Transportation Law Case Digests | Atty.

Norianne Tan | 2016

DELSAN TRANSPORT LINES, INC. vs. CA
G.R. No. 127897, November 15, 2001
Common Carriers; Liability
CASE:
Caltex entered into a contract of affreightment with Delsan where the
latter agreed to transport fuel oil from Batangas-Bataan Refinery to
different parts of the country. Petitioner took on board its vessel, MT
Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be
delivered to the Caltex Oil Terminal in Zamboanga City. The
shipment was insured with American Home Assurance Corporation.
The vessel sank. Insurance company paid the insured value and
now claims against Delsan. The issue (on Transpo) is whether or not
Delsan is liable. YES, It is liable. (read with issue number 2 on
seaworthiness). Common carriers are bound to observe
extraordinary diligence in the vigilance over the goods and for the
safety of passengers transported by them, according to all the
circumstance of each case. In the event of loss, destruction or
deterioration of the insured goods, common carriers shall be
responsible unless the same is brought about, among others, by
flood, storm, earthquake, lightning or other natural disaster or
calamity. In all other cases, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed
extraordinary diligence. In this case, the Court rejected the report of
the captain and the chief mates tale of strong winds during the
voyage. Instead, it gave more credence to the report of PAGASA that
the weather was normal. Since the sinking of the ship cannot be
attributed to bad weather conditions (fortuitious event), it shall be
presumed that the vessel was not seaworthy.
FACTS:
Caltex entered into a contract of affreightment with the
petitioner, Delsan Transport Lines, Inc., for a period of one
year whereby the said common carrier agreed to transport
Caltexs industrial fuel oil from the Batangas-Bataan Refinery
to different parts of the country.
Under the contract, petitioner took on board its vessel, MT
Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to
be delivered to the Caltex Oil Terminal in Zamboanga City.

The shipment was insured with the private respondent,

American Home Assurance Corporation.
The vessel sank in the early morning of August 16, 1986
near Panay Gulf in the Visayas taking with it the entire cargo
of fuel oil.
Insurance company paid Caltex the sum of P5,096,635.67
representing the insured value of the lost cargo. Exercising
its right of it demanded of the petitioner the same amount it
paid to Caltex. Due to failure to collect, American Home
Assurance filed this complaint.
Trial court dismissed the complaint and found that the
vessel, MT Maysum, was seaworthy to undertake the
voyage and that the incident was caused by unexpected
inclement weather condition or force majeure, thus
exempting the common carrier (herein petitioner) from
liability for the loss of its cargo.
CA reversed. It gave credence to the weather report issued
by PAGASA which showed that the weather was normal
during those times. In the absence of any explanation as to
what may have caused the sinking of the vessel coupled
with the finding that the same was improperly manned, the
appellate court ruled that the petitioner is liable on its
obligation as common carrier to herein private respondent
insurance company as subrogee of Caltex.
Petitioner contends that there is an implied warranty by the
shipper that the ship is seaworthy. Consequently, the insurer
will not be liable to the assured for any loss under the policy
in case the vessel would later on be found as not seaworthy
at the inception of the insurance. It theorized that when
private respondent paid Caltex the value of its lost cargo, the
act of the private respondent is equivalent to a tacit
recognition that the ill-fated vessel was seaworthy
Furthermore, petitioner avers that private respondent failed,
for unknown reason, to present in evidence during the trial of
the instant case the subject marine cargo insurance policy it
entered into with Caltex. the failure of the private respondent
to present the insurance policy in evidence is allegedly fatal
to its claim inasmuch as there is no way to determine the
rights of the parties thereto.

Lim Miranda Rivera Santos Yogue

Transportation Law Case Digests | Atty. Norianne Tan | 2016

ISSUE:
1) Whether or not Delsan, as a common carrier is liable. (not
explicit in the case, but for purposes of Transpo issue, this is
the important issue)
2) Whether or not the payment made by the private respondent
to Caltex for the insured value of the lost cargo amounted to
an admission that the vessel was seaworthy, thus precluding
any action for recovery against the petitioner.
3) Whether or not the non-presentation of the marine insurance
policy bars the complaint for recovery of sum of money for
lack of cause of action.
HELD & RATIO:
1) YES.
Applicable Provisions:
Arts. 1733, 1734, 1735 of the Civil Code

From the nature of their business and for reasons of public

policy, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of
passengers transported by them, according to all the
circumstance of each case. In the event of loss, destruction
or deterioration of the insured goods, common carriers shall
be responsible unless the same is brought about, among
others, by flood, storm, earthquake, lightning or other natural
disaster or calamity. In all other cases, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence.
The Court weighed the testimonies and evidnce presented
and gave more credence to the weather bulleting report from
PAGASA saying that the weather was normal rather than the
testimony of the captain and the chief mate. Thus,
petitioners vessel, MT Maysun, sank with its entire cargo for
the reason that it was not seaworthy. There was no squall or

bad weather or extremely poor sea condition in the vicinity

when the said vessel sank.
2) NO.
The payment made by the private respondent for the insured
value of the lost cargo operates as waiver of its (private
respondent) right to enforce the term of the implied warranty
against Caltex under the marine insurance policy. However,
the same cannot be validly interpreted as an automatic
admission of the vessels seaworthiness by the private
respondent as to foreclose recourse against the petitioner for
any liability under its contractual obligation as a common
carrier. The fact of payment grants the private respondent
subrogatory right which enables it to exercise legal remedies
that would otherwise be available to Caltex as owner of the
lost cargo.
The right of subrogation has its roots in equity. It is designed
to promote and to accomplish justice and is the mode which
equity adopts to compel the ultimate payment of a debt by
one who in justice and good conscience ought to pay. 9 It is
not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues
simply upon payment by the insurance company of the
insurance claim. Consequently, the payment made by the
private respondent (insurer) to Caltex (assured) operates as
an equitable assignment to the former of all the remedies
which the latter may have against the petitioner.
3) NO.
The presentation in evidence of the marine insurance policy
is not indispensable in this case before the insurer may
recover from the common carrier the insured value of the
lost cargo in the exercise of its subrogatory right. The
subrogation receipt, by itself, is sufficient to establish not
only the relationship of herein private respondent as insurer
and Caltex, as the assured shipper of the lost cargo of
industrial fuel oil, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply
upon payment by the insurance company of the insurance
claim.

Lim Miranda Rivera Santos Yogue

Transportation Law Case Digests | Atty. Norianne Tan | 2016

Lim Miranda Rivera Santos Yogue