from the container yard, bringing to five the total number of containers whose contents had
been delivered to it.
Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was
agreement for their payment in the bill of lading and that the delay in the release of the cargo was not
due to its fault but to the breakdown of the equipment at the container yard. Petitioner wrote private
respondent for a refund of the demurrage charges it had already paid, but private respondent replied on
July 25, 1979 that, as member of the Far East Conference, it could not modify the rules or authorize
refunds of the stipulated tariffs.
Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent
carrier, through it s shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it free
of charge and for a refund of P67,840.00 which it had paid, plus attorney's fees and other expenses of
litigation. Petitioner also asked for the issuance of a writ of preliminary injunction to restrain private
respondents from charging additional demurrage.

In their amended answer, private respondents claimed that collection of container charges was
authorized by §§ 23 and 29 of the bill of lading and that they were not free to waive these charges
because under the United States Shipping Act of 1916 it was unlawful for any common carrier engaged
in transportation involving the foreign commerce of the United States to charge or collect a greater or
lesser compensation that the rates and charges specified in its tariffs on file with the Federal Maritime
Commission.
RTC dismissed petitioner’s complaint. It cited that the collection was authorized by Sections 23 and 29 of
the Bill of Lading. It also rejected petitioner's claim of force majeure and even if it was upheld, still
plaintiff has to pay the corresponding demurrage charges.
ISSUE: Whether or not petitioner is liable for payment of demurrage charges
HELD: Yes.
1. DEMURRAGE, LIABILITY FOR DEMURRAGE: DEFINITION
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is
the claim for damages for failure to accept delivery. In a broad sense, every improper detention of a
vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical
sense, exists only when expressly stipulated in the contract. Using the term in its broader sense,
damages in the nature of demurrage are recoverable for a breach of the implied obligation to load or
unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only
against one who is a party to the shipping contract.
2. LIABILITY FOR DEMURRAGE FEES: CLAUSE 29
3. NATURE OF BILL OF LADING: RECEIPT—ACCEPTANCE OF TERMS OF CONDITIONS
Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are
conclusive on the parties, including the consignee.
A bill of lading operates both as a receipt and a contract . . . As a contract, it names the contracting
parties which include the consignee, fixes the route, destination, freight rate or charges, and
stipulates the right and obligations assumed by the parties . . . . By receiving the bill of lading, Davao
Parts and Services, Inc. assented to the terms of the consignment contained therein, and became
bound thereby, so far as the conditions named are reasonable in the eyes of the law.
4. BILL OF LADING-- A CONTRACT OF ADHESION: PETITIONER STILL BOUND
Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a contract of
adhesion, whose terms as set forth at the back are in small prints and are hardly readable, is without
merit. As we held in Servando v. Philippine Steam Navigation:
While it may be true that petitioner had not signed the plane ticket ,he is nevertheless bound by the
provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid
and binding upon the passenger regardless of the latter's lack of knowledge or assent to the
regulation". It is what is known as a contract of "adhesion," in regards to which it has been said that
contracts of adhesion wherein one party imposes a ready-made form of contract on the other, as the
plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent.

5. PERIOD OF PETITIONER’S LIABILITY: MUST RUN FROM AMENDMENT OF MANIFEST UP TO
TIME
With respect to the period of petitioner's liability, private respondent's position is that the "free time"
expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to 10 containers
which were unloaded from the SS Far East Friendship, while with respect to the 2 containers which were
unloaded from the SS Hangang Glory, the free time expired on July 9, 1979 and demurrage began to run
on July 10, 1979.
This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27, 1979 on
the 10 containers which arrived on the SS Far East Friendship because the delay in obtaining release of
the goods was not due to its fault. The evidence shows that because the manifest issued by the
respondent K-Line, through the Smith, Bell & Co., stated only 10 containers, whereas the bill of lading
also issued by the K-Line showed there were 12 containers, the Bureau of Customs refused to give an
entry permit to petitioner. For this reason, petitioner's broker, the IBC, had to see the respondent's agent
(Smith, Bell & Co.) on June 22, 1979 but the latter did not immediately do something to correct the
manifest. Smith, Bell & Co. was asked to "amend" the manifest, but it refused to do so on the ground
that this would violate the law. It was only on June 29, 1979 that it thought of adding instead a footnote
to indicate that two other container vans — to account for a total of 12 container vans consigned to
petitioner — had been loaded on the other vessel
It is not true that the necessary correction was made on June 22, 1979, the same day the manifest was
presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to support
the appellate court's finding that the footnote, explaining the apparent discrepancy between the bill of
lading and the manifest, was added on June 22, 1979 but that petitioner's representative did not return
to pick up the manifesst until June 29, 1979. To the contrary, it is more probable to believe the
petitioner's claim that the manifest was corrected only on June 29, 1979 (by which time the "free time"
had already expired), because Smith, Bell & Co. did not immediately know what to do as it insisted it
could not amend the manifest and only thought of adding a footnote on June 29, 1979 upon the
suggestion of the IBC.
Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the Bureau of
Customs only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was approved. It was,
therefore, only from this date (July 3, 1979) that petitioner could have claimed its cargo and charged for
any delay in removing its cargo from the containers. With respect to the other two containers which
arrived on the SS Hangang Glory, demurrage was properly considered to have accrued on July 10, 1979
since the "free time" expired on July 9.
The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13,
1979, because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the
container vans, it was because of the breakdown of the shifter or cranes. This breakdown cannot be
blamed on petitioners since these were cranes of the arrastre service operator. It would be unjust to
charge demurrage after July 13, 1979 since the delay in emptying the containers was not due to the fault
of the petitioner.


Keng Hua Paper Products v CA (G.R. No. 116863 ; February 12, 1998)

FACTS:
Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business
in the Philippines. plaintiff received at its Hong Kong terminal a sealed container, Container No. SEAU
67523, containing seventy-six bales of "unsorted waste paper" for shipment to defendant (herein

petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading (Exh. A) to cover the shipment was
issued by the plaintiff.
On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of
arrival were transmitted to the defendant but the latter failed to discharge the shipment from the
container during the "free time" period or grace period. The said shipment remained inside the plaintiff's
container from the moment the free time period expired on July 29, 1982 until the time when the
shipment was unloaded from the container on November 22, 1983, or a total of four hundred eighty-one
(481) days. During the 481-day period, demurrage charges accrued. Within the same period, letters
demanding payment were sent by the plaintiff to the defendant who, however, refused to settle its
obligation which eventually amounted to P67,340.00. Numerous demands were made on the defendant
but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and
damages.
In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50)
tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of
Credit No. 824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking Corporation, with partial
shipment permitted; that under the letter of credit, the remaining balance of the shipment was only ten
(10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment
plaintiff was asking defendant to accept was twenty (20) metric tons which is ten (10) metric tons more
than the remaining balance; that if defendant were to accept the shipment, it would be violating Central
Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of action against the
defendant because the latter did not hire the former to carry the merchandise; that the cause of action
should be against the shipper which contracted the plaintiff's services and not against defendant; and
that the defendant duly notified the plaintiff about the wrong shipment through a letter dated January
24, 1983.
RTC found petitioner liable for demurrage; attorney's fees and expenses of litigation. The petitioner
appealed to the Court of Appeals, arguing that the lower court erred in (1) awarding the sum of P67,340
in favor of the private respondent, (2) rejecting petitioner's contention that there was overshipment, (3)
ruling that petitioner's recourse was against the shipper, and (4) computing legal interest from date of
extrajudicial demand. CA affirmed.
ISSUE: Whether or not petitioner is bound by the bill of lading and hence liable to pay
demurrage fees
HELD: Yes.
1. BILL OF LADING: FUNCTIONS
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract
by which three parties, namely, the shipper, the carrier, and the consignee undertake specific
responsibilities and assume stipulated obligations. A "bill of lading delivered and accepted constitutes
the contract of carriage even though not signed," because the "(a)cceptance of a paper containing the
terms of a proposed contract generally constitutes an acceptance of the contract and of all of its terms
and conditions of which the acceptor has actual or constructive notice." In a nutshell, the acceptance of
a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that the same was a perfected and binding contract.
In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract
between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent
Sea-Land). Section 17 of the bill of lading provided that the shipper and the consignee were liable for the

payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace
period allowed by tariff rules. Applying said stipulation, both lower courts found petitioner liable.
2. CLAIM THAT PETITIONER IS NOT BOUND BY THE TERMS OF THE BILL DUE TO LACK OF
CONSENT, RELIANCE ON NOTICE OF REGUSED OR ON HNAD FREIGHT, REFUSAL TO ACCEPT
DUE TO OVERSHIPMENT AS IT WOULD AMOUNT TO VIOLATION OF CUSTOMS AND TARIFF
AND CENTRAL LAWS: UNTENABLE
Petitioner contends, however, that it should not be bound by the bill of lading because it never gave its
consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it argues that its
subsequent actions belie the finding that it accepted the terms and conditions printed therein. Petitioner
cites as support the "Notice of Refused or On Hand Freight" it received on November 2, 1982 from
private respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner adds
that it sent a copy of the said notice to the shipper on December 23, 1982. Petitioner points to its
January 24, 1983 letter to the private respondent, stressing "that its acceptance of the bill of lading
would be tantamount to an act of smuggling as the amount it had imported (with full documentary
support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of
lading" and "could lay them vulnerable to legal sanctions for violation of customs and tariff as well as
Central Bank laws." Petitioner further argues that the demurrage "was a consequence of the shipper's
mistake" of shipping more than what was bought. The discrepancy in the amount of waste paper it
actually purchased, as reflected in the invoice vis-a-vis the excess amount in the bill of lading, allegedly
justifies its refusal to accept the shipment.
We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the arrival of
the shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine the said
document, petitioner did not immediately object to or dissent from any term or stipulation therein. It was
only six months later, on January 24, 1983, that petitioner sent a letter to private respondent saying that
it could not accept the shipment. Petitioner's inaction for such a long period conveys the clear inference
that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of
petitioner's inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper's failure to
comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other
shipping documents were returned by the "banks" to the shipper. The letter merely proved petitioner's
refusal to pick up the cargo, not its rejection of the bill of lading.
Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill
of lading, is of no consequence. Said notice was not written by petitioner; it was sent by private
respondent to petitioner in November 1982, or four months after petitioner received the bill of lading. If
the notice has any legal significance at all, it is to highlight petitioner's prolonged failure to object to the
bill of lading. Contrary to petitioner's contention, the notice and the letter support — not belie — the
findings of the two lower courts that the bill of lading was impliedly accepted by petitioner.
Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause it
to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said
laws, without a clear demonstration that taking delivery of the shipment has become legally impossible,
cannot defeat the petitioner's contractual obligation and liability under the bill of lading.
3. REFUSAL TO RECEIVE AND DISCHARGE CARGO: LIABILITY FOR DEMURRAGE
The prolonged failure of petitioner to receive and discharge the cargo from the private respondent's
vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to
the former.
4. NATURE OR DEMURRAGE

In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is
often a matter of contract, but not necessarily so. The very circumstance that in ordinary commercial
voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason
why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule
can be adopted than that which founds itself upon mercantile usage as to indemnity, and fixes a
recompense upon the deliberate consideration of all the circumstances attending the usual earnings and
expenditures in common voyages? It appears to us that an allowance, by way of demurrage, is the true
measure of damages in all cases of mere detention, for that allowance has reference to the ship's
expenses, wear and tear, and common employment.
5. BILL OF LADING: SEPARATE FROM OTHER LETTER OF CREDIT ARRANGEMENTS:
DISCREPANCY B/W AMOUNTS COVERED BY CONTRACT OF SALE AND CONTRACT OF
CARRIAGE WILL NOT AFFECT VALIDITY OF ENFORCEABILITY OF THE CONTRACT OF
CARRIAGE IN THE BILL OF LADING
In a letter of credit, there are three distinct and independent contracts:
(1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the
issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant
to the terms and conditions stated therein. "Few things are more clearly settled in law than that the
three contracts which make up the letter of credit arrangement are to be maintained in a state of
perpetual separation." A transaction involving the purchase of goods may also require, apart from a
letter of credit, a contract of transportation specially when the seller and the buyer are not in the
same locale or country, and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract for the issuance
of a letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of the
goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of
credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of
lading. As the bank cannot be expected to look beyond the documents presented to it by the seller
pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations of
the shipper in the bill of lading and to verify their accuracy vis-a-viz the commercial invoice and the letter
of a credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount
in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract
of transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents of the
container. The contract of carriage was under the arrangement known as "Shipper's Load And Count,"
and shipper was solely responsible for the loading of the container while carrier was oblivious to the
contents of the shipment. Petitioner's remedy in case of overshipment lies against the seller/shipper, not
against the carrier.
6. AMOUNT AND PERIOD FROM WHICH INTEREST SHALL RUN
The case before us involves an obligation not arising from a loan or forbearance of money; thus,
pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the
bill of lading did not specify the amount of demurrage, and the sum claimed by private respondent
increased as the days went by, the total amount demanded cannot be deemed to have been established
with reasonable certainty until the trial court rendered its judgment. Indeed, "(u)nliquidated damages or
claims, it is said, are those which are not or cannot be known until definitely ascertained, assessed and
determined by the courts after presentation of proof. " Consequently, the legal interest rate is six
percent, to be computed from September 28, 1990, the date of the trial court's decision. And in
accordance with Philippine National Bank and Eastern Shipping, the rate of twelve percent per annum

shall be charged on the total then outstanding, from the time the judgment becomes final and executory
until its satisfaction.
VII.



AVERAGES
American Home Assurance v CA (G.R. No. 94149; May 5, 1992)

FACTS:
On or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of bleached
kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned and operated by herein
respondent National Marine Corporation with Registration No. PID-224. The said shipment was consigned
to Mayleen Paper, Inc. of Manila, which insured the shipment with herein petitioner American Home
Assurance Co. as evidenced by Bill of Lading No. HLMN-01.
On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the Marina Port
Services, Inc., for eventual delivery to the consignee-assured. However, upon delivery of the shipment to
Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The loss was
calculated to be 4,360 kilograms with an estimated value of P61,263.41.
Mayleen Paper, Inc. then duly demanded indemnification from respondent National Marine Corporation
for the aforesaid damages/losses in the shipment but, for apparently no justifiable reason, said demand
was not heeded. As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen
Paper, Inc. sought recovery from the former. Upon demand and submission of proper documentation,
American Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and interests
on Mayleen Paper, Inc.
Petitioner, as subrogee, then brought suit against respondent for the recovery of the amount of
P31.506.75 and 25% of the total amount due as attorney's fees, by filing a complaint for recovery of sum
of money.
Respondent, National Marine Corporation, filed a motion to dismiss stating that American Home
Assurance Company had no cause of action based on Article 848 of the Code of Commerce which
provides "that claims for averages shall not be admitted if they do not exceed 5% of the interest which
the claimant may have in the vessel or in the cargo if it be gross average and 1% of the goods damaged
if particular average, deducting in both cases the expenses of appraisal, unless there is an agreement to
the contrary." It contended that based on the allegations of the complaint, the loss sustained in the case
was P35,506.75 which is only .18% of P17,420,000.00, the total value of the cargo.
On the other hand, petitioner countered that Article 848 does not apply as it refers to averages and that
a particular average presupposes that the loss or damages is due to an inherent defect of the goods, an
accident of the sea, or a force majeure or the negligence of the crew of the carrier, while claims for
damages due to the negligence of the common carrier are governed by the Civil Code provisions on
Common Carriers.
ISSUE: Whether or not the “law on averages” is applicable as to exonerate respondent from
liability
HELD: No.
1. COMMON CARRIERS--LAW OF
PHIILIPPINE LAW APPLICABLE

COUNTRY

WHERE

GOODS

ARE

TO

BE

TRANSPORTED:

This issue has been resolved by this Court in National Development Co. v. C.A. (164 SCRA 593 [1988];
citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was held that "the law of
the country to which the goods are to be transported persons the liability of the common carrier in case
of their loss, destruction or deterioration." (Article 1753, Civil Code). Thus, for cargoes transported to the
Philippines as in the case at bar, the liability of the carrier is governed primarily by the Civil Code and in
all matters not regulated by said Code, the rights and obligations of common carrier shall be governed
by the Code of Commerce and by special laws (Article 1766, Civil Code).
Corollary thereto, the Court held further that under Article 1733 of the Civil Code, common carriers from
the nature of their business and for reasons of public policy are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of passengers transported by them according to all
circumstances of each case. Thus, under Article 1735 of the same Code, in all cases other than those
mentioned in Article 1734 thereof, the common carrier shall be presumed to have been at fault or to
have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.
2. CC CANNOT LIMIT LIABILITY ESPECIALLY WHEN THERE IS NEGLIGENCE: LAW ON AVERAGES
INAPPLICABLE
But more importantly, the Court ruled that common carriers cannot limit their liability for injury or loss of
goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in determining liability where there is
negligence.
Under the foregoing principle and in line with the Civil Code's mandatory requirement of extraordinary
diligence on common carriers in the car care of goods placed in their stead, it is but reasonable to
conclude that the issue of negligence must first be addressed before the proper provisions of the Code of
Commerce on the extent of liability may be applied.
The records show that upon delivery of the shipment in question of Mayleen's warehouse in Manila, 122
bales were found to be damaged/lost with straps cut or loose, calculated by the so-called "percentage
method" at 4,360 kilograms and amounting to P61,263.41. Instead of presenting proof of the exercise of
extraordinary diligence as required by law, National Marine Corporation (NMC) filed its Motion to Dismiss
dated August 7, 1989, hypothetically admitting the truth of the facts alleged in the complaint to the
effect that the loss or damage to the 122 bales was due to the negligence or fault of NMC. As ruled by
this Court, the filing of a motion to dismiss on the ground of lack of cause of action carries with it the
admission of the material facts pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181
SCRA 443 [1990]). Such being the case, it is evident that the Code of Commerce provisions on averages
cannot apply.
On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible for loss,
destruction or deterioration of the goods, unless due to any of the causes enumerated therein. It is
obvious that the case at bar does not fall under any of the exceptions. Thus, American Home Assurance
Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.
OTHERS:
1. GENERAL AVERAGE v PARTICULAR AVERAGE
Particular average, is a loss happening to the ship, freight, or cargo which is not be (sic) shared by
contributing among all those interested, but must be borne by the owner of the subject to which it
occurs.

General average is a contribution by the several interests engaged in the maritime venture to make
good the loss of one of them for the voluntary sacrifice of a part of the ship or cargo to save the
residue of the property and the lives of those on board, or for extraordinary expenses necessarily
incurred for the common benefit and safety of all.


Philippine Home Assurance v C (G.R. No. 106999 ; June 20, 1996)

FACTS:
Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, certain shipment
for carriage to Manila and Cebu, freight pre-paid and in good order and condition. While the vessel was
off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in the accommodation
area near the engine room on the main deck level. As the crew was trying to extinguish the fire, the
acetylene cylinder suddenly exploded sending a flash of flame throughout the accommodation area, thus
causing death and severe injuries to the crew and instantly setting fire to the whole superstructure of the
vessel. The incident forced the master and the crew to abandon the ship. Thereafter, SS Eastern Explorer
was found to be a constructive total loss and its voyage was declared abandoned.
After the fire was extinguished, the cargoes which were saved were loaded to another vessel for delivery
to their original ports of destination. ESLI charged the consignees several amounts corresponding to
additional freight and salvage charges, as follows: (a) for the goods covered by Bill of Lading No. 042283,
ESLI charged the consignee the sum of P1,927.65, representing salvage charges assessed against the
goods; (b) for the goods covered by Bill of Lading No. KCE-12, ESLI charged the consignee the sum of
P2,980.64 for additional freight and P826.14 for salvage charges against the goods; (c) for the goods
covered by Bill of Lading No. KCE-8, ESLI charged the consignee the sum of P3,292.26 for additional
freight and P4,130.68 for salvage charges against the goods; and (d) for the goods under Bills of Lading
Nos. KMA-73 and KMA-74, ESLI charged the consignee the sum of P8,337.06 for salvage charges against
the goods.The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for
and in behalf of the consignees.
PHAC, as subrogee of the consignees, thereafter filed a complaint against ESLI to recover the sum paid
under protest on the ground that the same were actually damages directly brought about by the fault,
negligence, illegal act and/or breach of contract of ESLI. ESLI contended that it exercised the diligence
required by law in the handling, custody and carriage of the shipment; that the fire was caused by an
unforeseen event; that the additional freight charges are due and demandable pursuant to the Bill of
Lading; and that salvage charges are properly collectible under Act No. 2616, known as the Salvage Law.

The trial court dismissed PHAC's complaint and ruled in favor of ESLI. CA affirmed. Now, PHAC claimed,
among others, that CA erred in holding that the expenses or averages incurred in saving the cargo
constitute general average.
ISSUE: Whether or not the expenses or averages incurred in saving the cargo constitute
general average
HELD: No.
As a rule, general or gross averages include all damages and expenses which are deliberately caused in
order to save the vessel, its cargo, or both at the same time, from a real and known risk 9 While the
instant case may technically fall within the purview of the said provision, the formalities prescribed under
Articles 813 10 and 814 11 of the Code of Commerce in order to incur the expenses and cause the
damage corresponding to gross average were not complied with. Consequently, respondent ESLI's claim

for contribution from the consignees of the cargo at the time of the occurrence of the average turns to
naught.
Prescinding from the foregoing premises, it indubitably follows that the cargo consignees cannot be
made liable to respondent carrier for additional freight and salvage charges. Consequently, respondent
carrier must refund to herein petitioner the amount it paid under protest for additional freight and
salvage charges in behalf of the consignees.



Barrois v Carlos A. Go Thomg. and Co. (G.R. No. L-17192 ; March 30, 1963)

FACTS:
The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of
the William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other
southern cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about
8:00 o'clock on the evening of May 1, 1958, plaintiff in his capacity as such captain and/or master of the
aforesaid MV Henry I, received or otherwise intercepted an S.O.S. or distress signal by blinkers from the
MV Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong & Company. Acting on
and/or answering the S.O.S. call, the plaintiff Honorio M. Barrios, also in his capacity as captain and/or
master of the MV Henry I, which was then sailing or navigating from Dumaguete City, altered the course
of said vessel, and steered and headed towards the beckoning MV Don Alfredo, which plaintiff found to
be in trouble, due to engine failure and the loss of her propeller, for which reason, it was drifting slowly
southward from Negros Island towards Borneo in the open China Sea, at the mercy of a moderate
easterly wind. At about 8:25 p.m. on the same day, May 1, 1958, the MV Henry I, under the command of
the plaintiff, succeeded in getting near the MV Don Alfredo — in fact as near as about seven meters from
the latter ship — and with the consent and knowledge of the captain and/or master of the MV Don
Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and connected with two lines
from the MV Henry I; and in that manner, position and situation, the latter had the MV Don Alfredo in tow
and proceeded towards the direction of Dumaguete City, as evidenced by a written certificate to this
effect executed and accomplished by the Master, the Chief Engineer, the Chief Officer, and the Second
Engineer, of the MV Don Alfredo, who were then on board the latter ship at the time of the occurrence
stated above . At about 5:10 o'clock the following morning, May 2, 1958, or after almost nine hours
during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were
approaching the vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of
the MV Don Alfredo, was sighted heading towards the direction of the aforesaid two vessels, reaching
then fifteen minutes later, or at about 5:25 o'clock on that same morning. Thereupon, at the request and
instance of the captain and/or master of the MV Don Alfredo, the plaintiff caused the tow lines to be
released, thereby also releasing the MV Don Alfredo. Plaintiff sought to recover from defendant
contending that the service it rendered to latter constituted “salvage” under the Salvage Law (Act No.
2616).
ISSUES:
1. Whether or not the service rendered by plaintiff to defendant constituted "salvage" or
"towage"
2. If so, whether or not plaintiff may recover from defendant compensation for such service

1. No.
a. SALVAGE: BASIS AND NATURE
The pertinent provision of the Salvage Law (Act No. 2616), provides:
SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the
crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other
persons, the latter shall be entitled to a reward for the salvage.
Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from
shipwreck, shall be entitled to a like reward.
According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a reward (salvage). "Salvage" has been defined as "the compensation allowed to persons by
whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the
sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture." In
the Erlanger & Galinger case, it was held that three elements are necessary to a valid salvage claim,
namely, (1) a marine peril, (2) service voluntarily rendered when not required as an existing duty or from
a special contract, and (3) success in whole or in part, or that the service rendered contributed to such
success.
Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against
defendant? Like the trial court, we do not think there was. It appears that although the defendant's
vessel in question was, on the night of May 1, 1958, in a helpless condition due to engine failure, it did
not drift too far from the place where it was. As found by the court a quo the weather was fair, clear, and
good. The waves were small and too slight, so much so, that there were only ripples on the sea, which
was quite smooth. During the towing of the vessel on the same night, there was moonlight. Although
said vessel was drifting towards the open sea, there was no danger of it floundering or being stranded,
as it was far from any island or rocks. In case of danger of stranding, its anchor could released, to
prevent such occurrence. There was no danger that defendant's vessel would sink, in view of the
smoothness of the sea and the fairness of the weather. That there was absence of danger is shown by
the fact that said vessel or its crew did not even find it necessary to lower its launch and two motor
boats, in order to evacuate its passengers aboard. Neither did they find occasion to jettison the vessel's
cargo as a safety measure. Neither the passengers nor the cargo were in danger of perishing. All that the
vessel's crew members could not do was to move the vessel on its own power. That did not make the
vessel a quasi-derelict, considering that even before the appellant extended the help to the distressed
ship, a sister vessel was known to be on its way to succor it.
b. SERVICE CONSTITUTED “TOWAGE”
If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law,
can it be considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The
answer seems to incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel,
defendant (through the captain of its vessel MV Don Alfredo) thereby impliedly entered into a juridical
relation of "towage" with the owner of the vessel MV Henry I, captained by plaintiff, the William Lines,
Incorporated.
Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its engine
speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by
while ship proceeded to dock under own power, was entitled, in absence of written agreement as to
amount to be paid for services, to payment for towage services, and not for salvage services.

2. No.
a. DISTINCTION BETWEEN “SALVAGE” AND “TOWAGE”: ESSENTIAL TO DETERMINE RIGHT OF
CREW MEMBERS
If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to
the exclusion of the crew of the said vessel, may be entitled to remuneration.
"The distinction between salvage and towage is of importance to the crew of the salvaging ship,
for the following reasons: If the contract for towage is in fact towage, then the crew does not
have any interest or rights in the remuneration pursuant to the contract. But if the owners of the
respective vessels are of a salvage nature, the crew of the salvaging ship is entitled to salvage,
and can look to the salvaged vessel for its share. (I Norris, The Law of Seamen, Sec. 222.)
b. TOWAGE: PLAINTIFF HAS NO RIGHT SINCE VESSEL OWNER WAIVED ALL ITS CLAIMS
And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation
for the towage service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon
and not separate from the interest of his employer, is not entitled to payment for such towage service.

CARRIAGE OF GOODS BY SEA ACT


Insurance Company of North America v Philippine Ports Terminals (G.R. No. L-6420; July
18, 1955)

FACTS:
Insurance Company of North America filed a complaint against the Philippine Ports Terminals, Inc.,
alleging, among other things, that: the defendant Philippine Ports Terminals, Inc., was the contractor and
operator of the arrastre service in the Port of Manila, and as such, was charged with the custody and care
of all cargoes discharged at the government piers at Manila with the duty to deliver same to their
respective owners upon presentation by the latter of release papers from the agents or owners of vessels
and the Bureau of Custom; that the plaintiff had been informed and therefore alleged that in the month
of September, 1949, the steamship "PRESIDENT VAN BUREN" discharged into the custody of the
Philippine Ports Terminals, Inc., one case of machine knives consigned to the Central Saw Mill, valued at
least P3,796.00 but said merchandise was never delivered by the defendant to said consignee; that the
defendant admits the non-delivery of the said merchandise to the consignee, Central Saw Mills, Inc., and
offered to pay P500.00 for said merchandise instead of its value P3,796.00 which offer was refused; that
the plaintiff Insurance Company of North America was subrogated to the rights of the Central Saw Mill,
Inc., by virtue of a receipt dated October 21, 1949; and that the defendant corporation refused to pay
said sum of P3,796.00. There is a claim by the plaintiff of P1,000.00 as attorney's fees.
The defendant-appellee filed a motion for dismissal on the ground that the complaint was filed after one
year from the time that the cause of action accrued. The court below dismissed the complaint. The
motion of dismissal was based on the provisions of Public Act No. 521 of the 74th U.S. Congress more
commonly known as "Carriage of Goods by Sea Act". This Act was expressly made applicable to the
Philippines by Commonwealth Act No. 65 which was approved and took effect on October 22, 1936. The
pertinent provision of said "Carriage of Goods by Sea Act" regarding the time for bringing action reads as
follows:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the goods
should have been delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right
of the shipper to bring suit within one year after the delivery of the goods or the date when the
goods should have been delivered.
ISSUE: Whether or not the Carriage of Goods by Sea Act applies insofar as the cause of
action had already prescribed
HELD: No.
DEFENDANT: NEITHER A CARRIER NOR A SHIP
It is evident, however, that the defendant Philippine Ports Terminals, Inc., is not a carrier. Section 1
(a) and (d) of "Carriage of Goods by Sea Act" defines the terms "carrier" and "ship" as follows:
The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a
shipper.
The term "ship" means any vessel used for the carriage of goods by sea.
The defendant-appellee, Philippine Ports Terminals, Inc., is neither a charterer nor a ship.
Consequently the "Carriage of Goods by Sea Act" does not apply to it. However, the ordinary period
of four years fixed by the Code of Civil Procedure will apply. The action in this case has been brought
within that time.


E.E. Elser Inc v CA (G.R. No. L-6517 ; November 29, 1954)

FACTS:
It appears that in the month of December, 1945 the goods specified in the Bill of Lading, were shipped
on the 'S.S. Sea Hydra,' of Isthmian Steamship Company, from New York to Manila, and were received by
the consignee 'Udharam Bazar and Co.', except one case of vanishing cream valued at P159.78. The
goods were insured against damage or loss by the 'Atlantic Mutual Insurance Co.' `Udharam Bazar and
Co.' Inc., who denied having received the goods for custody, and the 'International Harvester Co. of the
Philippines,' as agent for the shipping company, who answer that the goods were landed and delivered to
the Customs authorities. Finally, 'Udaharam Bazar and Co.' claimed for indemnity of the loss from the
insurer, 'Atlantic Mutual Insurance Co.', and was paid by the latter's agent 'E. E. Elser Inc.' the amount
involved, that is, P159.78. Hence, petitioner filed a claim against respondent.
CA held that petitioners have already lost their right to press their claim against respondent because of
their failure to serve notice thereof upon the carrier within 30 days after receipt of the notice of loss or
damage as required by clause 18 of the bill of lading which was issued concerning the shipment of the
merchandise which had allegedly disappeared. Petitioners now contend that this finding is erroneous in
the light of the provisions of the Carriage of Goods by Sea Act of 1936, which apply to this case, the
same having been made an integral part of the covenants agreed upon in the bill of lading.
ISSUE: Whether or not Carriage of Goods by Sea Act shall apply insofar as petitioner’s claim,
brought within a year from date where goods are or should have been delivered, is not yet
barred by prescription
HELD: Yes

1. PROVISIONS OF CARRIAGE OF GOODS BY SEA ACT
It should be noted, in this connection, that the Carriage of Goods by Sea Act of 1936 was accepted and
adopted by our government by the enactment of Commonwealth Act No. 65 making said Act "applicable
to all contracts for the carriage in foreign trade." And the pertinent provisions of the Carriage of the
Goods by Sea Act of 1936 are:
6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing
to the carrier of his agent at the port of discharge or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If
the loss or damage is not apparent, the notice must be given within three days of the delivery.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should
have been delivered: PROVIDED, That if a notice of loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of the goods or the date when the goods should have
been delivered. (Section 3)
It would therefore appear from the above that a carrier can only be discharged from liability in respect of
loss or damage if the suit is not brought within one year after the delivery of the goods or the date when
the goods should have been delivered, and that, even if a notice of loss or damage is not given as
required, "that fact shall not affect or prejudice the right of the shipper to bring suit within one year after
the delivery of the goods." In other words, regardless of whether the notice of loss or damage has been
given, the shipper can still bring an action to recover said loss or damage within one year after the
delivery of the goods, and, as we have stated above, this is contrary to the provisions of clause 18 of the
bill of lading.
2. ABOVE PROVISIONS SHAL PREVAIL OVER CLAUSE 18 OF THE BILL OF LADING
That clause 18 must of necessity yields to the provisions of the Carriage of Goods by Sea Act in view of
the proviso contained in the same Act which says: "any clause, covenant, or agreement in a contract of
carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the
goods . . . or lessening such liability otherwise than as provided in this Act, shall be null and void and of
no effect." (section 3.) This means that a carrier cannot limit its liability in a manner contrary to what is
provided for in said act. and so clause 18 of the bill of lading must of necessity be null and void.


Ang v American Steamship Agencies (G.R. No. L-22491 ; January 27, 1967)

FACTS:
Yau Yue Commercial Bank Ltd. of Hongkong, agreed to sell 140 packages of galvanized steel durzinc
sheets to one Herminio G. Teves for the sum of $32,458.26 (US). Said agreement was subject to the
following terms and arrangements: (a) the purchase price should be covered by a bank draft for the
corresponding amount which should be paid by Herminio G. Teves in exchange for the delivery to him of
the corresponding bill of lading to be deposited with a local bank, the Hongkong & Shanghai Bank of
Manila (b) upon arrival of the articles in Manila, Teves would be notified and he would have to pay the
amount called for in the corresponding demand draft, after which the bill of lading would be delivered to
him; and (c) Teves would present said bill of lading to the carrier's agent, American Steamship Agencies,
Inc. which would then issue the corresponding "Permit To Deliver Imported Articles" to be presented to
the Bureau of Customs to obtain the release of the articles.

Pursuant to said terms and arrangements, Yau Yue through Tokyo Boeki Ltd. of Tokyo, Japan, shipped the
articles at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU, Manila, belonging to the
Nissho Shipping Co., Ltd. of Japan, of which the American Steamship Agencies, Inc. is the agent in the
Philippines, under a shipping agreement, Bill of Lading No. WM-2 dated April 30, 1961, consigned "to
order of the shipper with Herminio G. Teves as the party to be notified of the arrival of the 140 packages
of galvanized steel durzinc sheets in Manila.
The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon receipt
thereof, Yau Yue drew a demand draft together with the bill of lading against Herminio G. Teves, through
the Hongkong & Shanghai Bank.
When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank notified Teves,
the "notify party" under the bill of lading, of the arrival of the goods and requested payment of the
demand draft representing the purchase price of the articles. Teves, however, did not pay the demand
draft, prompting the bank to make the corresponding protest. The bank likewise returned the bill of
lading and demand draft to Yau Yue which indorsed the said bill of lading to Domingo Ang.

Meanwhile, despite his non-payment of the purchase price of the articles, Teves was able to obtain a
bank guaranty in favor of the American Steamship Agencies, Inc., as carrier's agent, to the effect that he
would surrender the original and negotiable bill of lading duly indorsed by Yau Yue. On the strength of
this guaranty, Teves succeeded in securing a "Permit To Deliver Imported Articles" from the carrier's
agent, which he presented to the Bureau of Customs which in turn released to him the articles covered
by the bill of lading.
Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc., by
presenting the indorsed bill of lading, but he was informed by the latter that it had delivered the articles
to Teves. Domingo Ang filed a complaint against the American Steamship Agencies, Inc., for having
allegedly wrongfully delivered and/or converted the goods covered by the bill of lading belonging to
plaintiff Ang, to the damage and prejudice of the latter.
Defendant filed a motion to dismiss upon the ground that plaintiff's cause of action has prescribed under
the Carriage of Goods by Sea Act (Commonwealth Act No. 65). It argued that the cargo should have been
delivered to the person entitled to the delivery thereof (meaning the plaintiff) on May 9, 1961, the date
of the vessel's arrival in Manila, and that even allowing a reasonable time (even one month) after such
arrival within which to make delivery, still, the action commenced on October 30, 1963 was filed beyond
the prescribed period of one year.
Trial court dismissed action on the ground of prescription.
ISSUE: Whether or not Carriage of Goods by Sea Act shall apply insofar as petitioner’s claim
is already barred by prescription
HELD: No.
1. LOSS OR DAMAGE: NO DAMAGE
The provision of law involved in this case speaks of "loss or damage". That there was no damage caused
to the goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is
admitted by both parties in this case. What is to be resolved — in order to determine the applicability of
the prescriptive period of one year to the case at bar — is whether or not there was "loss" of the goods
subject matter of the complaint.

2. DEFINITION OF LOSS: NO LOSS-- DELIVERY OR MISDELIVERY
Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been imposed with
the intention of suspending the efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship Agencies, Inc. and the Yau Yue (which
later on endorsed the bill of lading covering the shipment to plaintiff herein Domingo Ang), is one
involving an obligation to give or to deliver the goods "to the order of shipper", that is, upon the
presentation and surrender of the bill of lading. This being so, said article can be applied to the present
controversy, more specifically paragraph 2 thereof which provides that, "... it is understood that a thing is
lost when it perishes, or goes out of commerce, or disappears in such a way that its existence unknown
or it cannot be recovered."

As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by Sea
Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of the
goods because the same had perished, gone out of commerce, or disappeared that their existence is
unknown or they cannot be recovered. It does not include a situation where there was indeed
delivery — but delivery to the wrong person, or a misdelivery, as alleged in the complaint in this
case.
From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were
delivered to Herminio G. Teves, so that there can only be either delivery, if Teves really was entitled to
receive them, or misdelivery, if he was not so entitled. It is not for Us now to resolve whether or not
delivery of the goods to Teves was proper, that is, whether or not there was rightful delivery or
misdelivery.
The point that matters here is that the situation is either delivery or misdelivery, but not nondelivery.
Thus, the goods were either rightly delivered or misdelivered, but they were not lost. There being no loss
or damage to the goods, the aforequoted provision of the Carriage of Good by Sea Act stating that "In
any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered," does not apply.
3. ACT NOT APPLICABLE: DESIGNED TO MEET THE EXIGENCIES OF MARITIME HAZARDS
Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case
where the goods shipped were neither last nor damaged in transit but were, on the contrary, delivered in
port to someone who claimed to be entitled thereto, the situation is different, and the special need for
the short period of limitation in cases of loss or damage caused by maritime perils does not obtain.
4. APPLICABLE RULE IN PRESCRIPTION: CIVIL CODE
It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of
the goods, the applicable rule on prescription is that found in the Civil Code, namely, either ten years for
breach of a written contract or four years for quasi-delict. (Arts. 1144[1], 1146, Civil Code) In either case,
plaintiff's cause of action has not vet prescribed, since his right of action would have accrued at the
earliest on May 9, 1961 when the ship arrived in Manila and he filed suit on October 30, 1963.


Mitsui O.S.K Lines v CA (G.R. No. 119571; March 11, 1998)

FACTS:

Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent,
Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., an
international freight forwarder, with private respondent Lavine Loungewear Manufacturing Corporation to
transport goods of the latter from Manila to Le Havre, France. Petitioner undertook to deliver the goods to
France 28 days from initial loading. On July 24, 1991, petitioner's vessel loaded private respondent's
container van for carriage at the said port of origin.
However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the
shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half the
value of the said goods on the ground that they did not arrive in France until the "off season" in that
country. The remaining half was allegedly charged to the account of private respondent which in turn
demanded payment from petitioner through its agent.
As petitioner denied private respondent's claim, the latter filed a case against it. Petitioner filed a motion
to dismiss alleging that the claim against it had prescribed under the Carriage of Goods by Sea Act. This
was denied by the trial court and later sustained by CA.
ISSUE: Whether or not private respondent's action is for "loss or damage" to goods shipped,
within the meaning of §3(6) of the Carriage of Goods by Sea Act (COGSA)

HELD: No.
1. JURISPRUDENCE: DEFINITION OF “LOSS” AND “DETERIORATION”
In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of goods
which had been delivered to a party other than the consignee is for "loss or damage" within the meaning
of §3(6) of the COGSA. It was held that there was no loss because the goods had simply been
misdelivered. "Loss" refers to the deterioration or disappearance of goods.
As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea
Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of the
goods because the same had perished, gone out of commerce, or disappeared in such a way that their
existence is unknown or they cannot be recovered.
Conformably with this concept of what constitutes "loss" or "damage," this Court held in another case
that the deterioration of goods due to delay in their transportation constitutes "loss" or "damage" within
the meaning of §3(6), so that as suit was not brought within one year the action was barred:
Whatever damage or injury is suffered by the goods while in transit would result in loss or damage to
either the shipper or the consignee. As long as it is claimed, therefore, as it is done here, that the
losses or damages suffered by the shipper or consignee were due to the arrival of the goods in
damaged or deteriorated condition, the action is still basically one for damage to the goods, and
must be filed within the period of one year from delivery or receipt, under the above-quoted
provision of the Carriage of Goods by Sea Act.
But the Court allowed that —

There would be some merit in appellant's insistence that the damages suffered by him as a result of
the delay in the shipment of his cargo are not covered by the prescriptive provision of the Carriage of
Goods by Sea Act above referred to, if such damages were due, not to the deterioration and decay of
the goods while in transit, but to other causes independent of the condition of the cargo upon arrival,
like a drop in their market value. . . .
2. IN THE INSTANT CASE: WHAT IS IN ISSUE IS NOT LIABILITY FOR HANDLING GOODS UNDER
COGSA BUT THAT UNDER THE CONTRACT OF CARRIAGE
Indeed, what is in issue in this petition is not the liability of petitioner for its handling of goods as
provided by §3(6) of the COGSA, but its liability under its contract of carriage with private respondent as
covered by laws of more general application.
Precisely, the question before the trial court is not the particular sense of "damages" as it refers to the
physical loss or damage of a shipper's goods as specifically covered by §3(6) of COGSA but petitioner's
potential liability for the damages it has caused in the general sense and, as such, the matter is
governed by the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of carriage
with private respondent.
3. PRESCRIPTIVE PERIOD: CIVIL CODE APPLICABLE
We conclude by holding that as the suit below is not for "loss or damage" to goods contemplated in
§3(6), the question of prescription of action is governed not by the COGSA but by Art. 1144 of the Civil
Code which provides for a prescriptive period of ten years.




Yek Tong Lin Fire & Marine Ins. Co. Ltd. V Apl Inc
Union Carbide v Manila Railroad (G.R. No. L-27798 ; June 15, 1977)

FACTS:
On December 18, 1961 the vessel Daishin Maru arrived in Manila with a cargo of 1,000 bags of synthetic
resin consigned to General Base Metals, Inc. which later sold the cargo to Union Carbide Philippines, Inc.
On the following day, December 19, that cargo was delivered to the Manila Port Service in good order
and condition except for twenty- five bags which were in bad order
On January 20 and February 6 and 8, 1962 eight hundred ninety-eight (898) bags of resin (out of the
1,000 bags) were delivered by the customs broker to the consignee. One hundred two bags were
missing. The contents of twenty-five bags were damaged or pilfered while they were in the custody of
the arrastre operator.
The consignee, through the customs broker, filed with the Manila Port Service, as arrastre operator, and
the American Steamship Agencies, Inc., as agent of the carrier, a provisional claim advising them that
the shipment in question was "shorthanded, short delivered and/or landed in bad order"
Formal claims dated June 11, 1962 were made by the consignee with the arrastre operator and the agent
of the carrier. As the claims were not paid, Union Carbide Philippines, Inc. filed a complaint on December
21, 1962 in the Court of First Instance of Manila against the Manila Railroad Company, the Manila Port
Service and the American Steamship Agencies, Inc. for the recovery of damages amounting to P7,402.78

as the value of the undelivered 102 bags of resin and the damaged 50 bags plus legal rate of interest
from the filing of the complaint and P1,000 as attorney's fees.
Union Carbide's complaint was a double-barrelled action or a joinder of two causes of action. One was an
action in admiralty under the Carriage of Goods by Sea Act against the carrier's agent for the recovery of
P1,217.56 as the value of twenty-five bags of resin which were damaged before they were landed The
other was an action under the management contract between the Bureau of Customs and the Manila
Port Service, a subsidiary of the Manila Railroad Company, for the recovery of P6,185.22 as the value of
the undelivered 102 bags of resin and twenty-five bags, the contents of which were damaged or pilfered
while in the custody of the arrastre operator.
The trial court in its decision of January 15, 1964 dismissed the case as to the carrier's agent on the
ground that the action had already prescribed because it was not "brought within one year after delivery
of the goods", as contemplated in section 3(6) of the Carriage of Goods by Sea Act. The one-year period
was counted from December 19, 1961 when the cargo was delivered to the arrastre operator. As above
stated, the action was brought on December 21, 196'2 or two days late, according to the trial court's
reckoning. With respect to the consignee's claim against the arrastre operator, the trial court found that
the provisional claim was filed within the fifteen-day period fixed in paragraph 15 of the arrastre
contract. Yet, in spite of that finding, the trial court dismissed the action against the arrastre operator.
ISSUE:
1. Whether or not the action against carrier’s agent is already barred by prescription
2. Whether or not the dismissal of the action against arrastre operator was proper

HELD:
1. Yes.
a. WHAT CONSTITUTES DELIVERY: RECKONING POINT
The sensible and practical interpretation is that delivery within the meaning of section 3(6) of the
Carriage of Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced by
tally sheets which show whether the goods were landed in good order or in bad order, a fact which the
consignee or shipper can easily ascertain through the customs broker.
To use as basis for computing the one-year period the delivery to the consignee would be unrealistic and
might generate confusion between the loss or damage sustained by the goods while in the carrier's
custody and the loss or damage caused to the goods while in the arrastre operator's possession.
b. DEFINITION: CONSISTENT WITH DUTY OF CARRIERS
Apparently, section 3(6) adheres to the common-law rule that the duty imposed water carriers was
merely to transport from wharf to wharf and that the carrier was not bound to deliver the goods at the
warehouse of the consignee (Tan Hi vs. United States, 94 Fed. Supp. 432,435).
2. No.
a. CLAIM AGAINST ARRASTRE OPERATOR: BASIS, WHEN FILED

The liability of the arrastre contractor has a factual and legal basis different from that of the carrier's.
The management contract between the Manila Port Service and the Bureau of Customs provides:
15. ... ; in any event the CONTRACTOR hall be relieved and released of any and all responsibility or
liability for loss, damage, misdelivery, and/or non-delivery of goods, unless suit in the court of proper
jurisdiction is brought within a period of one (1) year from the date of the discharge of the goods, or
from the date when the claim for the value of such goods have been rejected or denied by the
CONTRACTOR, provided that such claim shall have been filed with the CONTRACTOR within fifteen
(15) days from the date of discharge of the last package from the carrying vessel. ... (Annex A of
Stipulation of Facts
Under the foregoing contractual provisions, the action against the arrastre operator to enforce liability for
loss of the cargo or damage thereto should be filed within one year from the date of the discharge of the
goods or from the date when the claim for the value of such goods has been rejected or denied by the
arrastre operator.
b. CONDITION PRECEDENT BEFORE FILING OF ACTION: COMPLIED
However, before such action can be filed a condition precedent should be complied with and that is, that
a claim (provisional or final) shall have been previously filed with the arrastre operator within fifteen
days from the date of the discharge of the last package from the carrying vessel (Continental Insurance
Company vs. Manila Port Service, L-22208, March 30,1966,16 SCRA 425).
In this case, the consignee's customs broker filed with the Manila Port Service as provisional claim
advising the latter that the cargo was "short, short delivered and/or landed in bad order". That claim was
filed on January 3, 1962 or on the fifteenth day following December 19, 1961, the date of the discharge
of the last package from the carrying vessel. That claim was never formally rejected or denied by the
Manila Port Service.
Having complied with the condition precedent for the filing of a claim within the fifteen- day period,
Union Carbide could file the court action within one year, either from December 19, 1961 or from
December 19, 1962. This second date is regarded as the expiration of the period within which the Manila
Port Service should have acted on the claim (Philippine Education Co., Inc. vs. Manila Port Service, L24091, 21 SCRA, 174, 178).
c. ACTION FILED IN TIME: ARRASTRE OPERATOR LIABLE
In other words, the claimant or consignee has a two-year prescriptive period, counted from the date of
the discharge of the goods, within which to file the action in the event that the arrastre contractor, as in
this case, has not rejected nor admitted liability (Continental Insurance Company vs. Manila Port Service,
supra. Philippine Education Company vs. Manila Port Service, L-23444, October 29, 1971, 42 SCRA 31).
Since the action in this case against the arrastre operator was filed on December 21, 1962, or within the
two-year period expiring on December 19, 1963, that action was filed on time. The trial court erred in
dismissing the action against the Manila Port Service and its principal, the Manila Railroad Company.
As shown in the statement of facts, the arrastre operator is responsible for the value of 102 bags of resin
which were not delivered, and twenty-five bags, which were damaged, or a total of one hundred twentyseven bags valued at P6,185.22.


DOLE Philippines v Maritime Co. (G.R. No. L-61352 ; February 27, 1987)

FACTS:
The cargo subject of the instant case was discharged in Dadiangas unto the custody of the consignee on
December 18, 1971. The corresponding claim for the damages sustained by the cargo was filed by the
plaintiff with the defendant vessel on May 4, 1972. On June 11, 1973 the plaintiff filed a complaint in the
Court of First Instance of Manila, docketed therein as Civil Case No. 91043, embodying three (3) causes
of action involving three (3) separate and different shipments. The third cause of action therein involved
the cargo now subject of this present litigation.
On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043 dismissing the first
two causes of action in the aforesaid case with prejudice and without pronouncement as to costs
because the parties had settled or compromised the claims involved therein. The third cause of action
which covered the cargo subject of this case now was likewise dismissed but without prejudice as it was
not covered by the settlement. The dismissal of that complaint containing the three causes of action was
upon a joint motion to dismiss filed by the parties. Because of the dismissal of the (complaint in Civil
Case No. 91043 with respect to the third cause of action without prejudice, plaintiff instituted this
present complaint on January 6, 1975.
To the complaint in the subsequent action Maritime filed an answer pleading inter alia the affirmative
defense of prescription under the provisions of the Carriage of Goods by Sea Act, 5 and following pretrial, moved for a preliminary hearing on said defense. The Trial Court granted the motion, scheduling the
preliminary hearing on April 27, 1977. The record before the Court does not show whether or not that
hearing was held, but under date of May 6, 1977, Maritime filed a formal motion to dismiss invoking once
more the ground of prescription. The motion was opposed by Dole and the Trial Court, after due
consideration, resolved the matter in favor of Maritime and dismissed the complaint 10 Dole sought a
reconsideration, which was denied, and thereafter took the present appeal from the order of dismissal.
ISSUE: Whether or not Article 1155 of the Civil Code providing that the prescription of
actions is interrupted by the making of an extrajudicial written demand by the creditor is
applicable to actions brought under the Carriage of Goods by Sea Act
HELD: No.

1. JURISPRUDENCE
These arguments might merit weightier consideration were it not for the fact that the question has
already received a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire &
Marine Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a parallel factual situation,
where suit to recover for damage to cargo shipped by vessel from Tokyo to Manila was filed more than
two years after the consignee's receipt of the cargo, this Court rejected the contention that an
extrajudicial demand toiled the prescriptive period provided for in the Carriage of Goods by Sea Act, viz:
In the second assignment of error plaintiff-appellant argues that it was error for the court a quo not to
have considered the action of plaintiff-appellant suspended by the extrajudicial demand which took
place, according to defendant's own motion to dismiss on August 22, 1952. We notice that while
plaintiff avoids stating any date when the goods arrived in Manila, it relies upon the allegation made
in the motion to dismiss that a protest was filed on August 22, 1952 — which goes to show that
plaintiff-appellant's counsel has not been laying the facts squarely before the court for the
consideration of the merits of the case. We have already decided that in a case governed by the
Carriage of Goods by Sea Act, the general provisions of the Code of Civil Procedure on prescription
should not be made to apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554, May 27, 1953.)
Similarly, we now hold that in such a case the general provisions of the new Civil Code (Art. 1155)

cannot be made to apply, as such application would have the effect of extending the one-year period
of prescription fixed in the law. It is desirable that matters affecting transportation of goods by sea
be decided in as short a time as possible; the application of the provisions of Article 1155 of the new
Civil Code would unnecessarily extend the period and permit delays in the settlement of questions
affecting transportation, contrary to the clear intent and purpose of the law.
2. EVEN IF IT WERE OTHERWISE, PRESCRIPTION HAD ALREADY PRESCRIBED
Moreover, no different result would obtain even if the Court were to accept the proposition that a written
extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The demand in this
instance would be the claim for damage-filed by Dole with Maritime on May 4, 1972. The effect of that
demand would have been to renew the one- year prescriptive period from the date of its making. Stated
otherwise, under Dole's theory, when its claim was received by Maritime, the one-year prescriptive
period was interrupted — "tolled" would be the more precise term — and began to run anew from May 4,
1972, affording Dole another period of one (1) year counted from that date within which to institute
action on its claim for damage. Unfortunately, Dole let the new period lapse without filing action. It
instituted Civil Case No. 91043 only on June 11, 1973, more than one month after that period has expired
and its right of action had prescribed.
Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 *** (and that) in
legal contemplation *** (the) case (Civil Case No. 96353) was filed on January 6, 1975 *** well within the
one-year prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea Act." equates tolling with
indefinite suspension. It is clearly fallacious and merits no consideration.
 Mayer Steel Pipe Corp. et al v CA (G.R. No. 124050; June 19, 1997)
FACTS:
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August
to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022.
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter).
The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of
US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017
and 1022 with a total amount of US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was
discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance contract.
Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor's report allegedly showed that the damage
is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due to factory defects which are not
covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and
private respondents are "all risks" policies which insure against all causes of conceivable loss or damage.
The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional
misconduct on the part of the insured.
CA affirmed that the damage is not due to factory defect and that it was covered by the "all risks"
insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision
of the trial court and dismissed the complaint on the ground of prescription. It held that the action is
barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986,
more than two years from the time the goods were unloaded from the vessel. Section 3(6) of the
Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered." Respondent court ruled that this provision applies not only
to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro.
ISSUE: Whether or not the cause of action had already prescribed
HELD: No.
1. SECTION 3(6) OF THE CARRIAGE OF GOODS BY SEA ACT: NOT APPLICABLE TO IINSURER’S
LIABILITY
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged
from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the
goods or the date when they should have been delivered. Under this provision, only the carrier's liability
is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished
because the insurer's liability is based not on the contract of carriage but on the contract of insurance . A
close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between
the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It
defines the obligations of the carrier under the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case is governed by the Insurance Code.
2. RULING UNDER FILIPINO MERCHANTS INSURANCE CO. INC V ALEJANDRO: INAPPLICABLE
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case
at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the
"all risks" insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper,
the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage
of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a
claim against the carrier beyond the one-year period provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the
insurance contract. An insurance contract is a contract whereby one party, for a consideration known
as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified
peril. An "all risks" insurance policy covers all kinds of loss other than those due to willful and
fraudulent act of the insured. Thus, when private respondents issued the "all risks" policies to petitioner
Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured.
Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.


Philippine Career Insurance Corp. v Neptune Orient Lines (G.R. No. 145044; June 12,
2008)

FACTS:
On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong three sets of
warp yarn on returnable beams aboard respondent Neptune Orient Lines’ vessel, M/V Baltimar Orion, for
transport and delivery to Fukuyama Manufacturing Corporation (Fukuyama) of No. 7 Jasmin Street, AUV
Subdivision, Metro Manila. The said cargoes were loaded in Container No. IEAU-4592750 in good
condition under Bill of Lading No. HKG-0396180. Fukuyama insured the shipment against all risks with
petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy No. RN55581 in the
amount of P228,085.
During the course of the voyage, the container with the cargoes fell overboard and was lost. Thus,
Fukuyama wrote a letter to respondent Overseas Agency Services, Inc. (Overseas Agency), the agent of
Neptune Orient Lines in Manila, and claimed for the value of the lost cargoes. However, Overseas
Agency ignored the claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the insured
value of the cargoes in the amount of P228,085, which claim was fully satisfied by PCIC.
On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner PCIC for the latter to be
subrogated in its right to recover its losses from respondents.PCIC demanded from respondents
reimbursement of the entire amount it paid to Fukuyama, but respondents refused payment.On March
21, 1994, PCIC filed a complaint for damages against respondents with the Regional Trial Court (RTC) of
Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying liability. They alleged that during
the voyage, the vessel encountered strong winds and heavy seas making the vessel pitch and roll, which
caused the subject container with the cargoes to fall overboard. Respondents contended that the
occurrence was a fortuitous event which exempted them from any liability, and that their liability, if any,
should not exceed US$500 or the limit of liability in the bill of lading, whichever is lower.
RTC held that respondents, as common carrier,[2] failed to prove that they observed the required
extraordinary diligence to prevent loss of the subject cargoes in accordance with the pertinent provisions
of the Civil Code.[3] The dispositive portion of the Decision reads:

WHEREFORE, judgment is rendered ordering the defendants, jointly and severally, to pay the plaintiff
the Peso equivalent as of February 17, 1994 of HK$55,000.00 or the sum of P228,085.00, whichever
is lower, with costs against the defendants.[4]

Respondents’ motion for reconsideration was denied by the RTC in an Order dated February 19, 1996.

Respondents appealed the RTC Decision to the CA.
In a Decision promulgated on February 15, 2000, the CA affirmed the RTC Decision with modification,
thus:

WHEREFORE, the assailed decision is hereby MODIFIED. Appellants Neptune and Overseas are
hereby ordered to pay jointly and severally appellee PCIC P228,085.00, representing the amount it
paid Fukuyama. Costs against the appellants.[5]

Respondents moved for reconsideration of the Decision of the CA arguing, among others, that their
liability was only US$1,500 or US$500 per package under the limited liability provision of the
Carriage of Goods by Sea Act (COGSA).

In its Resolution dated April 13, 2000, the CA found the said argument of respondents to be
meritorious. The dispositive portion of the Resolution reads:

WHEREFORE, the motion is partly granted in the sense that appellants shall be liable to pay appellee
PCIC the value of the three packages lost computed at the rate of US$500 per package or a total of
US$1,500.00.[6]

Hence, this petition raising this lone issue:

THE COURT OF APPEALS ERRED IN AWARDING RESPONDENTS DAMAGES SUBJECT TO THE US$500
PER PACKAGE LIMITATION.

Petitioner contends that the CA erred in awarding damages to respondents subject to the US$500 per
package limitation since the vessel committed a “quasi deviation” which is a breach of the contract
of carriage when it intentionally threw overboard the container with the subject shipment during the
voyage to Manila for its own benefit or preservation based on a Survey Report[7] conducted by
Mariner’s Adjustment Corporation, which firm was tasked by petitioner to investigate the loss of the
subject cargoes. According to petitioner, the breach of contract resulted in the abrogation of
respondents’ rights under the contract and COGSA including the US$500 per package limitation.
Hence, respondents cannot invoke the benefit of the US$500 per package limitation and the CA erred
in considering the limitation and modifying its decision accordingly.

The contention lacks merit.

The facts as found by the RTC do not support the new allegation of facts by petitioner regarding the
intentional throwing overboard of the subject cargoes and quasi deviation. The Court notes that in
petitioner’s Complaint before the RTC, petitioner alleged as follows:

xxx

xxx

xxx

2.03
In the course of the maritime voyage from Hongkong to Manila subject shipment fell
overboard while in the custody of the defendants and were never recovered; it was part of the LCL
cargoes packed by defendants in container IEAU-4592750 that fell overboard during the voyage.[8]

Moreover, the same Survey Report cited by petitioner stated:

From the investigation conducted, we noted that Capt. S.L. Halloway, Master of MV “BALTIMAR
ORION” filed a Note of Protest in the City of Manila, and was notarized on 06 October 1993.

Based on Note of Protest, copy attached hereto for your reference, carrier vessel sailed from
Hongkong on 1st October 1993 carrying containers bound for Manila.

Apparently, at the time the vessel [was] sailing at about 2400 hours of 2nd October 1993, she
encountered winds and seas such as to cause occasional moderate to heavy pitching and rolling
deeply at times. At 0154 hours, same day, while in position Lat. 20 degrees, 29 minutes North, Long.
115 degrees, 49 minutes East, four (4) x 40 ft. containers were lost/fell overboard. The numbers of
these containers are NUSU-3100789, TPHU -5262138, IEAU-4592750, NUSU-4515404.

xxx

xxx

xxx

Furthermore, during the course of voyage, high winds and heavy seas were encountered causing the
ship to roll and pitch heavily. The course and speed was altered to ease motion of the vessel,
causing delay and loss of time on the voyage.
xxx

xxx

SURVEYORS REMARKS:

xxx

In view of the foregoing incident, we are of the opinion that the shipment of 3 cases of
Various Warp Yarn on Returnable Beams which were containerized onto 40 feet LCL (no. IEAU4592750) and fell overboard the subject vessel during heavy weather is an “Actual Total Loss”.[9]

The records show that the subject cargoes fell overboard the ship and petitioner should not vary the
facts of the case on appeal. This Court is not a trier of facts, and, in this case, the factual finding of
the RTC and the CA, which is supported by the evidence on record, is conclusive upon this Court.

As regards the issue on the limited liability of respondents, the Court upholds the decision of the CA.

Since the subject cargoes were lost while being transported by respondent common carrier from
Hong Kong to the Philippines, Philippine law applies pursuant to the Civil Code which provides:

Art. 1753. The law of the country to which the goods are to be transported shall govern the liability
of the common carrier for their loss, destruction or deterioration.

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.

The rights and obligations of respondent common carrier are thus governed by the provisions of the
Civil Code, and the COGSA,[10] which is a special law, applies suppletorily.

The pertinent provisions of the Civil Code applicable to this case are as follows:

Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.

Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade, provides:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money
of the United States, or in case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on the carrier.

In this case, Bill of Lading No. 0396180 stipulates:

Neither the Carrier nor the vessel shall in any event become liable for any loss of or damage to or in
connection with the transportation of Goods in an amount exceeding US$500 (which is the package
or shipping unit limitation under U.S. COGSA) per package or in the case of Goods not shipped in
packages per shipping unit or customary freight, unless the nature and value of such Goods have
been declared by the Shipper before shipment and inserted in this Bill of Lading and the Shipper has
paid additional charges on such declared value. . . .

The bill of lading[11] submitted in evidence by petitioner did not show that the shipper in Hong Kong
declared the actual value of the goods as insured by Fukuyama before shipment and that the said
value was inserted in the Bill of Lading, and so no additional charges were paid. Hence, the
stipulation in the bill of lading that the carrier’s liability shall not exceed US$500 per package applies.

Such stipulation in the bill of lading limiting respondents’ liability for the loss of the subject cargoes
is allowed under Art. 1749 of the Civil Code, and Sec. 4, paragraph (5) of the COGSA. Everett
Steamship Corporation v. Court of Appeals[12] held:

A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code which provide:

‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.’

‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.’

Such limited-liability clause has also been consistently upheld by this court in a number of cases.
Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:

‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless
fully sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only
if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would
amount to questioning the justness and fairness of the law itself.... But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper
or owner the option of avoiding accrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in the bill of lading.’

The CA, therefore, did not err in holding respondents liable for damages to petitioner subject to the
US$500 per package limited- liability provision in the bill of lading.

WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals in CA-G.R. CV No. 52855
promulgated on April 13, 2000 is hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.



Chamber of Filipino Retailers v Villegas

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