Transpo Chap6 Cases

G.R. No.
121833
October 17, 2008
ABOITIZ SHIPPING CORPORATION, petitioners,

vs.
COURT OF APPEALS, MALAYAN INSURANCE COMPANY, INC., COMPAGNIE
MARITIME DES CHARGEURS REUNIS, and F.E. ZUELLIG (M), INC., respondents.
x-----------------------------------------x
G.R. No. 130752
October 17, 2008

vs.
COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in his capacity as
Presiding Judge of the RTC, Branch 20; ASIA TRADERS INSURANCE
CORPORATION, and ALLIED GUARANTEE INSURANCE
CORPORATION, respondents.
x-----------------------------------------x
G.R. No. 137801
October 17, 2008

vs.
EQUITABLE INSURANCE CORPORATION, respondents.
DECISION
TINGA, J.:
Before this Court are three consolidated Rule 45 petitions all involving the issue of
whether the real and hypothecary doctrine may be invoked by the shipowner in
relation to the loss of cargoes occasioned by the sinking of M/V P. Aboitiz on 31
October 1980. The petitions filed by Aboitiz Shipping Corporation (Aboitiz) commonly
seek the computation of its liability in accordance with the Courts pronouncement in
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd.1 (hereafter referred to as "the 1993 GAFLAC case").
The three petitions stemmed from some of the several suits filed against Aboitiz
before different regional trial courts by shippers or their successors-in-interest for the
recovery of the monetary value of the cargoes lost, or by the insurers for the
reimbursement of whatever they paid. The trial courts awarded to various claimants
the amounts ofP639,862.02, P646,926.30, and P87,633.81 in G.R. Nos. 121833,
130752 and 137801, respectively.
ANTECEDENTS
G.R. No. 121833
Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions
against several defendants for the collection of the amounts of the cargoes allegedly
paid by Malayan under various marine cargo policies2 issued to the insurance
claimants. The five civil cases, namely, Civil Cases No. 138761, No. 139083, No.
138762, No. R-81-526 and No. 138879, were consolidated and heard before the
Regional Trial Court (RTC) of Manila, Branch 54.
The defendants in Civil Case No. 138761 and in Civil Case No. 139083 were Malayan
International Shipping Corporation, a foreign corporation based in Malaysia, its local
ship agent, Litonjua Merchant Shipping Agency (Litonjua), and Aboitiz. The
defendants in Civil Case No. 138762 were Compagnie Maritime des Chargeurs
Reunis (CMCR), its local ship agent, F.E. Zuellig (M), Inc. (Zuellig), and Aboitiz.
Malayan also filed Civil Case No. R-81-526 only against CMCR and Zuellig. Thus,
defendants CMCR and Zuellig filed a third-party complaint against Aboitiz. In the fifth
complaint docketed as Civil Case No. 138879, only Aboitiz was impleaded as
defendant.
The shipments were supported by their respective bills of lading and insured
separately by Malayan against the risk of loss or damage. In the five consolidated
cases, Malayan sought the recovery of amounts totaling P639,862.02.
Aboitiz raised the defenses of lack of jurisdiction, lack of cause of action and
prescription. It also claimed that M/V P. Aboitiz was seaworthy, that it exercised
extraordinary diligence and that the loss was caused by a fortuitous event.
After trial on the merits, the RTC of Manila rendered a Decision dated 27 November
1989, adjudging Aboitiz liable on the money claims. The decretal portion reads:
WHEREFORE, judgment is hereby rendered as follows:
1. In Civil Case No. 138072 (R-81-526-CV), the defendants are adjudged liable and
ordered to pay to the plaintiffs jointly and severally the amount of P128,896.79; the
third-party defendant Aboitiz is adjudged liable to reimburse and ordered to pay the
defendants or whosoever of them paid the plaintiff up to the said amount;
2. In Civil Case No. 138761, Aboitiz is adjudged liable and ordered to pay plaintiff the
amount of One Hundred Sixty Three-Thousand Seven Hundred Thirteen Pesos and
Thirty-Eight Centavos (P163,713.38).
3. In Civil Case No. 138762, defendant Aboitiz is adjudged liable and ordered to pay
plaintiff the sum of Seventy Three Thousand Five Hundred Sixty-Nine Pesos and
Ninety-Four Centavos (P73,569.94); and Sixty-Four Thousand Seven Hundred Four
Pesos and Seventy-Seven Centavos (P64,704.77);
4. In Civil Case No. 139083, defendant Aboitiz is adjudged liable and ordered to pay
plaintiff the amount of One Hundred Fifty-Six Thousand Two Hundred Eighty-Seven
Pesos and Sixty-Four Centavos (P156,287.64);
In Civil Case No. 138879, defendant Aboitiz is adjudged liable and ordered to pay
plaintiff the amount of Fifty-Two Thousand Six Hundred Eighty-Nine Pesos and Fifty
Centavos (P52,689.50).
All the aforesaid award shall bear interest at the legal rate from the filing of the
respective complaints. Considering that there is no clear showing that the cases fall
under Article 2208, Nos. 4 and 5, of the Civil Code, and in consonance with the basic
rule that there be no penalty (in terms of attorneys fees) imposed on the right to
litigate, no damages by way of attorneys fees are awarded; however, costs of the
party/parties to whom judgment awards are made shall be made by the party ordered
to pay the said judgment awards.
SO ORDERED.3
Aboitiz, CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The
appeal was docketed as CA-G.R. SP No. 35975-CV. During the pendency of the
appeal, the Court promulgated the decision in the 1993GAFLAC case.
On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It
disregarded Aboitizs argument that the sinking of the vessel was caused by a force
majeure, in view of this Courts finding in a related case, Aboitiz Shipping Corporation
v. Court of Appeals, et al. (the 1990 GAFLAC case).4 In said case, this Court affirmed
the Court of Appeals finding that the sinking of M/V P. Aboitiz was caused by the
negligence of its officers and crew. It is one of the numerous collection suits against
Aboitiz, which eventually reached this Court in connection with the sinking of M/V P.
Aboitiz.
As to the computation of Aboitizs liability, the Court of Appeals again based its ruling
on the 1990 GAFLAC case that Aboitizs liability should be based on the declared
value of the shipment in consonance with the exceptional rule under Section 4(5)5 of
the Carriage of Goods by Sea Act.
Aboitiz moved for reconsideration6 to no avail. Hence, it filed this petition for review on
certiorari docketed as G.R. No. 121833.7 The instant petition is based on the following
grounds:
THE COURT OF APPEALS SHOULD HAVE LIMITED THE RECOVERABLE
AMOUNT FROM ASC TO THAT AMOUNT STIPULATED IN THE BILL OF LADING.
IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD HAVE FOUND THAT
THE TOTAL LIABILITY OF ASC IS LIMITED TO THE VALUE OF THE VESSEL OR
THE INSURANCE PROCEEDS THEREOF.8
On 4 December 1995, the Court issued a Resolution9 denying the petition. Aboitiz
moved for reconsideration, arguing that the limited liability doctrine enunciated in the
1993 GAFLAC case should be applied in the computation of its liability. In the
Resolution10 dated 6 March 1996, the Court granted the motion and ordered the
reinstatement of the petition and the filing of a comment.
G.R. No. 130752
Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied
Guarantee Insurance Corporation (Allied) filed separate actions for damages against
Aboitiz to recover by way of subrogation the value of the cargoes insured by them
and lost in the sinking of the vessel M/V P. Aboitiz. The two actions were consolidated
and heard before the RTC of Manila, Branch 20.
Aboitiz reiterated the defense of force majeure. The trial court rendered a
decision11 on 25 April 1990 ordering Aboitiz to pay damages in the amount
of P646,926.30. Aboitiz sought reconsideration, arguing that the trial court should
have considered the findings of the Board of Marine Inquiry that the sinking of
the M/V P. Aboitiz was caused by a typhoon and should have applied the real and
hypothecary doctrine in limiting the monetary award in favor of the claimants. The trial
court denied Aboitizs motion for reconsideration.
Aboitiz elevated the case to the Court of Appeals. While the appeal was pending, this
Court promulgated the decision in the 1993 GAFLAC case. The Court of Appeals
subsequently rendered a decision on 30 May 1994, affirming the RTC decision.12
Aboitiz appealed the Court of Appeals decision to this Court.13 In a Resolution dated
20 September 1995,14 the Court denied the petition for raising factual issues and for
failure to show that the Court of Appeals committed any reversible error. Aboitizs
motion for reconsideration was also denied in a Resolution dated 22 November
1995.15
The 22 November 1995 Resolution became final and executory. On 26 February
1996, Asia Traders and Allied filed a motion for execution before the RTC of Manila,
Branch 20. Aboitiz opposed the motion. On 16 August 1996, the trial court granted the
motion and issued a writ of execution.
Alleging that it had no other speedy, just or adequate remedy to prevent the execution
of the judgment, Aboitiz filed with the Court of Appeals a petition for certiorari and
prohibition with an urgent prayer for preliminary injunction and/or temporary
restraining order docketed as CA-G.R. SP No. 41696.16 The petition was mainly
anchored on this Courts ruling in the 1993 GAFLAC case.
On 8 August 1997, the Court of Appeals (Special Seventeenth Division) rendered the
assailed decision dismissing the petition.17 Based on the trial courts finding that
Aboitiz was actually negligent in ensuring the seaworthiness ofM/V P. Aboitiz, the
appellate court held that the real and hypothecary doctrine enunciated in the
1993 GAFLAC case may not be applied in the case.
In view of the denial of its motion for reconsideration,18 Aboitiz filed before this Court
the instant petition for review on certiorari docketed as G.R. No. 130752.19 The petition
attributes the following errors to the Court of Appeals:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE LOWER
COURT HAD MADE AN EXPRESS FINDING OF THE ACTUAL NEGLIGENCE OF
ABOITIZ IN THE SINKING OF THE M/V P. ABOITIZ THEREBY DEPRIVING ABOITIZ
OF THE BENEFIT OF THE DOCTRINE OF THE REAL AND HYPOTHECARY
NATURE OF MARITIME LAW.20
THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT TO
THE GAFLAC CASE DECIDED BY THE HONORABLE COURT WHICH SUPPORTS
THE APPLICABILITY OF THE REAL AND HYPOTHECARY NATURE OF MARITIME
LAW IN THE PRESENT CASE.21
G.R. No. 137801
On 27 February 1981, Equitable Insurance Corporation (Equitable) filed an action for
damages against Aboitiz to recover by way of subrogation the value of the cargoes
insured by Equitable that were lost in the sinking of M/V P. Aboitiz.22 The complaint,
which was docketed as Civil Case No. 138395, was later amended to implead
Seatrain Pacific Services S.A. and Citadel Lines, Inc. as party defendants.23 The
complaint against the latter defendants was subsequently dismissed upon motion in
view of the amicable settlement reached by the parties.
ISSUES
The principal issue common to all three petitions is whether Aboitiz can avail limited
liability on the basis of the real and hypothecary doctrine of maritime law. Corollary to
this issue is the determination of actual negligence on the part of Aboitiz.
These consolidated petitions similarly posit that Aboitizs liability to respondents
should be limited to the value of the insurance proceeds of the lost vessel plus
pending freightage and not correspond to the full insurable value of the cargoes paid
by respondents, based on the Courts ruling in the 1993 GAFLAC case.
Respondents in G.R. No. 121833 counter that the limited liability rule should not be
applied because there was a finding of negligence in the care of the goods on the part
of Aboitiz based on this Courts Resolution dated 4 December 1995 in G.R. No.
121833, which affirmed the trial courts finding of negligence on the part of the
vessels captain. Likewise, respondent in G.R. No. 137801 relies on the finding of the
trial court, as affirmed by the appellate court, that Aboitiz was guilty of negligence.
Respondents in G.R No. 130752 argue that this Court had already affirmed in toto the
appellate courts finding that the vessel was not seaworthy and that Aboitiz failed to
exercise extraordinary diligence in the handling of the cargoes. This being the law of
the case, Aboitiz should not be entitled to the limited liability rule as far as this petition
is concerned, respondents contend.
RULING of the COURT
On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment24 ordering

Aboitiz to pay Equitable the amount of P87,633.81, plus legal interest and attorneys
fees.25 It found that Aboitiz was guilty of contributory negligence and, therefore, liable
for the loss.
In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invoked the doctrine of
limited liability and claimed that the typhoon was the proximate cause of the loss. On
27 November 1998, the Court of Appeals rendered a decision, affirming the RTC
decision.26
The Court of Appeals (Fifteenth Division) ruled that the loss of the cargoes and the
sinking of the vessel were due to its unseaworthiness and the failure of the crew to
exercise extraordinary diligence. Said findings were anchored on the
1990 GAFLAC case and on this Courts resolution dated November 13, 1989 in G.R.
No. 88159, dismissing Aboitizs petition and affirming the findings of the appellate
court on the vessels unseaworthiness and the crews negligence.
Its motion for reconsideration27 having been denied,28 Aboitiz filed before this Court a
petition for review on certiorari, docketed as G.R. No. 137801,29 raising this sole issue,
to wit:
WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF
MARITIME LAW (ALSO KNOWN AS THE "LIMITED LIABILITY RULE") APPLIES. 30
These consolidated petitions are just among the many others elevated to this Court
involving Aboitizs liability to shippers and insurers as a result of the sinking of its
vessel, M/V P. Aboitiz, on 31 October 1980 in the South China Sea. One of those
petitions is the 1993 GAFLAC case, docketed as G.R. No. 100446.31
The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in
the 1990 GAFLAC case, where the General Accident Fire and Life Assurance
Corporation, Ltd. (GAFLAC), as judgment obligee therein, sought the execution of the
monetary award against Aboitiz. The trial court granted GAFLACs prayer for
execution of the full judgment award. The appellate court dismissed Aboitizs petition
to nullify the order of execution, prompting Aboitiz to file a petition with this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine
warranted the immediate stay of execution of judgment to prevent the impairment of
the other creditors shares. Invoking the rule on the law of the case, private
respondent therein countered that the 1990 GAFLAC case had already settled the
extent of Aboitizs liability.
Following the doctrine of limited liability, however, the Court declared in the
1993 GAFLAC case that claims against Aboitiz arising from the sinking of M/V P.
Aboitiz should be limited only to the extent of the value of the vessel. Thus, the Court
held that the execution of judgments in cases already resolved with finality must be
stayed pending the resolution of all the other similar claims arising from the sinking
of M/V P. Aboitiz. Considering that the claims against Aboitiz had reached more than
100, the Court found it necessary to collate all these claims before their payment from
the insurance proceeds of the vessel and its pending freightage. As a result, the Court
exhorted the trial courts before whom similar cases remained pending to proceed with
trial and adjudicate these claims so that the pro-rated share of each claim could be
determined after all the cases shall have been decided.32
Each co-owner may exempt himself from this liability by the abandonment, before a
notary, of the part of the vessel belonging to him.
In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz
based on the trial courts finding therein that Aboitiz was not negligent. The Court
explained, thus:
These articles precisely intend to limit the liability of the shipowner or agent to the
value of the vessel, its appurtenances and freightage earned in the voyage, provided
that the owner or agent abandons the vessel.35When the vessel is totally lost in which
case there is no vessel to abandon, abandonment is not required. Because of such
total loss the liability of the shipowner or agent for damages is
extinguished.36 However, despite the total loss of the vessel, its insurance answers for
the damages for which a shipowner or agent may be held liable.37
x x x In the few instances when the matter was considered by this Court, we have
been consistent in this jurisdiction in holding that the only time the Limited Liability
Rule does not apply is when there is an actual finding of negligence on the part of the
vessel owner or agent x x x. The pivotal question, thus, is whether there is finding of
such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425
as well as the entirety of the records in the instant case will show that there has been
no actual finding of negligence on the part of petitioner. x x x
The same is true of the decision of this Court in G.R. No. 89757 affirming the decision
of the Court of Appeals in CA-G.R. CV No. 10609 since both decisions did not make
any new and additional finding of fact. Both merely affirmed the factual findings of the
trial court, adding that the cause of the sinking of the vessel was because of
unseaworthiness due to the failure of the crew and the master to exercise
extraordinary diligence. Indeed, there appears to have been no evidence presented
sufficient to form a conclusion that petitioner shipowner itself was negligent, and no
tribunal, including this Court, will add or subtract to such evidence to justify a
conclusion to the contrary.33 (Citations entitled) (Emphasis supplied)
The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in
maritime law that the shipowner or agents liability is merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction. "No vessel,
no liability" expresses in a nutshell the limited liability rule.34
In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837
under Book III of the Code of Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
the vessel with all her equipment and the freight it may have earned during the
voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section, shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage.
Nonetheless, there are exceptional circumstances wherein the ship agent could still
be held answerable despite the abandonment of the vessel, as where the loss or
injury was due to the fault of the shipowner and the captain. The international rule is
to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowners liability, does not apply to cases where the injury or average was
occasioned by the shipowners own fault.38Likewise, the shipowner may be held liable
for injuries to passengers notwithstanding the exclusively real and hypothecary nature
of maritime law if fault can be attributed to the shipowner.39
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the
Court applied the doctrine of limited liability in view of the absence of an express
finding that Aboitizs negligence was the direct cause of the sinking of the vessel. The
circumstances in the 1993 GAFLAC case, however, are not obtaining in the instant
petitions.
A perusal of the decisions of the courts below in all three petitions reveals that there is
a categorical finding of negligence on the part of Aboitiz. For instance, in G.R. No.
121833, the RTC therein expressly stated that the captain of M/V P. Aboitiz was
negligent in failing to take a course of action that would prevent the vessel from
sailing into the typhoon. In G.R. No. 130752, the RTC concluded that Aboitiz failed to
show that it had exercised the required extraordinary diligence in steering the vessel
before, during and after the storm. In G.R. No. 137801, the RTC categorically stated
that the sinking of M/V P. Aboitiz was attributable to the negligence or fault of Aboitiz.
In all instances, the Court of Appeals affirmed the factual findings of the trial courts.
The finding of actual fault on the part of Aboitiz is central to the issue of its liability to
the respondents. Aboitizs contention, that with the sinking of M/V P. Aboitiz, its liability
to the cargo shippers and shippers should be limited only to the insurance proceeds
of the vessel absent any finding of fault on the part of Aboitiz, is not supported by the
record. Thus, Aboitiz is not entitled to the limited liability rule and is, therefore, liable
for the value of the lost cargoes as so duly alleged and proven during trial.
Events have supervened during the pendency of the instant petitions. On two other
occasions, the Court ruled on separate petitions involving monetary claims against
Aboitiz as a result of the 1980 sinking
spared from the application of the exception to the doctrine of limited liability in view
of the unanimous findings of the courts below that both Aboitiz and the crew failed to
ensure the seaworthiness of the M/V P. Aboitiz.
of the vessel M/V P. Aboitiz. One of them is the consolidated petitions of Monarch Ins.
Co., Inc v. Court of Appeals,40 Allied Guarantee Insurance Company v. Court of
Appeals41 and Equitable Insurance Corporation v. Court of Appeals42 (hereafter
collectively referred to as Monarch Insurance) promulgated on 08 June 2000. This
time, the petitioners consisted of claimants against Aboitiz because either the
execution of the judgment awarding full indemnification of their claims was stayed or
set aside or the lower courts awarded damages only to the extent of the claimants
proportionate share in the insurance proceeds of the vessel.
WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and 137801 are DENIED.
The decisions of the Court of Appeals in CA-G.R. SP No. 35975-CV, CA-G.R. SP No.
41696 and CA-G.R. CV No. 43458 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
In Monarch Insurance, the Court deemed it fit to settle once and for all this factual
issue by declaring that the sinking of M/V P. Aboitiz was caused by the concurrence of
the unseaworthiness of the vessel and the negligence of both Aboitiz and the vessels
crew and master and not because of force majeure. Notwithstanding this finding, the
Court did not reverse but reiterated instead the pronouncement in GAFLAC to the
effect that the claimants be treated as "creditors in an insolvent corporation whose
assets are not enough to satisfy the totality of claims against it."43 The Court explained
that the peculiar circumstances warranted that procedural rules of evidence be set
aside to prevent frustrating the just claims of shippers/insurers. Thus, the Court
in Monarch Insurance ordered Aboitiz to institute the necessary limitation and
distribution action before the proper RTC and to deposit with the said court the
insurance proceeds of and the freightage earned by the ill-fated ship.
However, on 02 May 2006, the Court rendered a decision in Aboitiz Shipping
Corporation v. New India Assurance Company, Ltd.44 (New India), reiterating the wellsettled principle that the exception to the limited liability doctrine applies when the
damage is due to the fault of the shipowner or to the concurrent negligence of the
shipowner and the captain. Where the shipowner fails to overcome the presumption
of negligence, the doctrine of limited liability cannot be applied.45 In New India, the
Court clarified that the earlier pronouncement in Monarch Insurance was not an
abandonment of the doctrine of limited liability and that the circumstances therein still
made the doctrine applicable.46
In New India, the Court declared that Aboitiz failed to discharge its 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. Thus, the Court rejected Aboitizs
argument that the award of damages to respondent therein should be limited to
its pro rata share in the insurance proceeds from the sinking of M/V P. Aboitiz.
The instant petitions provide another occasion for the Court to reiterate the wellsettled doctrine of the real and hypothecary nature of maritime law. As a general rule,
a ship owners liability is merely co-extensive with his interest in the vessel, except
where actual fault is attributable to the shipowner. Thus, as an exception to the limited
liability doctrine, a shipowner or ship agent may be held liable for damages when the
sinking of the vessel is attributable to the actual fault or negligence of the shipowner
or its failure to ensure the seaworthiness of the vessel. The instant petitions cannot be
Footnotes
* As replacement of Justice Presbitero J. Velasco, Jr. who inhibited himself due to participation in CA Decision
per Administrative Circular No. 84-2007.
1
G.R. No. 100446, 21 January 1993, 217 SCRA 359.
2
Rollo (G.R. No. 121833), p. 17. Marine Cargo Policy Nos. M/LP-001-02343, M/RN-001-03595, M/RN-00103573, M/LP-051-00205, M/LP-001-02341 and M/RN-001-03641.
3
Rollo (G.R. No. 121833), pp. 37-38.
4
G.R. No. 89757, 6 August 1990, 188 SCRA 387.
5
(5) 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 of 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 not be conclusive on the carrier. x x x
6
CA rollo (G.R. No. 121833), pp. 262-271.
7
Rollo (G.R. No. 121833), pp. 12-32.
8
Id. at 19.
9
Id. at 178-179.
10
Id. at 208.
11
CA rollo (CA-G.R. No. 41696), pp. 157-160.
12
Id. at 97-106.
13
Rollo (G.R. No. 130752), pp. 3-21.
14
CA rollo (CA-G.R. No. 41696), p. 30.
15
Id. at 61.
16
Id. at 1-16.
17
Id. at 131-146.
18
Id. at 150-156.
19
Rollo (G.R. No. 130752), pp. 3-21.
20
Id. at 9.
21
Id. at 13.
22
Records (Civil Case No. 138395), pp. 1-13.
23
Id. at 11-14.
24
CA rollo (CA-G.R. No. 43458-CV), pp. 47-50.
25
Rollo (G.R. No. 137801), pp. 10-27.
26
Id.
27
Id. at 159-166.
28
Id. at 174-175.
29
Id. at 33-45.
30
Id. at 35.
31
Supra note 1.
32
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., supra note 1 at
371.
33
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., supra note 1 at
368-369.
34
Chua Yek Hong v. Intermediate Appellate Court, G.R. No. L-74811, 30 September 1988, 166 SCRA 183,
188.
35
Luzon Stevedoring Corp. v. Court of Appeals, G.R. No. L-58897, 3 December 1987, 156 SCRA 169, 176.
36
Id.
37
Vasquez v. Court of Appeals, G.R. No. L-42926, 13 September 1985; 138 SCRA 553, 559.
38
Philamgen v. Court of Appeals, 339 Phil. 455, 463 (1997).
39
Negros Navigation v. Court of Appeals, 346 Phil. 551, 565 (1997).
40
388 Phil. 725 (2000).
G.R. No. 160088
July 13, 2011
AGUSTIN P. DELA TORRE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION,
RAMON "BOY" LARRAZABAL, PHILIPPINE TRIGON SHIPYARD CORPORATION,
and ROLAND G. DELA TORRE, Respondents.
3. The SECOND PARTY (referring to Concepcion) agreed that LCTJosephine should be used by the FIRST PARTY (referring to Roland) for the
maximum period of two (2) years
4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the
said vessel. [Underscoring Supplied]
On June 20, 1984, Concepcion and the Philippine Trigon Shipyard
Corporation7 (PTSC), represented by Roland, entered into a "Contract of
Agreement,"8 wherein the latter would charter LCT-Josephine retroactive to May 1,
1984, under the following conditions:
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 160565
PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA
TORRE, Petitioners,
vs.
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON "BOY"
LARRAZABAL, Respondents.
a. Chartered amount of the vessel P 20,000.00 per month effective May 1,

1984;
j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking
and repair of the vessel and the balance shall be paid every month in the
amount of P 10,000.00, to be deducted from the rental amount of the vessel;
DECISION
MENDOZA, J.:
These consolidated petitions1 for review on certiorari seek to reverse and set aside
the September 30, 2002 Decision2 and September 18, 2003 Resolution3 of the Court
of Appeals (CA) in CA-G.R. CV No. 36035, affirming in toto the July 10, 1991
Decision4 of the Regional Trial Court, Branch 60, Angeles City (RTC). The RTC
Decision in Civil Case No. 4609, an action for Sum of Money and Damages, ordered
the defendants, jointly and severally, to pay various damages to the plaintiff.
The Facts:
Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a
vessel registered with the Philippine Coast Guard. On February 1, 1984, Concepcion
entered into a "Preliminary Agreement"5 with Roland de la Torre (Roland) for the drydocking and repairs of the said vessel as well as for its charter afterwards.6 Under this
agreement, Concepcion agreed that after the dry-docking and repair of LCTJosephine, it "should" be chartered forP 10,000.00 per month with the following
conditions:
1. The CHARTERER will be the one to pay the insurance premium of the
vessel
2. The vessel will be used once every three (3) months for a maximum
period of two (2) weeks
k. In the event that a THIRD PARTY is interested to purchase the said

vessel, the SECOND PARTY (PTSC/ Roland) has the option for first priority
to purchase the vessel. If the SECOND PARTY (PTSC/Roland) refuses the
offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY
(PTSC/Roland) enough time to turn over the vessel so as not to disrupt
previous commitments;
l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the
contract in the event of the SECOND PARTY (PTSC/Roland) decide to stop
operating;
m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such
termination of contract;
n. Next x x year of dry-docking and repair of vessel shall be shouldered by
the SECOND PARTY (PTSC/Roland); (Underscoring Supplied]
On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping
Lines (TSL), a single proprietorship owned by Rolands father, Agustin de la Torre
(Agustin).9 The following are the terms and conditions of that "Contract of
Agreement:"10
a. Chartered amount of the vessel P 30,000.00 per month effective August,
1984;
b. Downpayment of the 50% upon signing of the contract and the balance
every end of the month;
c. Any cost for the additional equipment to be installed on the vessel will be
borne by the FIRST PARTY (PTSC/ Roland) and the cost of the equipment
will be deductible from the monthly rental of the vessel;
d. In the event the vessel is grounded or other [force majeure] that will make
the vessel non-opera[xx]ble, the rental of the vessel shall be suspended from
the start until the vessel will be considered operational;
e. The cost for the dry-docking and/or repair of vessel shall not
exceed P 200,000.00, any excess shall be borne by the SECOND PARTY
(TSL/Agustin);
f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the
maintenance cost for the duration of the usage;
g. All cost for the necessary repair of the vessel shall be on the account of
the SECOND PARTY (TSL/Agustin);
h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the
contract in the event the SECOND PARTY (TSL/Agustin) decides to stop
operating;
j. The FIRST PARTY (PTSC/Roland) will terminate the services of all
vessels crew and the SECOND PARTY (TSL/Agustin) shall have the right to
replace and rehire the crew of the vessel.
k. Insurance premium of the vessel will be divided equally between the
FIRST PARTY (PTSC/Rolando) and the SECOND PARTY (TSL/
Agustin). [Underscoring supplied]
On November 22, 1984, TSL, this time represented by Roland per Agustins Special
Power of Attorney,11 sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal)
for the transport of cargo consisting of sand and gravel to Leyte. The following were
agreed upon in that contract,12 to wit:
1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall
be used by the SECOND PARTY (Larrazabal) for and in consideration on the
sum of FIVE THOUSAND FIVE HUNDRED (P 5,500.00) PESOS, Philippine
currency per day charter with the following terms and conditions.
2. That the CHARTERER should pay P 2,000.00 as standby pay even that
will made (sic) the vessel non-opera[xx]ble cause[d] by natur[al]
circumstances.
3. That the CHARTERER will supply the consumed crude oil and lube oil per
charter day.
4. That the SECOND PARTY (Larrazabal) is the one responsible to

supervise in loading and unloading of cargo load on the vessel.
5. That the SECOND PARTY (Larrazabal) shall give one week notice for
such termination of contract.
6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to
pay 15 days in advance and the balance should be paid weekly.
[Underscoring Supplied]
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived
at Philpos, Isabel, Leyte. The vessel was beached near the NDC Wharf. With the
vessels ramp already lowered, the unloading of the vessels cargo began with the
use of Larrazabals payloader. While the payloader was on the deck of the LCTJosephine scooping a load of the cargo, the vessels ramp started to move downward,
the vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephine sank.13
Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured
Concepcion that negotiations were underway for the refloating of his
vessel.14 Unfortunately, this did not materialize.
For this reason, Concepcion was constrained to institute a complaint for "Sum of
Money and Damages" against PTSC and Roland before the RTC. PTSC and Roland
filed their answer together with a third-party complaint against Agustin. Agustin, in
turn, filed his answer plus a fourth-party complaint against Larrazabal. The latter filed
his answer and counterclaim but was subsequently declared in default by the
RTC.15 Eventually, the fourth-party complaint against Larrazabal was dismissed when
the RTC rendered its decision in favor of Concepcion on July 10, 1991.16 In said RTC
decision, the following observations were written:
The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show: (1)
that the payloader was used to unload the cargo of sand and gravel; (2) that the
payloader had to go inside the vessel and scoop up a load; (3) that the ramp
according to Roland de la Torre, "was not properly put into peak (sic) such that the
front line will touch the bottom, particularly will touch the sea x x x"; (4) that "the tires
(of the payloader) will be submerged to (sic) the sea"; (5) that according to Sungayan
"the ramp of the vessel was moving down"; (6) that the payloader had to be
maneuvered by its operator who dumped the load at the side of the vessel; (7) that
the dumping of the load changed the stability of the vessel and tilted it to the
starboard side; and (8) that the tilting caused the sliding of the cargo toward that side
and opened the manhole through which seawater rushed in.17
Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of
TSL/Agustin, also admitted at the trial that it was TSL/Agustin, through its crew, who
was in-charge of LCT-Josephines operations although the responsibility of loading
and unloading the cargo was under Larrazabal. Thus, the RTC declared that the
"efficient cause of the sinking of the LCT-JOSEPHINE was the improper lowering or
positioning of the ramp," which was well within the charge or responsibility of the
captain and crew of the vessel.18 The fallo of the RTC Decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

1. The defendants, Philippine Trigon Shipping Corporation and Roland de la
Torre, and the third-party defendant, Agustin de la Torre, shall pay the
plaintiff, jointly and severally, the sum of EIGHT HUNDRED FORTY-ONE
THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND EIGHTY SIX
CENTAVOS (P841,386.86) as the value of the LCT JOSEPHINE with
interest thereon at the legal rate of 6% per annum from the date of demand,
that is from March 14, 1985, the date when counsel for the defendant
Philippine Trigon Shipyard Corporation answered the demand of the plaintiff,
until fully paid;
2. The defendants, Philippine Trigon Shipyard Corporation and Roland de la
Torre, shall pay to the plaintiff the sum of NINETY THOUSAND PESOS
(P 90,000.00) as unpaid rentals for the period from May 1, 1984, to
November, 1984, and the sum of ONE HUNDRED SEVENTY THOUSAND
PESOS (P 170,000.00) as lost rentals from December, 1984, to April 30,
1986, with interest on both amounts at the rate of 6% per annum also from
demand on March 14, 1985, until fully paid;
3. The defendants and the third-party defendant shall likewise pay to the
plaintiff jointly and severally the sum of TWENTY-FIVE THOUSAND PESOS
(P 25,000.00) as professional fee of plaintiffs counsel plus FIVE HUNDRED
PESOS (P 500.00) per appearance of said counsel in connection with actual
trial of this case, the number of such appearances to be determined from the
records of this case;
4. The defendants counterclaim for the unpaid balance of plaintiffs
obligation for the dry-docking and repair of the vessel LCT JOSEPHINE in
the amount of TWENTY-FOUR THOUSAND THREE HUNDRED FOUR
PESOS AND THIRTY-FIVE CENTAVOS (P 24,304.35), being valid, shall be
deducted from the unpaid rentals, with interest on the said unpaid balance at
the rate of 6% per annum from the date of the filing of the counter-claim on
March 31, 1986;
5. The counter-claim of the defendants in all other respects, for lack of merit,
is hereby DISMISSED;
6. The fourth-party complaint against the fourth-party defendant, Ramon
Larrazabal, being without basis, is likewise DISMISSED; and
7. The defendants and third-party defendant shall pay the costs.
SO ORDERED.19
Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in
agreement with the findings of the RTC, affirmed its decision in toto.
Still not in conformity with the CA findings against them, Agustin, PTSC and Roland
came to this Court through these petitions for review. In G.R. No. 160088, petitioner
Agustin raises the following issues:
AGUSTINS STATEMENT OF THE ISSUES
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE
CAUSE OF THE SINKING OF LCT JOSEPHINE IS THE NEGLIGENCE OF
THE PETITIONER (Agustin) AND THE RESPONDENTS TRIGON (PTSC)
AND DE LA TORRE (Roland).
II
THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT
RAMON LARRAZABAL AS SOLELY LIABLE FOR THE LOSS AND
SINKING OF LCT JOSEPHINE.
III
THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN
TAKING JUDICIAL NOTICE OF THE CHARACTERISTICS OF THE LCT
JOSEPHINE AND PAYLOADER WITHOUT INFORMING THE PARTIES OF
THEIR INTENTION.
IV
THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY
AND SOLIDARILY LIABLE WITH THE RESPONDENTS TRIGON AND DE
LA TORRE DESPITE THE FACT THAT SUCH KIND OF LIABILITY IS NOT
DULY ALLEGED IN THE COMPLAINT OF RESPONDENT CONCEPCION
AND NOT ONE OF THE ISSUES TRIED BY THE PARTIES.
V
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS
LIABLE BASED ON CULPA CONTRACTUAL.
VI
THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER
FROM LIABILITY BASED ON THE LIMITED LIABILITY RULE.
VII
THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS

OF THE CODE OF COMMERCE ON THE LIABILITY OF THE SHIP
CAPTAIN.20
On the other hand, in G.R. No. 160565, PTSC and Roland submit the following
issues:
PTSC and ROLANDS STATEMENT OF THE ISSUES
We are not persuaded that the trial Court finding should be set aside. The Court a quo
sifted through the records and arrived at the fact that clearly, there was improper
lowering or positioning of the ramp, which was not at "peak," according to de la Torre
and "moving down" according to Sungayan when the payloader entered and scooped
up a load of sand and gravel. Because of this, the payloader was in danger of being
lost (submerged) and caused Larrazabal to order the operator to go back into the
vessel, according to de la Torres version, or back off to the shore, per Sungayan.
Whichever it was, the fact remains that the ramp was unsteady (moving) and
compelled action to save the payloader from submerging, especially because of the
conformation of the sea and the shore. x x x.
I.
xxx
DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE
PROVISIONS OF THE CIVIL CODE OF THE PHILIPPINES
PARTICULARLY ON CONTRACTS, LEASE, QUASI-DELICT AND
DAMAGES INSTEAD OF THE PROVISIONS OF THE CODE OF
COMMERCE ON MARITIME COMMERCE IN ADJUDGING PETITIONERS
LIABLE TO PRIVATE RESPONDENT CONCEPCION.
II.
DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE
FINDINGS OF FACT OF THE TRIAL COURT.
III.
DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF ITS
JURISDICTION IN APPRECIATING THE FACTS OF THE CASE.
IV.
DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING
PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH RESPONDENT
AGUSTIN DE LA TORRE, ERRxx WHEN IT MADE FINDINGS OF FACT
AND CONCLUSIONS OF LAW WHICH ARE BEYOND THE ISSUES SET
FORTH AND CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE
PARTIES.21
From the foregoing, the issues raised in the two petitions can be categorized as: (1)
those referring to the factual milieu of the case; (2) those concerning the applicability
of the Code of Commerce, more specifically, the Limited Liability Rule; and (3) the
question on the solidary liability of the petitioners.
As regards the issues requiring a review of the factual findings of the trial court, the
Court finds no compelling reason to deviate from the rule that findings of fact of a trial
judge, especially when affirmed by the appellate court, are binding before this
Court.22 The CA, in reviewing the findings of the RTC, made these observations:
The contract executed on June 20, 1984, between plaintiff-appellee and defendantsappellants showed that the services of the crew of the owner of the vessel were
terminated. This allowed the charterer, defendants-appellants, to employ their own.
The sub-charter contract between defendants-appellants Philippine Trigon Shipyard
Corp. and third-party defendant-appellant Trigon Shipping Lines showed similar
provision where the crew of Philippine Trigon had to be terminated or rehired by
Trigon Shipping Lines. As to the agreement with fourth-party Larrazabal, it is silent on
who would hire the crew of the vessel. Clearly, the crew manning the vessel when it
sunk belonged to third-party defendant-appellant. Hubart Sungayan, the acting Chief
Mate, testified that he was hired by Agustin de la Torre, who in turn admitted to hiring
the crew. The actions of fourth-party defendant, Larrazabal and his payloader
operator did not include the operation of docking where the problem
arose.23 [Underscoring supplied]
Similarly, the Court has examined the records at hand and completely agree with the
CA that the factual findings of the RTC are in order.
With respect to petitioners position that the Limited Liability Rule under the Code of
Commerce should be applied to them, the argument is misplaced. The said rule has
been explained to be that of the real and hypothecary doctrine in maritime law where
the shipowner or ship agents liability is held as merely co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction.24 In this
jurisdiction, this rule is provided in three articles of the Code of Commerce. These are:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
the vessel with all her equipment and the freight it may have earned during the
voyage.
--Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a
notary, of the part of the vessel belonging to him.
--Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section, shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage.
Article 837 specifically applies to cases involving collision which is a necessary
consequence of the right to abandon the vessel given to the shipowner or ship agent
under the first provision Article 587. Similarly, Article 590 is a reiteration of Article
587, only this time the situation is that the vessel is co-owned by several
persons.25 Obviously, the forerunner of the Limited Liability Rule under the Code of
Commerce is Article 587. Now, the latter is quite clear on which indemnities may be
confined or restricted to the value of the vessel pursuant to the said Rule, and these
are the "indemnities in favor of third persons which may arise from the conduct of
the captain in the care of the goods which he loaded on the vessel." Thus, what is
contemplated is the liability to third persons who may have dealt with the shipowner,
the agent or even the charterer in case of demise or bareboat charter.
The only person who could avail of this is the shipowner, Concepcion. He is the very
person whom the Limited Liability Rule has been conceived to protect. The petitioners
cannot invoke this as a defense. In Yangco v. Laserna,26 this Court, through Justice
Moran, wrote:
The policy which the rule is designed to promote is the encouragement of shipbuilding
and investment in maritime commerce.
x x x.
Grotius, in his law of War and Peace, says that men would be deterred from investing
in ships if they thereby incurred the apprehension of being rendered liable to an
indefinite amount by the acts of the master, x x x.27
Later, in the case of Monarch Insurance Co., Inc. v. CA,28 this Court, this time through
Justice Sabino R. De Leon, Jr., again explained:
No vessel, no liability, expresses in a nutshell the limited liability rule. The
shipowners or agents liability is merely coextensive with his interest in the vessel
such that a total loss thereof results in its extinction. The total destruction of the
vessel extinguishes maritime liens because there is no longer any res to which it can
attach. This doctrine is based on the real and hypothecary nature of maritime law
which has its origin in the prevailing conditions of the maritime trade and sea voyages
during the medieval ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and to encourage shipbuilding and maritime
commerce, it was deemed necessary to confine the liability of the owner or agent
arising from the operation of a ship to the vessel, equipment, and freight, or
insurance, if any.29
In view of the foregoing, Concepcion as the real shipowner is the one who is
supposed to be supported and encouraged to pursue maritime commerce. Thus, it
would be absurd to apply the Limited Liability Rule against him who, in the first place,
should be the one benefitting from the said rule. In distinguishing the rights between
the charterer and the shipowner, the case of Yueng Sheng Exchange and Trading Co.
v. Urrutia & Co.30 is most enlightening. In that case, no less than Chief Justice Arellano
wrote:
The whole ground of this assignment of errors rests on the proposition advanced by
the appellant company that the charterer of a vessel, under the conditions stipulated
in the charter party in question, is the owner pro hac vice of the ship and takes upon
himself the responsibilities of the owner.
xxx
If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of
the Cebu, then they must respond for the damages claimed, because the owner and
the agent are civilly responsible for the acts of the captain.
But G. Urrutia & Co. could not in any way exercise the powers or rights of an
agent. They could not represent the ownership of the vessel, nor could they, in their
own name and in such capacity, take judicial or extrajudicial steps in all that relates to
commerce; thus if the Cebu were attached, they would have no legal capacity to
proceed to secure its release; speaking generally, not even the fines could or ought to
be paid by them, unless such fines were occasioned by their orders. x x x.
The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia &
Co., as charterers of the vessel, did not put the latter in the place of the former, nor
make them agents of the owner or owners of the vessel.With relation to those agents,
they retained opposing rights derived from the charter party of the vessel, and at no
time could they be regarded by the third parties, or by the authorities, or by the courts,
as being in the place of the owners or the agents in matters relating to the
responsibilities pertaining to the ownership and possession of the vessel. x x x.31
In Yueng Sheng, it was further stressed that the charterer does not completely and
absolutely step into the shoes of the shipowner or even the ship agent because there
remains conflicting rights between the former and the real shipowner as derived from
their charter agreement. The Court again quotes Chief Justice Arellano:
Their (the charterers) possession was, therefore, the uncertain title of lease, not a
possession of the owner, such as is that of the agent, who is fully subrogated to the
place of the owner in regard to the dominion, possession, free administration, and
navigation of the vessel.32
Therefore, even if the contract is for a bareboat or demise charter where possession,
free administration and even navigation are temporarily surrendered to the charterer,
dominion over the vessel remains with the shipowner. Ergo, the charterer or the subcharterer, whose rights cannot rise above that of the former, can never set up the
Limited Liability Rule against the very owner of the vessel. Borrowing the words of
Chief Justice Artemio V. Panganiban, "Indeed, where the reason for the rule ceases,
the rule itself does not apply."33
The Court now comes to the issue of the liability of the charterer and the subcharterer.
In the present case, the charterer and the sub-charterer through their respective
contracts of agreement/charter parties, obtained the use and service of the entire
LCT-Josephine. The vessel was likewise manned by the charterer and later by the
sub-charterers people. With the complete and exclusive relinquishment of
possession, command and navigation of the vessel, the charterer and later the subcharterer became the vessels owner pro hac vice. Now, and in the absence of any
showing that the vessel or any part thereof was commercially offered for use to the
public, the above agreements/charter parties are that of a private carriage where the
rights of the contracting parties are primarily defined and governed by the stipulations
in their contract.34
Although certain statutory rights and obligations of charter parties are found in the
Code of Commerce, these provisions as correctly pointed out by the RTC, are not
applicable in the present case. Indeed, none of the provisions found in the Code of
Commerce deals with the specific rights and obligations between the real shipowner
and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil
Code to supply the deficiency.35 Thus, the RTC and the CA were both correct in
applying the statutory provisions of the New Civil Code in order to define the
respective rights and obligations of the opposing parties.
(S)ince the purpose of formally impleading a party is to assure him a day in court,
once the protective mantle of due process of law has in fact been accorded a litigant,
whatever the imperfection in form, the real litigant may be held liable as a party.41
In any case, all three petitioners are liable under Article 1170 of the New Civil
Code.42 The necessity of insuring the LCT-Josephine, regardless of who will share in
the payment of the premium, is very clear under the Preliminary Agreement and the
subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984,
respectively. The August 17, 1984 letter of Concepcions representative, Rogelio L.
Martinez, addressed to Roland in his capacity as the president of PTSC inquiring
about the insurance of the LCT-Josephine as well as reiterating the importance of
insuring the said vessel is quite telling.
August 17, 1984
Mr. Roland de la Torre
President
Phil. Trigon Shipyard Corp.
Cebu City
Dear Sir:
In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I wish
to inquire regarding the insurance of said vessel to wit:
1. Name of Insurance Company
Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement
with Concepcion for the dry-docking and repair of LCT-Josephine, is liable under
Article 118936 of the New Civil Code. There is no denying that the vessel was not
returned to Concepcion after the repairs because of the provision in the Preliminary
Agreement that the same "should" be used by Roland for the first two years. Before
the vessel could be returned, it was lost due to the negligence of Agustin to whom
Roland chose to sub-charter or sublet the vessel.
PTSC is liable to Concepcion under Articles 166537 and 166738 of the New Civil Code.
As the charterer or lessee under the Contract of Agreement dated June 20, 1984,
PTSC was contract-bound to return the thing leased and it was liable for the
deterioration or loss of the same.
Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCTJosephine, is liable under Article 1651 of the New Civil Code.39 Although he was never
privy to the contract between PTSC and Concepcion, he remained bound to preserve
the chartered vessel for the latter. Despite his non-inclusion in the complaint of
Concepcion, it was deemed amended so as to include him because, despite or in the
absence of that formality of amending the complaint to include him, he still had his
day in court40 as he was in fact impleaded as a third-party defendant by his own son,
Roland the very same person who represented him in the Contract of Agreement
with Larrazabal.
1avvphi1
2. Policy No.
3. Amount of Premiums
4. Duration of coverage already paid
Please send a Xerox copy of policy to the undersigned as soon as possible.
In no case shall LCT JOSEPHINE sail without any insurance coverage.
Hoping for your (prompt) action on this regard.
Truly yours,
(sgd)ROGELIO L. MARTINEZ
Owners representative43
Clearly, the petitioners, to whom the possession of LCT Josephine had been
entrusted as early as the time when it was dry-docked for repairs, were obliged to
insure the same. Unfortunately, they failed to do so in clear contravention of their

respective agreements. Certainly, they should now all answer for the loss of the
vessel.
WHEREFORE, the petitions are DENIED. SO ORDERED.
Footnotes
*
Designated as additional member in lieu of Associate Justice Diosdado M.
Peralta per Special Order No. 1029 dated June 30, 2011.
**
Designated as additional member of the Third Division per Special Order
No. 1028 dated June 21, 2011.
1
G.R. No. 160088 and G.R. No. 160565 consolidated as per Court
Resolution dated May 17, 2004.
2
Rollo (G.R. No. 160088), pp. 38-55. Penned by then Associate Justice
Ruben T. Reyes (a retired member of this Court) with Associate Justices
Andres B. Reyes (now Presiding Justice of the Court of Appeals) and
Mariano C. Del Castillo (now an Associate Justice of this Court), concurring..
3
Id. (G.R. No. 160505), p. 63.
4
Records, pp. 85-100. Penned by Judge Antonio L. Descallar, RTC, Br. 60,
Angeles City.
5
Roland de la Torre is a petitioner in G.R. No. 160565 and one of the
respondents in G.R. No. 160088.
6
Rollo (G.R. No. 160088), p. 39.
7
PTSC is also a petitioner in G.R. No. 160565 and the respondent
corporation in G.R. No. 160088.
8
Exhibit "C," Folder of Exhibits, Vol. 1, p. 194.
9
Agustin de la Torre is the Petitioner in G.R. No. 160088 and one of the
respondents in G.R. No. 160565; rollo (G.R. No. 160088), p. 41.
10
Exhibits "2"/"102," Folder of Exhibits, vol. 3, p. 1.
11
Exhibit "4"/"101," Folder of Exhibits, vol. 3, p. 3.
12
Exhibit "3"/"103;" Folder of Exhibits, vol. 3, p. 2.
13
CA rollo, p. 153.
14
Exhibit "D," Folder of Exhibits, vol. 1, p. 196.
15
CA rollo, pp. 86-88.
16
Id. at 100.
17
Id. at 94.
18
Id. at 94-95.
19
Id. at 99-100.
20
Rollo (G.R. No. 160088), pp. 146-147.
21
Rollo (G.R. No. 160565), pp. 200-201.
22
Bormaheco, Inc. v. Malayan Insurance Co. Inc., G.R. No. 156599, July 26,
2010, 625 SCRA 309, 318-319.
23
Rollo (G.R. No. 160088), p. 50.
24
Aboitiz Shipping Corporation v. CA, G.R. Nos. 121833, 130752, 137801,
October 17, 2008, 569 SCRA 294, 307.
25
Yangco v. Laserna, 73 Phil. 330, 333 (1941).
26
Id.
27
Id. at 339.
28
338 Phil. 725 (2000).
29
Id. at 751.
30
12 Phil. 747 (1909).
Id. at 751-752.
Id. at 747, 753.
33
Valenzuela Hardwood and Industrial Supply, Inc. v. CA, G.R. No. 102316,
June 30, 1997, 274 SCRA 642, 654.
34
National Steel Corporation v. CA, 347 Phil. 345, 362 (1997); Lea Mer
Industries, Inc. v. Malayan Insurance Co., Inc., 508 Phil. 656, 663 (2005).
35
Article 18 of the New Civil Code:
Art. 18. In matters which are governed by the Code of Commerce
and Special Laws, their deficiency shall be supplied by the
provisions of this Code.
36
Art. 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss
or deteriorartion of the thing during the pendency of the condition:
(1) x x x
(2) If the things is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost when
it perishes, or goes out of commerce, or disappears in such a way
that its existence is unknown or cannot be recovered.
x x x.
37
Art. 1665. The lessee shall return the thing leased, upon the
termination of the lease, just as he received it, save what has been
lost or impaired by the lapse of time, or by ordinary wear and tear,
or from an inevitable cause.
38
Art. 1667. The lessee is responsible for the deterioration or loss of
the thing leased, unless he proves that it took place with his fault.
This burden of proof on the lessee does not apply when the
destruction is due to earthquake, flood, storm or other natural
calamity.
39
Art.1651. Without prejudice to his obligation toward the sublessor,
the sublessee is bound to the lessor for all acts which refer to the
use and preservation of the thing leased in the manner stipulated
between the lessor and the lessee.
40
HERRERA, Remedial Law, Vol. I, 2000 Edition, p. 354
41
Balquidra v. CFI of Capiz, Branch II, L-40490, October 28, 1977, 80 SCRA
123, 133.
42
Art.1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
43
Exhibit "G," Folder of Exhibits, vol.1, p. 203.
31
32
G.R. No. 143866. August 22, 2005

POLIAND INDUSTRIAL LIMITED, Petitioners,
vs.
NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE
PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth
Division) respondents.
G.R. No. 143877. August 22, 2005
NATIONAL DEVELOPMENT COMPANY, Petitioners,
vs.
POLIAND INDUSTRIAL LIMITED, Respondent.
DECISION
TINGA, J.:
Before this Court are two Rule 45 consolidated petitions for review seeking the review
of the Decision1 of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 53257,
which modified the Decision of the Regional Trial Court, Branch 61, Makati City in
Civil Case No. 91-2798. Upon motion of the Development Bank of the Philippines
(DBP), the two petitions were consolidated since both assail the same Decision of the
Court of Appeals.
In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment
declaring the National Development Company (NDC) and the DBP solidarily liable in
the amount of US$2,315,747.32, representing the maritime lien in favor of POLIAND
and the net amount of loans incurred by Galleon Shipping Corporation (GALLEON). It
also prays that NDC and DBP be ordered to pay the attorneys fees and costs of the
proceedings as solidary debtors. In G.R. No. 143877, petitioner NDC seeks the
reversal of the Court of Appeals Decision ordering it to pay POLIAND the amount of
One Million Nine Hundred Twenty Thousand Two Hundred Ninety-Eight and 56/100
United States Dollars (US$1,920,298.56), corresponding to the maritime lien in favor
of POLIAND, plus interest.
ANTECEDENTS
The following factual antecedents are matters of record.
Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood),
a Hong Kong corporation, extended credit accommodations in favor of GALLEON
totaling US$3,317,747.32.2 At that time, GALLEON, a domestic corporation organized
in 1977 and headed by its president, Roberto Cuenca, was engaged in the maritime
transport of goods. The advances were utilized to augment GALLEONs working
capital depleted as a result of the purchase of five new vessels and two second-hand
vessels in 1979 and competitiveness of the shipping industry. GALLEON had incurred
an obligation in the total amount of US$3,391,084.91 in favor of Asian Hardwood.
To finance the acquisition of the vessels, GALLEON obtained loans from Japanese
lenders, namely, Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On
October 10, 1979, GALLEON, through Cuenca, and DBP executed a Deed of
Undertaking3 whereby DBP guaranteed the prompt and punctual payment of
GALLEONs borrowings from the Japanese lenders. To secure DBPs guarantee
under the Deed of Undertaking, GALLEON promised, among others, to secure a first
mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON
executed on January 25, 1982 a mortgage contract over five of its vessels namely,
M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon Dignity," M/V "Galleon
Pride," and M/V "Galleon Trust" in favor of DBP.4
Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of
Instruction (LOI) No. 1155, directing NDC to acquire the entire shareholdings of
GALLEON for the amount originally contributed by its shareholders payable in five (5)
years without interest cost to the government. In the same LOI, DBP was to advance
to GALLEON within three years from its effectivity the principal amount and the
interest thereon of GALLEONs maturing obligations.
On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC,
represented by Minister of Trade Roberto Ongpin, forged a Memorandum of
Agreement,5 whereby NDC and GALLEON agreed to execute a share purchase
agreement within sixty days for the transfer of GALLEONs shareholdings. Thereafter,
NDC assumed the management and operations of GALLEON although Cuenca
remained president until May 9, 1982.6 Using its own funds, NDC paid Asian
Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement
of GALLEONs obligations.7
On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the
mortgage on the five vessels. For failure of GALLEON to pay its debt despite
repeated demands from DBP, the vessels were extrajudicially foreclosed on various
dates and acquired by DBP for the total amount of P539,000,000.00. DBP
subsequently sold the vessels to NDC for the same amount.8
On April 22, 1982, the Board of Directors of GALLEON amended the Articles of
Incorporation changing the corporate name from Galleon Shipping Corporation to
National Galleon Shipping Corporation and increasing the number of directors from
seven to nine.9
Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of
US$2,315,747.32 to World Universal Trading and Investment Company, S.A. (World
Universal), embodied in a Deed of Assignment executed on April 29, 1989.10 World
Universal, in turn, assigned the credit to petitioner POLIAND sometime in July 1989.11
On March 24, 1988, then President Aquino issued Administrative Order No. 64,
directing NDC and Philippine Export and Foreign Loan Guarantee Corporation (now
Trade and Investment Development Corporation of the Philippines) to transfer some
of their assets to the National Government, through the Asset Privatization Trust
(APT) for disposition. Among those transferred to the APT were the five GALLEON
vessels sold at the foreclosure proceedings.
On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and
DBP for the satisfaction of the outstanding balance in the amount of
US$2,315,747.32.12 For failure to heed the demand, POLIAND instituted a collection
suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional
Trial Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and
the Memorandum of Agreement between GALLEON and NDC, defendants
GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the
rights of the credit advances/loan accommodations to GALLEON. POLIAND also
claimed that it had a preferred maritime lien over the proceeds of the extrajudicial
foreclosure sale of GALLEONs vessels mortgaged by NDC to DBP. The complaint
prayed for judgment ordering NDC, DBP, and GALLEON to pay POLIAND jointly and
severally the balance of the credit advances/loan accommodations in the amount of
US$2,315,747.32 and attorneys fees ofP100,000.00 plus 20% of the amount
recovered. By way of an alternative cause of action, POLIAND sought reimbursement
from NDC and DBP for the preferred maritime lien of US$1,193,298.56.13
In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a
party to any of the alleged loan transactions. Accordingly, DBP argued that
POLIANDs complaint stated no cause of action against DBP or was barred by the
Statute of Frauds because DBP did not sign any memorandum to act as guarantor for
the alleged credit advances/loan accommodations in favor of POLIAND. DBP also
denied any liability under LOI No. 1155, which it described as immoral and
unconstitutional, since it was rescinded by LOI No. 1195. By way of its Affirmative
Allegations and Defenses, DBP countered that it was unaware of the maritime lien on
the five vessels mortgaged in its favor and that as far as GALLEONs foreign
borrowings are concerned, DBP agreed to act as guarantor thereof only under the
conditions laid down under the Deed of Undertaking. DBP prayed for the award of
actual, moral and exemplary damages and attorneys fees against POLIAND as
compulsory counterclaim. In the event that it be adjudged liable for the payment of the
loan accommodations and the maritime liens, DBP prayed that its co-defendant
GALLEON be ordered to indemnify DBP for the full amount.14
For its part, NDC denied any participation in the execution of the loan
accommodations/credit advances and acquisition of ownership of GALLEON,
asserting that it acted only as manager of GALLEON. NDC specifically denied having
agreed to the assumption of GALLEONs liabilities because no purchase and sale
agreement was executed and the delivery of the required shares of stock of
GALLEON did not take place.15
Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite
vigorous oppositions from NDC and DBP. At the pre-trial conference on April 29,
1993, the trial court issued an Order limiting the issues to the following: (1) whether or
not GALLEON has an outstanding obligation in the amount of US$2,315,747.32; (2)
whether or not NDC and DBP may be held solidarily liable therefor; and (3) whether
or not there exists a preferred maritime lien of P1,000,000.00 in favor of POLIAND.16
After trial on the merits, the court a quo rendered a decision on August 9, 1996 in
favor of POLIAND. Finding that GALLEONs loan advances/credit accommodations
were duly established by the evidence on record, the trial court concluded that under
LOI No. 1155, DBP and NDC are liable for those obligations. The trial court also found
NDC liable for GALLEONs obligations based on the Memorandum of

Agreement dated August 1981 executed between GALLEON and NDC, where it was
provided that NDC shall prioritize repayments of GALLEONs valid and subsisting
liabilities subject of a meritorious lawsuit or which have been arranged and
guaranteed by Cuenca. The trial court was of the opinion that despite the subsequent
issuance of LOI No. 1195, NDC and DBPs obligation under LOI No. 1155 subsisted
because "vested rights of the parties have arisen therefrom." Accordingly, the trial
court interpreted LOI No. 1195s directive to "limit and protect" to mean that "DBP and
NDC should not assume or incur additional exposure with respect to GALLEON."17
The trial court dismissed NDCs argument that the Memorandum of Agreement was
merely a preliminary agreement, noting that under paragraph nine thereof, the only
condition for the payment of GALLEONs subsisting loans by NDC was the
determination by the latter that those obligations were incurred in the ordinary course
of GALLEONs business. The trial court did not regard the non-execution of the stock
purchase agreement as fatal to POLIANDs cause since its non-happening was solely
attributable to NDC. The trial court also ruled that POLIAND had preference to the
maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEONs
vessels since the loan advances/credit accommodations utilized for the payment of
expenses on the vessels were obtained prior to the constitution of the mortgage in
favor of DBP.
In sum, NDC and DBP were ordered to pay POLIAND as follows:
WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff
as against defendants DBP and NDC, who are hereby ORDERED as follows:
1. To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION
THREE HUNDRED FIFTEEN THOUSAND SEVEN HUNDRED FORTY SEVEN AND
21/100 [sic] United States Dollars (US$2,315,747.32) computed at the official
exchange rate at the time of payment, plus interest at the rate of 12% per annum from
25 September 1991 until fully paid;
2. To PAY the amount of ONE MILLION (P1,000,000.) Pesos, Philippine Currency, for
and as attorneys fees; and
3. To PAY the costs of the proceedings.
SO ORDERED.18
Both NDC and DBP appealed the trial courts decision.
The Court of Appeals rendered a modified judgment, absolving DBP of any liability in
view of POLIANDs failure to clearly prove its action against DBP. The appellate court
also discharged NDC of any liability arising from the credit advances/loan obligations
obtained by GALLEON on the ground that NDC did not acquire ownership of
GALLEON but merely assumed control over its management and operations.
However, NDC was held liable to POLIAND for the payment of the preferred maritime
lien based on LOI No. 1195 which directed NDC to "discharge such maritime liens as
may be necessary to allow the foreclosed vessels to engage on the international

shipping business," as well as attorneys fees and costs of suit. The dispositive
portion of the Decision reads:
C.
WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing

findings, as follows:
CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS,

PETITIONER POLIAND WAS ABLE TO ESTABLISH THAT RESPONDENT DBP IS
SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH RESPECT TO
THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND.
The case against defendant-appellant DBP is hereby DISMISSED.
D.
Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the

amount of US$1,920,298.56 plus legal interest effective September 12, 1984.
RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING

THAT RESPONDENT DBP IS JOINTLY AND SOLIDARILY LIABLE WITH
RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS INTEREST
PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREEE 1521.20
The award of attorneys fees and cost of suit is addressed only against NDC.
Costs against defendant-appellant NDC.
SO ORDERED.19
Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this
Court via two separate petitions for review on certiorari. In G.R. No. 143866 filed on
August 21, 2000, petitioner POLIAND raises the following arguments:
RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERRORS IN ITS QUESTIONED DECISION DATED 29 JUNE 2000 AND DECIDED
QUESTIONS CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST
1996 RENDERED BY THE REGIONAL TRIAL COURT (BRANCH 61)
CONSIDERING THAT:
A.
CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS,
RESPONDENT NDC NOT ONLY TOOK OVER TOTALLY THE MANAGEMENT AND
CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF GALLEON
PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED
10 AUGUST 1981; THUS, RESPONDENT NDCS ACQUISITION OF FULL
OWNERSHIP AND CONTROL OF GALLEON CARRIED WITH IT THE
ASSUMPTION OF THE LATTERS LIABILITIES TO THIRD PARTIES SUCH AS
ASIAN HARDWOOD, PETITIONER POLIANDS PREDECESSOR-IN-INTEREST.
B.
RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION
AND THE RULES OF COURT, DISMISSED THE CASE AGAINST RESPONDENT
DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE REASONS FOR SUCH
A DISMISSAL.
On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing
the following errors to the Court of Appeals:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS
LIABLE TO PAY GALLEONS OUTSTANDING OBLIGATION TO RESPONDENT
POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO SATISFY THE PREFERRED
MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE
FIVE GALLEON VESSELS.
(A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE SHIP
MORTGAGE DECREE OF 1978 IS NOT APPLICABLE IN THE CASE AT BAR.
(B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE
FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS.
(C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS
EXTINGUISHES ALL CLAIMS AGAINST THE VESSELS.
II.
THE COURT OF APPEALS ERRED IN AWARDING ATTORNEYS FEES TO
RESPONDENT POLIAND.21
The two petitions were consolidated considering that both petitions assail the same
Court of Appeals Decision, although on different fronts. In G.R. No. 143866,
POLIAND questions the appellate courts finding that neither NDC nor DBP can be
held liable for the loan accommodations to GALLEON. In G.R. No. 143877, NDC
asserts that it is not liable to POLIAND for the preferred maritime lien.
ISSUES
The bone of contention revolves around two main issues, namely: (1) Whether NDC
or DBP or both are liable to POLIAND on the loan accommodations and credit
advances incurred by GALLEON, and (2) Whether POLIAND has a maritime lien
enforceable against NDC or DBP or both.
RULING of the COURT
I. Liability on loan accommodations
and credit advances incurred by GALLEON
The Court of Appeals reversed the trial courts conclusion that NDC and DBP are both
liable to POLIAND for GALLEONs debts on the basis of LOI No. 1155 and
the Memorandum of Agreement. It ratiocinated thus:
With respect to appellant NDC, resolution of the matters raised in its assignment of
errors hinges on whether or not it acquired the shareholdings of GALLEON as
directed by LOI 1155; and if in the negative, whether or not it is liable to pay
GALLEONs outstanding obligation.
The Court answers the issue in the negative. The MOA executed by GALLEON and
NDC following the issuance of LOI 1155 called for the execution of a "formal share
purchase agreement and the transfer of all the shareholdings of seller to Buyer."
Since no such execution and consequent transfer of shareholdings took place, NDC
did not acquire ownership of GALLEON. It merely assumed "actual control over the
management and operations" of GALLEON in the exercise of which it, on January 15,
1982, after being satisfied of the existence of GALLEONs obligation to ASIAN
HARDWOOD, partially paid the latter One Million ($1,000,000.00) US dollars.22
....
With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of
action against it. This leaves it unnecessary to dwell on DBPs other assigned errors,
including that bearing on its claim for damages and attorneys fees which does not
persuade.23
POLIANDs cause of action against NDC is premised on the theory that when NDC
acquired all the shareholdings of GALLEON, the former also assumed the latters
liabilities, including the loan advances/credit accommodations obtained by GALLEON
from POLIANDs predecessors-in-interest. In G.R. No. 143866, POLIAND argues that
NDC acquired ownership of GALLEON pursuant to paragraphs 1 and 2 of LOI No.
1155, which was implemented through the execution of the Memorandum of
Agreement. It believes that no conditions were required prior to the assumption by
NDC of GALLEONs ownership and subsisting loans. Even assuming that conditions
were set, POLIAND opines that the conditions were deemed fulfilled pursuant to
Article 1186 of the Civil Code because of NDCs apparent intent to prevent the
execution of the share purchase agreement.24
On the other hand, NDC asserts that it could not have acquired GALLEONs equity
and, consequently, its liabilities because LOI No. 1155 had been rescinded by LOI No.
1195, and therefore, became inoperative and non-existent. Moreover, NDC, relying on
the pronouncements in Philippine Association of Service Exporters, Inc. et al. v.
Ruben D. Torres25 and Parong, et al. v. Minister Enrile,26 is of the opinion that LOI No.
1155 does not have the force and effect of law and cannot be a valid source of
obligation.27 NDC denies POLIANDs contention that it deliberately prevented the
execution of the share purchase agreement considering that Cuenca remained
GALLEONs president seven months after the signing of the Memorandum of
Agreement.28 NDC contends that the Memorandum of Agreement was a mere
preliminary agreement between Cuenca and Ongpin for the intended purchase of
GALLEONs equity, prescribing the manner, terms and conditions of said purchase.29
NDC, not liable under LOI No. 1155
As a general rule, letters of instructions are simply directives of the President of the
Philippines, issued in the exercise of his administrative power of control, to heads of
departments and/or officers under the executive branch of the government for
observance by the officials and/or employees thereof.30 Being administrative in nature,
they do not have the force and effect of a law and, thus, cannot be a valid source of
obligation. However, during the period when then President Marcos exercised
extraordinary legislative powers, he issued certain decrees, orders and letters of
instruction which the Court has declared as having the force and effect of a statute.
As pointed out by the Court in Legaspi v. Minister of Finance,31 paramount
considerations compelled the grant of extraordinary legislative power to the President
at that time when the nation was beset with threats to public order and the purpose
for which the authority was granted was specific to meet the exigencies of that period,
thus:
True, without loss of time, President Marcos made it clear that there was no military
take-over of the government, and that much less was there being established a
revolutionary government, even as he declared that said martial law was of a doublebarrelled type, unfamiliar to traditional constitutionalists and political scientistsfor
two basic and transcendental objectives were intended by it: (1) the quelling of nationwide subversive activities characteristic not only of a rebellion but of a state of war
fanned by a foreign power of a different ideology from ours, and not excluding the
stopping effectively of a brewing, if not a strong separatist movement in Mindanao,
and (2) the establishment of a New Society by the institution of disciplinary measures
designed to eradicate the deep-rooted causes of the rebellion and elevate the
standards of living, education and culture of our people, and most of all the social
amelioration of the poor and underprivileged in the farms and in the barrios, to the
end that hopefully insurgency may not rear its head in this country again.32
Thus, before a letter of instruction is declared as having the force and effect of a
statute, a determination of whether or not it was issued in response to the objectives
stated in Legaspi is necessary. Parong, et al. v. Minister Enrile33differentiated between
LOIs in the nature of mere administrative issuances and those forming part of the law
of the land. The following conditions must be established before a letter of instruction
may be considered a law:
To form part of the law of the land, the decree, order or LOI must be issued by the
President in the exercise of his extraordinary power of legislation as contemplated in
Section 6 of the 1976 amendments to the Constitution, whenever in his judgment,
there exists a grave emergency or threat or imminence thereof, or whenever the
interim Batasan Pambansa or the regular National Assembly fails or is unable to act
adequately on any matter for any reason that in his judgment requires immediate
action.34
Only when issued under any of the two circumstances will a decree, order, or letter be
qualified as having the force and effect of law. The decree or instruction should have
been issued either when there existed a grave emergency or threat or imminence or
when the Legislature failed or was unable to act adequately on the matter. The
qualification that there exists a grave emergency or threat or imminence thereof must
be interpreted to refer to the prevailing peace and order conditions because the
particular purpose the President was authorized to assume legislative powers was to
address the deteriorating peace and order situation during the martial law period.
There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then
President Marcos was vested with extraordinary legislative powers. LOI No. 1155 was
specifically directed to DBP, NDC and the Maritime Industry Authority to undertake the
following tasks:
LETTER OF INSTRUCTIONS NO. 1155
DEVELOPMENT BANK OF THE PHILIPPINES
NATIONAL DEVELOPMENT COMPANY
MARITIME INDUSTRY AUTHORITY
DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION
....
1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation
from its present owners for the amount of P46.7 million which is the amount originally
contributed by the present shareholders, payable after five years with no interest cost.
2. NDC to immediately infuse P30 million into Galleon Shipping Corporation in lieu of
is previously approved subscription to Philippine National Lines. In addition, NDC is to
provide additional equity to Galleon as may be required.
3. DBP to advance for a period of three years from date hereof both the principal and
the interest on Galleon's obligations falling due and to convert such advances into
12% preferred shares in Galleon Shipping Corporation.
4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of

Galleon.
5. MARINA to provide assistance to Galleon by mandating a rational liner shipping
schedule considering existing freight volumes and to immediately negotiate a bilateral
agreement with the United States in accordance with UNCTAD resolutions.
....
Although LOI No. 1155 was undoubtedly issued at the time when the President
exercised legislative powers granted under Amendment No. 6 of the 1973
Constitution, the language and purpose of LOI No. 1155 precludes this Court from
declaring that said LOI had the force and effect of law in the absence of any of the
conditions set out in Parong. The subject matter of LOI No. 1155 is not connected,
directly or remotely, to a grave emergency or threat to the peace and order situation
of the nation in particular or to the public interest in general. Nothing in the language
of LOI No. 1155 suggests that it was issued to address the security of the nation.
Obviously, LOI No. 1155 was in the nature of a mere administrative issuance directed
to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a
private corporation.
NDC, not liable under the Corporation Code
The Court cannot accept POLIANDs theory that with the effectivity of LOI No. 1155,
NDC ipso facto acquired the interests in GALLEON without disregarding applicable
statutory requirements governing the acquisition of a corporation. Ordinarily, in the
merger of two or more existing corporations, one of the combining corporations
survives and continues the combined business, while the rest are dissolved and all
their rights, properties and liabilities are acquired by the surviving corporation.35 The
merger, however, does not become effective upon the mere agreement of the
constituent corporations.36
As specifically provided under Section 7937 of said Code, the merger shall only be
effective upon the issuance of a certificate of merger by the Securities and Exchange
Commission (SEC), subject to its prior determination that the merger is not
inconsistent with the Code or existing laws. Where a party to the merger is a special
corporation governed by its own charter, the Code particularly mandates that a
favorable recommendation of the appropriate government agency should first be
obtained. The issuance of the certificate of merger is crucial because not only does it
bear out SECs approval but also marks the moment whereupon the consequences of
a merger take place. By operation of law, upon the effectivity of the merger, the
absorbed corporation ceases to exist but its rights, and properties as well as liabilities
shall be taken and deemed transferred to and vested in the surviving corporation.38
The records do not show SEC approval of the merger. POLIAND cannot assert that
no conditions were required prior to the assumption by NDC of ownership of
GALLEON and its subsisting loans. Compliance with the statutory requirements is a
condition precedent to the effective transfer of the shareholdings in GALLEON to
NDC. In directing NDC to acquire the shareholdings in GALLEON, the President
could not have intended that the parties disregard the requirements of law. In the
absence of SEC approval, there was no effective transfer of the shareholdings in
GALLEON to NDC. Hence, NDC did not acquire the rights or interests of GALLEON,
including its liabilities.
(c) Matters not assigned as errors on appeal but consideration of which is necessary
in arriving at a just decision and complete resolution of the case or to serve the
interests of a justice or to avoid dispensing piecemeal justice;
DBP, not liable under LOI No. 1155
(d) Matters not specifically assigned as errors on appeal but raised in the trial court
and are matters of record having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored;
POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to
advance the obligations of GALLEON.39 DBP argues that POLIAND has no cause of
action against it under LOI No. 1155 which is void and unconstitutional.40
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
The Court affirms the appellate courts ruling that POLIAND does not have any cause
of action against DBP under LOI No. 1155. Being a mere administrative issuance, LOI
No. 1155 cannot be a valid source of obligation because it did not create any privity of
contract between DBP and POLIAND or its predecessors-in-interest. At best, the
directive in LOI No. 1155 was in the nature of a grant of authority by the President on
DBP to enter into certain transactions for the satisfaction of GALLEONs obligations.
There is, however, nothing from the records of the case to indicate that DBP had
acted as surety or guarantor, or had otherwise accommodated GALLEONs
obligations to POLIAND or its predecessors-in-interest.
II. Liability on maritime lien
On the second issue of whether or not NDC is liable to POLIAND for the payment of
maritime lien, the appellate court ruled in the affirmative, to wit:
Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay
ASIAN HARDWOODs successor-in-interest POLIAND the equivalent of
US$1,930,298.56 representing the proceeds of the loan from Asian Hardwood which
were spent by GALLEON for ship modification and salaries of crew, to satisfy the
preferred maritime liens over the proceeds of the foreclosure sale of the 5 vessels.41
POLIAND contends that NDC can no longer raise the issue on the latters liability for
the payment of the maritime lien considering that upon appeal to the Court of
Appeals, NDC did not assign it as an error.42 Generally, an appellate court may only
pass upon errors assigned. However, this rule is not without exceptions. In the
following instances, the Court ruled that an appellate court is accorded a broad
discretionary power to waive the lack of assignment of errors and consider errors not
assigned:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the
subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors
within contemplation of law;
(f) Matters not assigned as errors on appeal but upon which the determination of a
question properly assigned, is dependent.43
It is noteworthy that the question of NDC and DBPs liability on the maritime lien had
been raised by POLIAND as an alternative cause of action against NDC and DBP and
was passed upon by the trial court. The Court of Appeals, however, reversed the trial
courts finding that NDC and DBP are liable to POLIAND for the payment of the credit
advances and loan accommodations and instead found NDC to be solely liable on the
preferred maritime lien although NDC did not assign it as an error.
The records, however, reveal that the issue on the liability on the preferred maritime
lien had been properly raised and argued upon before the Court of Appeals not by
NDC but by DBP who was also adjudged liable thereon by the trial court. DBPs
appellants brief44 pointed out POLIANDs failure to present convincing evidence to
prove its alternative cause of action, which POLIAND disputed in its appellees
brief.45 The issue on the maritime lien is a matter of record having been adequately
ventilated before and passed upon by the trial court and the appellate court. Thus, by
way of exception, NDC is not precluded from again raising the issue before this Court
even if it did not specifically assign the matter as an error before the Court of Appeals.
Besides, this Court is clothed with ample authority to review matters, even if they are
not assigned as errors in the appeal if it finds that their consideration is necessary in
arriving at a just decision of the case.46
Articles 578 and 580 of the Code
of Commerce, not applicable
NDC cites Articles 57847 and 58048 of the Code of Commerce to bolster its argument
that the foreclosure of the vessels extinguished all claims against the vessels
including POLIANDs claim.49 Article 578 of the Code of Commerce is not relevant to
the facts of the instant case because it governs the sale of vessels in a foreign port.
Said provision outlines the formal and registration requirements in order that a sale of
a vessel on voyage or in a foreign port becomes effective as against third persons.
On the other hand, the resolution of the instant case depends on the determination as
to which creditor is entitled to the proceeds of the foreclosure sale of the vessels.
Clearly, Article 578 of the Code of Commerce is inapplicable.
Article 580, while providing for the order of payment of creditors in the event of sale of
a vessel, had been repealed by the pertinent provisions of Presidential Decree (P.D.)
No. 1521, otherwise known as the Ship Mortgage Decree of 1978. In particular, Article
580 provides that in case of the judicial sale of a vessel for the payment of creditors,
the debts shall be satisfied in the order specified therein. On the other hand, Section
17 of P.D. No. 152150 also provides that in the judicial or extrajudicial sale of a vessel
for the enforcement of a preferred mortgage lien constituted in accordance with
Section 2 of P.D. No. 1521, such preferred mortgage lien shall have priority over all
pre-existing claims against the vessel, save for those claims enumerated under
Section 17, which have preference over the preferred mortgage lien in the order
stated therein. Since P.D. No. 1521 is a subsequent legislation and since said law in
Section 17 thereof confers on the preferred mortgage lien on the vessel superiority
over all other claims, thereby engendering an irreconcilable conflict with the order of
preference provided under Article 580 of the Code of Commerce, it follows that the
Code of Commerce provision is deemed repealed by the provision of P.D. No. 1521,
as the posterior law.51
P.D. No. 1521 is applicable, not the
eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to
the claim of the mortgage creditor unless there are superior or preferential liens, as
enumerated under Section 17, namely:
SECTION 17. Preferred Maritime Lien, Priorities, Other Liens. (a) Upon the sale of
any mortgaged vessel in any extra-judicial sale or by order of a district court of the
Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage
lien thereon, all pre-existing claims in the vessel, including any possessory commonlaw lien of which a lienor is deprived under the provisions of Section 16 of this
Decree, shall be held terminated and shall thereafter attach in like amount and in
accordance with the priorities established herein to the proceeds of the sale. The
preferred mortgage lien shall have priority over all claims against the vessel, except
the following claims in the order stated: (1) expenses and fees allowed and costs
taxed by the court and taxes due to the Government; (2) crew's wages; (3)
general average; (4) salvage including contract salvage; (5) maritime liens
arising prior in time to the recording of the preferred mortgage; (6) damages
arising out of tort; and (7) preferred mortgage registered prior in time.
Civil Code provisions on

concurrence/preference of
credits
Whether or not the order of preference under Section 17, P.D. No. 1521 may be
properly applied in the instant case depends on the classification of the mortgage on
the GALLEON vessels, that is, if it falls within the ambit of Section 2, P.D. No. 1521,
defining how a preferred mortgage is constituted.
NDC and DBP both argue that POLIANDs claim cannot prevail over DBPs mortgage
credit over the foreclosed vessels because the mortgage executed in favor of DBP
pursuant to the October 10, 1979 Deed of Undertakingsigned by GALLEON and DBP
was an ordinary ship mortgage and not a preferred one, that is, it was not given in
connection with the construction, acquisition, purchase or initial operation of the
vessels, but for the purpose of guaranteeing GALLEONs foreign borrowings.52
Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to
wit:
(b) If the proceeds of the sale should not be sufficient to pay all creditors included in
one number or grade, the residue shall be divided among them pro rata. All credits
not paid, whether fully or partially shall subsist as ordinary credits enforceable by
personal action against the debtor. The record of judicial sale or sale by public auction
shall be recorded in the Record of Transfers and Encumbrances of Vessels in the port
of documentation. (Emphasis supplied.)
There is no question that the mortgage executed in favor of DBP is covered by P.D.
No. 1521. Contrary to NDCs assertion, the mortgage constituted on GALLEONs
vessels in favor of DBP may appropriately be characterized as a preferred mortgage
under Section 2, P.D. No. 1521 because GALLEON constituted the same for the
purpose of financing the construction, acquisition, purchase of vessels or initial
operation of vessels. While it is correct that GALLEON executed the mortgage in
consideration of DBPs guarantee of the prompt payment of GALLEONs obligations
to the Japanese lenders, DBPs undertaking to pay the Japanese banks was a
condition sine qua non to the acquisition of funds for the purchase of the GALLEON
vessels. Without DBPs guarantee, the Japanese lenders would not have provided the
funds utilized in the purchase of the GALLEON vessels. The mortgage in favor of
DBP was therefore constituted to facilitate the acquisition of funds necessary for the
purchase of the vessels.
SECTION 2. Who may Constitute a Ship Mortgage. Any citizen of the Philippines,
or any association or corporation organized under the laws of the Philippines, at least
sixty per cent of the capital of which is owned by citizens of the Philippines may, for
the purpose of financing the construction, acquisition, purchase of vessels or initial
operation of vessels, freely constitute a mortgage or any other lien or encumbrance
on his or its vessels and its equipment with any bank or other financial institutions,
domestic or foreign.
NDC adds that being an ordinary ship mortgage, the Civil Code provisions on
concurrence and preference of credits and not P.D. No. 1521 should govern. NDC
contends that under Article 2246, in relation to Article 2241 of the Civil Code, the
credits guaranteed by a chattel mortgage upon the thing mortgaged shall enjoy
preference (with respect to the thing mortgaged), to the exclusion of all others to the
extent of the value of the personal property to which the preference exists.54 Following
NDCs theory, DBPs mortgage credit, which is fourth in the order of preference under
Article 2241, is superior to POLIANDs claim, which enjoys no preference.
If the mortgage on the vessel is constituted for the purpose stated under Section 2,
the mortgage obtains a preferred status provided the formal requisites enumerated
under Section 453 are complied with. Upon enforcement of the preferred mortgage and
NDCs argument does not persuade the Court.
The provision of P.D. No. 1521 on the order of preference in the satisfaction of the
claims against the vessel is the more applicable statute to the instant case compared
to the Civil Code provisions on the concurrence and preference of credit. General
legislation must give way to special legislation on the same subject, and generally be
so interpreted as to embrace only cases in which the special provisions are not
applicable.55
POLIANDs alternative cause of action for the payment of maritime liens is based on
Sections 17 and 21 of P.D. No. 1521. POLIAND also contends that by virtue of the
directive in LOI No. 1195 on NDC to discharge maritime liens to allow the vessels to
engage in international business, NDC is liable therefor.56
POLIANDs maritime lien is superior
to DBPs mortgage lien
Before POLIANDs claim may be classified as superior to the mortgage constituted on
the vessel, it must be shown to be one of the enumerated claims which Section 17,
P.D. No. 1521 declares as having preferential status in the event of the sale of the
vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is
considered to be superior to the preferred mortgage lien is a maritime lien arising
prior in time to the recording of the preferred mortgage. Such maritime lien is
described under Section 21, P.D. No. 1521, which reads:
SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. Any
person furnishing repairs, supplies, towage, use of dry dock or marine 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.
Under the aforequoted provision, the expense must be incurred upon the order of the
owner of the vessel or its authorized person and prior to the recording of the ship
mortgage. Under the law, it must be established that the credit was extended to the
vessel itself.57
The trial court found that GALLEONs advances obtained from Asian Hardwood were
used to cover for the payment of bunker oil/fuel, unused stores and oil, bonded
stores, provisions, and repair and docking of the GALLEON vessels.58 These
expenses clearly fall under Section 21, P.D. No. 1521.
The trial court also found that the advances from Asian Hardwood were spent for ship
modification cost and the crews salary and wages. DBP contends that a ship
modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have
a status superior to DBPs preferred mortgage lien.
As stated in Section 21, P.D. No. 1521, a maritime lien may consist in "other
necessaries spent for the vessel." The ship modification cost may properly be
classified under this broad category because it was a necessary expenses for the
vessels navigation. As long as an expense on the vessel is indispensable to the

maintenance and navigation of the vessel, it may properly be treated as a maritime
lien for necessaries under Section 21, P.D. No. 1521.
With respect to the claim for salary and wages of the crew, there is no doubt that it is
also one of the enumerated claims under Section 17, P.D. No. 1521, second only to
judicial costs and taxes due the government in preference and, thus, having a status
superior to DBPs mortgage lien.
All told, the determination of the existence and the amount of POLIANDs claim for
maritime lien is a finding of fact which is within the province of the courts below.
Findings of fact of lower courts are deemed conclusive and binding upon the
Supreme Court except when the findings are grounded on speculation, surmises or
conjectures; when the inference made is manifestly mistaken, absurd or impossible;
when there is grave abuse of discretion in the appreciation of facts; when the factual
findings of the trial and appellate courts are conflicting; when the Court of Appeals, in
making its findings, has gone beyond the issues of the case and such findings are
contrary to the admissions of both appellant and appellee; when the judgment of the
appellate court is premised on a misapprehension of facts or when it has failed to
notice certain relevant facts which, if properly considered, will justify a different
conclusion; when the findings of fact are conclusions without citation of specific
evidence upon which they are based; and when findings of fact of the Court of
Appeals are premised on the absence of evidence but are contradicted by the
evidence on record.59 The Court finds no sufficient justification to reverse the findings
of the trial court and the appellate court in respect to the existence and amount of
maritime lien.
Only NDC is liable on the maritime lien
POLIAND maintains that DBP is also solidarily liable for the payment of the preferred
maritime lien over the proceeds of the foreclosure sale by virtue of Section 17, P.D.
No. 1521. It claims that since the lien was incurred prior to the constitution of the
mortgage on January 25, 1982, the preferred maritime lien attaches to the proceeds
of the sale of the vessels and has priority over all claims against the vessels in
accordance with Section 17, P.D. No. 1521.60
In its defense, DBP reiterates the following arguments: (1) The salary and crews
wages cannot be claimed by POLIAND or its predecessors-in-interest because none
of them is a sailor or mariner;61 (2) Even if conceded, POLIANDs preferred maritime
lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3) POLIANDs
claim is barred by prescription and laches.62
The first argument is absurd. Although POLIAND or its predecessors-in-interest are
not sailors entitled to wages, they can still make a claim for the advances spent for
the salary and wages of the crew under the principle of legal subrogation. As
explained in Philippine National Bank v. Court of Appeals,63 a third person who
satisfies the obligation to an original maritime lienor may claim from the debtor
because the third person is subrogated to the rights of the maritime lienor over the
vessel. The Court explained as follows:
From the foregoing, it is clear that the amount used for the repair of the vessel M/V
"Asean Liberty" was advanced by Citibank and was utilized for the purpose of paying
off the original maritime lienor, Hong Kong United Dockyards, Ltd. As a person not
interested in the fulfillment of the obligation between PISC and Hong Kong United
Dockyards, Ltd., Citibank was subrogated to the rights of Hong Kong United
Dockyards, Ltd. as a maritime lienor over the vessel, by virtue of Article 1302, par. 2
of the New Civil Code. By definition, subrogation is the transfer of all the rights of the
creditor to a third person, who substitutes him in all his rights. Considering that
Citibank paid off the debt of PISC to Hong Kong United Dockyards, Ltd. it became the
transferee of all the rights of Hong Kong Dockyards, Ltd. as against PISC, including
the maritime lien over the vessel M/V "Asian Liberty."64
DBPs reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil
Code, which enumerates the contracts covered by the Statue of Frauds, is
inapplicable. To begin with, there is no privity of contract between POLIAND or its
predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its
claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not on any
contract or agreement.
Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144
of the Civil Code, an action upon an obligation created by law must be brought within
ten years from the time the right of action accrues. The right of action arose after
January 15, 1982, when NDC partially paid off GALLEONs obligations to POLIANDs
predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period for the
enforcement by action of the balance of GALLEONs outstanding obligations had
commenced. Prescription could not have set in because the prescriptive period was
tolled when POLIAND made a written demand for the satisfaction of the obligation on
September 24, 1991, or before the lapse of the ten-year prescriptive period. Laches
also do not lie because there was no unreasonable delay on the part of POLIAND in
asserting its rights. Indeed, it instituted the instant suit seasonably.
All things considered, however, the Court finds that only NDC is liable for the payment
of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the
transfer of ownership, the lien is not extinguished. The maritime lien is inseparable
from the vessel and until discharged, it follows the vessel. Hence, the enforcement of
a maritime lien is in the nature and character of a proceeding quasi in rem.65 The
expression "action in rem" is, in its narrow application, used only with reference to
certain proceedings in courts of admiralty wherein the property alone is treated as
responsible for the claim or obligation upon which the proceedings are
based.66 Considering that DBP subsequently transferred ownership of the vessels to
NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the
subsequent transfer of the vessels to NDC, the maritime lien subsists.
This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels
took place without the intervention of GALLEONs other creditors including
POLIANDs predecessors-in-interest who were apparently left in the dark about the
foreclosure proceedings. At that time, GALLEON was already a failing corporation
having borrowed large sums of money from banks and financial institutions. When
GALLEON defaulted in the payment of its obligations to DBP, the latter foreclosed on
its mortgage over the GALLEON ships. The other creditors, including POLIANDs
predecessors-in-interest who apparently had earlier or superior rights over the

foreclosed vessels, could not have participated as they were unaware and were not
made parties to the case.
On this note, the Court believes and so holds that the institution of the extrajudicial
foreclosure proceedings was tainted with bad faith. It took place when NDC had
already assumed the management and operations of GALLEON. NDC could not have
pleaded ignorance over the existence of a prior or preferential lien on the vessels
subject of foreclosure. As aptly held by the Court of Appeals:
NDCs claim that even if maritime liens existed over the proceeds of the foreclosure
sale of the vessels which it subsequently purchased from DBP, it is not liable as it was
a purchaser in good faith fails, given the fact that in its "actual control over the
management and operations" of GALLEON, it was put on notice of the various
obligations of GALLEON including those secured from ASIAN HARDWOOD as in fact
it even paid ASIAN HARDWOOD US$1,000,000.00 in partial settlement of
GALLEONs obligations, before it (NDC) mortgaged the 5 vessels to DBP on January
25, 1982.
Parenthetically, LOI 1195 directed NDC to "discharge such maritime liens as may be
necessary to allow the foreclosed vessels to engage on the international shipping
business."
In fine, it is with respect to POLIANDs claim for payment of US$1,930,298.56
representing part of the proceeds of GALLEONs loan which was spent by GALLEON
"for ship modification and salaries of crew" that NDC is liable.67
Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it
had knowledge that the vessels were subject to various liens. At the very least, to
evince good faith, NDC could have inquired as to the existence of other claims
against the vessels apart from DBPs mortgage lien. Considering that NDC was also
in a position to know or discover the financial condition of GALLEON when it took
over its management, the lack of notice to GALLEONs creditors suggests that the
extrajudicial foreclosure was effected to prejudice the rights of GALLEONs other
creditors.
NDC also cannot rely on Administrative Order No. 64,68 which directed the transfer of
the vessels to the APT, on its hypothesis that such transfer extinguished the lien. APT
is a mere conduit through which the assets acquired by the National Government are
provisionally held and managed until their eventual disposal or privatization.
Administrative Order No. 64 did not divest NDC of its ownership over the GALLEON
vessels because APT merely holds the vessels in trust for NDC until the same are
disposed. Even if ownership was transferred to APT, that would not be sufficient to
discharge the maritime lien and deprive POLIAND of its recourse based on the lien.
Such denouement would smack of denial of due process and taking of property
without just compensation.
NDCs liability for attorneys fees
The lower court awarded attorneys fees to POLIAND in the amount of P1,000,000.00
on account of the amount involved in the case and the protracted character of the
litigation.69 The award was affirmed by the Court of Appeals as against NDC only.70
This Court finds no reversible error with the award as upheld by the appellate court.
Under Article 220871 of the Civil Code, attorneys fees may be awarded inter alia when
the defendants act or omission has compelled the plaintiff to incur expenses to
protect his interest or in any other case where the court deems it just and equitable
that attorneys fees and expenses of litigation be recovered.
One final note. There is a discrepancy between the dispositive portion of the Court of
Appeals Decision and the body thereof with respect to the amount of the maritime
lien in favor of POLIAND. The dispositive portion ordered NDC to pay POLIAND "the
amount of US$1,920,298.56" plus interest72 despite a finding that NDCs liability to
POLIAND represents the maritime lien73 which according to the complaint74 is the
alternative cause of action of POLIAND in the smaller amount of US$1,193,298.56,
as prayed for by POLIAND in its complaint.
The general rule is that where there is conflict between the dispositive portion or
the fallo and the body of the decision, the fallo controls. This rule rests on the theory
that the fallo is the final order while the opinion in the body is merely a statement
ordering nothing. However, where the inevitable conclusion from the body of the
decision is so clear as to show that there was a mistake in the dispositive portion, the
body of the decision will prevail.75 In the instant case, it is clear from the trial court
records and the Court of Appeals Rollo that the bigger amount awarded in the
dispositive portion of the Court of Appeals Decision was a typographical mistake.
Considering that the appellate courts Decision merely affirmed the trial courts finding
with respect to the amount of maritime lien, the bigger amount stated in the
dispositive portion of the Court of Appeals Decision must have been awarded through
indavertence.
WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED.
The Decision of the Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the
extent that National Development Company is liable to Poliand Industrial Limited for
the amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety
Eight US Dollars and Fifty-Six US Cents (US$ 1,193,298.56), plus interest of 12% per
annum computed from 25 September 1991 until fully paid. In other respects,
said Decision is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
Footnotes
Penned by Justice Conchita Carpio-Morales, Chairman, Fourth Division, now
Associate Justice of the Court, and concurred in by JJ. Teodoro Regino and Mercedes
Gozo-Dadole.
2
CA Decision, p. 1; G.R. No. 143877, Rollo, p. 60.
3
G.R. No. 143877, Rollo, pp. 127-139.
4
Id. at 140.
1
Id. at 123-126.
G.R. No. 143866, Rollo, p. 1658.
7
Id. at 821-837.
8
Id. at 70.
9
Id. at 694-695.
10
G.R. No. 143866, Rollo, pp. 294-297.
11
Id. at 297-A.
12
Id. at 311-312.
13
Id. at 85-94.
14
Id. at 105-119.
15
Id. at 122-130.
16
G.R. No. 143877, Rollo, p. 97.
17
G.R. No. 143866, Rollo, pp. 1085-1106.
18
Id. at 1106.
19
G.R. No. 143877, Rollo, p. 23.
20
G.R. No. 143866, Rollo, pp. 40-41.
21
G.R. No. 143877, Rollo, p. 14.
22
G.R. No. 143877, Rollo, p. 21.
23
Id. at 22.
24
G.R. No. 143866, Rollo, pp. 44-46.
25
G.R. No. 98472, August 19, 1993, 225 SCRA 417.
26
206 Phil. 393 (1983).
27
G.R. No. 143866, Rollo, pp. 1642-1643.
28
Ibid.
29
Id. at 1645.
30
People v. Court of First Instance of Bulacan, G.R. No. L-53674-75, July 6, 1988, 163
SCRA 430, 433.
31
201 Phil. 8 (1982).
32
Id. at 24.
33
206 Phil. 392 (1983).
34
Id. at 428.
35
Associated Bank v. Court of Appeals, 353 Phil. 702, 712 (1998).
36
Ibid.
37
"SEC. 79. Securities and Exchange Commissions approval and effectivity of merger
and consolidation.The articles of merger or of consolidation, signed and certified as
hereinabove required, shall be submitted to the Securities and Exchange Commission
in quadruplicate for its approval: Provided, That in the case of merger or consolidation
of banks or banking institutions, building and loan associations, trust companies,
insurance companies, public utilities, educational institutions and other special
corporations governed by special laws, the favorable recommendation of the
appropriate government agency shall first be obtained. Where the commission is
satisfied that the merger or consolidation of the corporations concerned is not
inconsistent with the provisions of this Code and existing laws, it shall issue a
certificate of merger or of consolidation, as the case may be, at which time the merger
or consolidation shall be effective.
If, upon investigation, the Securities and Exchange Commission has reason to believe
that the proposed merger or consolidation is contrary to or inconsistent with the
provisions of this Code or existing laws, it shall set a hearing to give the corporations
concerned the opportunity to be heard. Written notice of the date, time and place of
said hearing shall be given to each constituent corporation at least two (2) weeks
before said hearing. The Commission shall thereafter proceed as provided in this
Code."
38
Section 80, Corporation Code.
39
G.R. No. 143866, Rollo, p. 55.
40
Id. at 1679.
41
G.R. No. 143877, Rollo, pp. 21-22.
42
Id. at 217.
43
Diamonon v. DOLE, et al., 384 Phil. 15, 22-23; cited cases omitted.
5
6
G.R. No. 143866, Rollo, pp. 1294-1332.

Id. at 1334.
46
Soco v. Militante, 208 Phil. 151, 170 (1983).
47
ARTICLE 578. If the vessel being on a voyage or in a foreign port, its owner or
owners should voluntarily alienate it, either to Filipinos or to foreigners domiciled in the
capital or in a port of another country, the bill of sale shall be executed before the
consul of the Republic of the Philippines at the port where it terminates its voyage and
said instrument shall produce no effect with respect to third persons if it is not
inscribed in the registry of the consulate. The consul shall immediately forward a true
copy of the instrument of purchase and sale of the vessel to the registry of vessels of
the port where said vessel is inscribed and registered.
In every case the alienation of the vessel must be made to appear with a statement of
whether the vendor receives its price in whole or in part, or whether he preserves in
whole or in part any claim on said vessel. In case the sale is made to a Filipino, this
fact shall be stated in the certificate of navigation.
When a vessel, being on a voyage, shall be rendered useless for navigation, the
captain shall apply to the competent judge on court of the port of arrival, should it be in
the Philippines; and should it be in a foreign country, to the consul of the Republic of
the Philippines, should there be one, or, where there is none, to the judge or court or
to the local authority; and the consul, or the judge or court, shall order an examination
of the vessel to be made.
If the consignee or the insurer should reside at said port, or should have
representatives there, they must be cited in order that they may take part in the
proceedings on behalf of whoever may be concerned.
48
ARTICLE 580. In all judicial sales of any vessel for the payment of creditors, the
following shall have preference in the order stated:
1. The credit in favor of the public treasury proven by means of an official certificate of
competent authority.
2. The judicial costs of the proceedings, according to an appraisement approved by
the judge or court.
3. The pilotage charges, tonnage dues, and the other sea or port charges, proven by
means of proper certificates of the officers intrusted with the collection thereof.
4. The salaries of the depositaries and keepers of the vessel and any other expenses
for its preservation from the time of arrival at the port until the sale, which appear to
have been paid or be due by virtue of an account verified and approved by the judge
or court.
5. The rent of the warehouse where the rigging and stores of the vessel have been
taken care of, according to contract.
6. The salaries due the captain and crew during its last voyage, which shall be verified
by means of the liquidation to be made in view of the lists and of the books of account
of the vessel, approved by the chief of the Bureau of Merchant Marine, where there is
one, and in his absence by the consul or judge or court.
7. The reimbursement for the goods of the freight which the captain may have sold in
order to repair the vessel, provided that the sale has been ordered through a judicial
proceedings held with the formalities required in such cases, and recorded in the
certificate of registry of the vessel.
8. The part of the price which has not been paid to the said vendor, the unpaid credits
for materials and labor in the construction of the vessel, when it has not navigated,
and those arising from the repair and equipment of the vessels and from its
provisioning with victuals and fuel during the last voyage.
In order that the credits provided for in this subdivision may enjoy this preference, they
must appear by contracts recorded in the registry of vessels, or if they were contracted
for the vessel while on a voyage and said vessel has not returned to the port where it
is registered, they must be made with the authorization required for such cases and
annotated in the certificate of registration of the vessel.
9. The amount borrowed on bottomry on the hull, keel, tackle, and stores of the vessel
before its departure, proven by means of the contract executed according to law and
recorded in the registry of vessels; those borrowed during the voyage with the
44
45
authorization mentioned in the preceding subdivision, satisfying the same requisites;

and the insurance premium, proven by the insurance policy or a certificate taken from
the books of the broker.
10. The indemnity due the shipper for the value of the goods shipped which were not
delivered to the consignees, or for averages suffered for which the vessel is liable,
provided that either appear in a judicial or arbitration decision.
49
G.R. No. 143877, Rollo, p. 51.
50
SECTION 17. Preferred Maritime Lien, Priorities, Other Liens.(a) Upon the sale of
any mortgaged vessel in any extra-judicial sale or by order of a district court of the
Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage
lien thereon, all pre-existing claims in the vessel, including any possessory commonlaw lien of which a lienor is deprived under the provisions of Section 16 of this Decree,
shall be held terminated and shall thereafter attach in like amount and in accordance
with the priorities established herein to the proceeds of the sale. The preferred
mortgage lien shall have priority over all claims against the vessel, except the
following claims in the order stated: (1) expenses and fees allowed and costs taxed by
the court and taxes due to the Government; (2) crew's wages; (3) general average; (4)
salvage; including contract salvage; (5) maritime liens arising prior in time to the
recording of the preferred mortgage; (6) damages arising out of tort; and (7) preferred
mortgage registered prior in time.
(b) If the proceeds of the sale should not be sufficient to pay all creditors included in
one number or grade, the residue shall be divided among them pro rata. All credits not
paid, whether fully or partially shall subsist as ordinary credits enforceable by personal
action against the debtor. The record of judicial sale or sale by public auction shall be
recorded in the Record of Transfers and Encumbrances of Vessels in the port of
documentation.
51
P.D. No. 1521, SECTION 29. Repealing Clause. The provisions of the New Civil
Code, the Code of Commerce, the Chattel Mortgage Law, the Revised Rules of Court
and of such other laws, decrees, executive orders, rules and regulations which are in
conflict or inconsistent with the provisions of this Decree are hereby repealed,
amended or modified accordingly. If for any reason, any section, subsection,
sentence, clauses or term of this Decree is held to be unconstitutional such decision
shall not affect the validity of the other provisions of this Decree.
52
G.R. No. 143877, Rollo, pp. 44-45.
53
SECTION 4. Preferred Mortgages. (a) A valid mortgage which at the time it is
made includes the whole of any vessel of domestic ownership shall have, in respect to
such vessel and as of the date of recordation, the preferred status given by the
provisions of Section 17 hereof, if
(1) The mortgage is recorded as provided in Section 3 hereof;
(2) An affidavit is filed with the record of such mortgage to the effect that the mortgage
is made in good faith and without any design to hinder, delay, or defraud any existing
or future creditor of the mortgagor or any lien or of the mortgaged vessel;
(3) The mortgage does not stipulate that the mortgagee waives the preferred status
thereof.
(b) Any mortgage which complies with the above conditions is hereafter called a
"preferred mortgage." For purposes of this Decree, a vessel holding a Provisional
Certificate of Philippine Registry is considered a vessel of domestic ownership such
that it can be subject of preferred mortgage. The Philippine Coast Guard is hereby
authorized to enter a vessel holding a Provisional Certificate of Philippine Registry in
the Registry of Vessels and to record any mortgage executed thereon. Such mortgage
shall have the preferred status as of the date of recordation upon compliance with the
above conditions.
(c) There shall be endorsed upon the documents of a vessel covered by a preferred
mortgage
(1) The names of the mortgagor and mortgagee;
(2) The time and date the endorsement is made;
(3) The amount and date of maturity of the mortgage; and
(4) Any amount required to be endorsed by the provisions of paragraphs (e) or (f) of
this Section.
(d) Such endorsement shall be made (1) by the Coast Guard District or Station
Commander of the port of documentation of the mortgaged vessel, or (2) by the Coast
Guard District or Station Commander of any port in which the vessel is found, if such
Coast Guard District or Station Commander is directed to make the endorsement by
the Coast Guard District or Station Commander of the port of documentation. The
Coast Guard District or Station Commander of the port of documentation shall give
such direction by wire or letter at the request of the mortgagee and upon the tender of
the cost of communication of such direction. Whenever any new document is issued
for the vessel, such endorsement shall be transferred to and endorsed upon the new
document by the Coast Guard District or Station Commander.
In the case of a vessel holding a provincial certificate of Philippine Registry, the
endorsement shall be made by the Philippine consul abroad upon direction by wire or
letter from the Maritime Industry Authority at the request of the mortgagee and upon
tender of the cost of communication of such direction. A certificate of such
endorsement, giving the place, time and description of the endorsement, shall be
recorded with the records of registration to be maintained at the Philippine Consulate.
(e) A mortgage which includes property other than a vessel shall not be held a
preferred mortgage unless the mortgage provides for the separate discharge of such
property by the payment of a specified portion of the mortgage indebtedness. If a
preferred mortgage so provides for the separate discharge, the amount of the portion
of such payment shall be endorsed upon the documents of the vessel.
(f) A preferred mortgage includes more than one vessel and provides for the separate
discharge of each vessel by the payment of a portion of mortgage indebtedness, the
amount of such portion of such payment shall be endorsed upon the documents of the
vessel. In case such mortgage does not provide for the separate discharge of a vessel
and the vessel is to be sold upon the order of a district court of the Philippines in a suit
in rem in admiralty, the court shall determine the portion of the mortgage indebtedness
increased by 20 per centum (1) which, in the opinion of the court, the approximate
value of all the vessels covered by the mortgage, and (2) upon the payment of which
the vessel shall be discharged from the mortgage.
54
G.R. No. 143877, Rollo, p. 47.
55
Leveriza v. Intermediate Appellate Court, G.R. No. L-66614, January 25, 1988, 157
SCRA 282, 294.
56
G.R. No. 143877, Rollo, pp. 232-235.
57
K.K. Shell Sekiyu Osaka Hatsubaisho, et al. v. Court of Appeals, et al., G.R. Nos.
90306-07, July 30, 1990; 188 SCRA 145, 152.
58
G.R. No. 143877, Rollo, p. 119.
59
Solid Homes, Inc. v. Court of Appeals, 341 Phil. 261, 275 (1997).
60
G.R. No. 143866, Rollo, p. 57.
61
Id. at 1683.
62
Id. at 1684-1687.
63
G.R. No. 128661, August 8, 2000, 337 SCRA 381.
64
Id at 404.
65
Quasha & Associates v. Hon. Juan, et al., 204 Phil. 141, 153-154 (1982).
66
El Banco Espaol-Filipino v. Palanca, 37 Phil. 921, 928 (1918).
67
G.R. No. 143877, Rollo, p. 22.
68
ENTITLED "APPROVING THE IDENTIFICATION OF AND TRANSFER TO THE
NATIONAL GOVERNMENT OF CERTAIN ASSETS AND LIABILITIES OF THE
PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION AND
THE NATIONAL DEVELOPMENT COMPANY."
69
G.r. No. 143877, Rollo, p. 120.
70
Id. at 23.
71
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation,
other than judicial costs, cannot be recovered except:
....
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
....
(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
72
G.R. No. 143877, Rollo, p. 23; Court of Appeals Decision, p. 17.
73
Id. at 8; Court of Appeals Decision, p. 2.
74
Id. at 78-87. Paragraph of the Complaint, reads:
4.7. Assuming that defendants NDC and DBP are not liable for the total obligation of
Two Million Three Hundred Fifteen Thousand Seven Hundred Forty Seven and 32/100
United States Dollars (US$2,315,747.32) under the First Cause Of Action, they are still
liable for the amount of One Million One Hundred Ninety Three Thousand Two
Hundred Ninety Eight and 56/100 United States Dollars (US$1,193,298.56) under the
Second Cause Of Action. Id. at 85.
The pertinent part of the prayer of the Complaint reads:
WHEREFORE, it is most respectfully prayed that judgment be rendered in favor of
plaintiff Poliand Industrial Limited ordering:
....
2. Defendants National Development Company, Development Bank of the Philippines
to pay plaintiff Poliand Industrial Limited the equivalent in Philippine currency of the
amount of One Million Hundred Ninety Three Thousand Two Hundred Ninety Eight
and 56/100 United Staes Dollars (US$1,193,298.56), plus legal interest accruing after
the dates of foreclosure, to satisfy the preferred maritime liens over the proceeds of
the foreclosure sale of the five (5) vessels of defendant National Galleon Shipping
Corporation which were assigned to Poliand Industrial Limited, in the event that this
Honorable Court rules that defendants National Development Company and
Development Bank of the Philippines are not liable for the amount of Two Million Three
Hundred Fifteen Thousand Seven Hundred Forty Seven and 32/100 United States
Dollars (US$2,315,747.32) under the First Cause of Action; . . . .
75
Asian Center for Career v. NLRC, 358 Phil. 380, 386 (1998).
G.R. No. L-47447-47449
October 29, 1941
TEODORO R. YANGCO, ETC., petitioner,

vs.
MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.
Powell & Vega for respondents.
MORAN, J.:
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros,
belonging to petitioner here, Teodoro R. Yangco, left the port of Romblon on its retun
trip to Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly
advised and his attention thereto called by the passengers themselves before the
vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to 7
inches below the surface of the water. Baggage, trunks and other equipments were
heaped on the upper deck, the hold being packed to capacity. In addition, the vessel
carried thirty sacks of crushed marble and about one hundred sacks of copra and
some lumber. The passengers, numbering about 180, were overcrowded, the vessel's
capacity being limited to only 123 passengers. After two hours of sailing, the boat
encountered strong winds and rough seas between the islands of Banton and Simara,
and as the waves splashed the ladies' dresses, the awnings were lowered. As the sea
became increasingly violent, the captain ordered the vessel to turn left, evidently to
return to port, but in the manuever, the vessel was caught sidewise by a big wave
which caused it to capsize and sink. Many of the passengers died in the mishap,
among them being Antolin Aldaa and his son Victorioso, husband and son,
respectively, of Emilia Bienvenida who, together with her other children and a brotherin-law, are respondents in G.R. No. 47447; Casiana Laserna, the daughter of
respondents Manuel Laserna and P.A. de Laserna in G.R. 47448; and Genaro
Basaa, son of Filomeno Basaa, respondent in G.R. No. 47449. These respondents
instituted in the Court of First Instance of Capiz separate civil actions against
petitioner here to recover damages for the death of the passengers aforementioned.
The court awarded the heirs of Antolin and Victorioso Aldana the sum of P2,000; the
heirs of Casiana Laserna, P590; and those of Genaro Basana, also P590. After the
rendition of the judgment to this effcet, petitioner, by a verified pleading, sought to
abandon th evessel to the plainitffs in the three cases, together with all its
equipments, without prejudice to his right to appeal. The abandonment having been
denied, an appeal was taken to the Court of Appeals, wherein all the judgmnets were
affirmed except that which sums was increased to P4,000. Petitioner, now deceased,
appealed and is here represented by his legal representative.
Brushing aside the incidental issues, the fundamental question here raised is: May
the shipowner or agent, notwithstanding the total loss of the vessel as a result of the
negligence of its captain, be properly held liable in damages for the consequent death
of its passengers? We are of the opinion and so hold that this question is controlled
by the provisions of article 587 of the Code of Commerce. Said article reads:
The agent shall also be civilly liable for the indemnities in favor of third
persons which arise from the conduct of the captain in the care of the goods
which the vessel carried; but he may exempt himself therefrom by

abandoning the vessel with all her equipments and the freight he may have
earned during the voyage.
The provisions accords a shipowner or agent the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled as of right to
abandon "the vessel with all her equipments and the freight it may have earned
during the voyage." It is true that the article appears to deal only with the limited
liability of shipowners or agents for damages arising from the misconduct of the
captain in the care of the goods which the vessel carries, but this is a mere deficiency
of language and in no way indicates the true extent of such liability. The consensus of
authorities is to the effect that notwithstanding the language of the aforequoted
provision, the benefit of limited liability therein provided for, applies in all cases
wherein the shipowner or agent may properly be held liable for the negligent or illicit
acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on
said article, said:
La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El
derecho de abandono, si se atiende a lo escrito, solo se refiere a las
indemnizaciones a que dierQe lugar la conducta del Capitan en la custodia
de los efectos que cargo en el buque.
Es ese el espiritu del legislador? No; habra derecho de abandono en las
responsabilidades nacidas de obligaciones contraidas por el Capitan y de
otros actos de este? Lo reputamos evidente y, para fortalecer nuestra
opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:
"El proyecto, al aplicar estos principios, se inspira tambien en los
intereses del comercio maritimo, que quedaran mas asegurados
ofreciendo a todo el que contrata con el naviero o Capitan del
buque, la garantia real del mismo, cualesquiera que sean las
facultades o atribuciones de que se hallen investidos." (Echavarri,
Codigo de Comercio, Tomo 4, 2. a ed., pags. 483-484.)
A cursory examination will disclose that the principle of liomited liability of a shipowner
or agent is provided for in but three articles of the Code of Commerce article 587
aforequoted and article 590 and 837. Article 590 merely reiterates the principle
embodied in article 587, applies the same principle in cases of collision, and it has
been observed that said article is but "a necessary consequences of the right to
abandon the vessel given to the shipowner in article 587 of the Code, and it is one of
the many superfluities contained in the Code." (Lorenzo Benito,Lecciones 352,
quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore,
only articles 587 and 590 are the provisions conatined in our Code of Commerce on
the matter, and the framers of said code had intended those provisions to embody the
universal principle of limited liability in all cases. Thus, in the "Exposicon de Motivos"
of the Code of Commerce, we read:
The present code (1829) does not determine the juridical status of the agent
where such agent is not himself the owner of the vessel. This omission is
supplied by the proposed code, which provides in accordance with the
principles of maritime law that by agent it is to be understood the person

intrusted with the provisioning of the vessel, or the one who represents her in
the port in which she happens to be. This person is the only one who
represents the vessel that is to say, the only one who represents the
interests of the owner of the vessel. This provision has therefore cleared the
doubt which existed as to the extent of the liability, both of the agent and of
the owner of the vessel. Such liability is limited by the proposed code to
the value of the vesseland other things appertaining thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed
ourselves in such a comprehensive manner as to leave no room for doubt on the
applicability of our ratio decidendi not only to cases of collision but also to those of
shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and lawful
obligations of the captain and the liability which he incurs on account of any
unlawful act committed by him. In the first case, the lawful acts and
obligations of the captain beneficial to the vessel may be enforced as
against the agent for the reason that such obligations arise from te the
contract of agency (provided, however, that the captain does not exceed his
authority), while as to any liability incurred by the captain through his
unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability
of the agent is limited to the vessel and it does not extend further. For this
reason the Code of Commerce makes the agent liable to the extent of the
value of the vessel, as the codes of the principal maritime nations
provide with the vessel, and not individually. Such is also the spirit of our
Code.
The spirit of our code s accurately set forth in a treatise on maritime law,
from which we deem proper to quote the following as the basis of this
decision:
lawphil.net
"That which distinguishes the maritime from the civil law and even
from the mercantile law in general is the real and
hypothecary nature of the former, and the many securities of
a real nature that maritime customs from time immemorial, the
laws, the codes, and the later jurisprudence, have provided for the
protection of the various and conflicting interests which are
ventured and risked in maritime expeditions, such as the interests
of the vessel and of the agent, those of the owners of the cargo and
consignees, those who salvage the ship, those who make loans
upon the cargo, those of the sailors and members of the crew as to
their wages, and those of a constructor as to repairs made to the
vessel.
"As evidence of this real nature of the maritime law we have (1) the
limitation of the liability of the agents to the actual value of the
vessel and the freight money, and (2) the right to retain the cargo
and the embargo and detention of the vessel even in cases where
the ordinary civil law would not allow more than a personal action
against the debtor or person liable. It will be observed that these

rights are correlative, and naturally so, because if the agent can
exempt himself from liability by abandoning the vessel and freight
money, thus avoiding the possibility of risking his whole fortune in
the business, it is also just that his maritime creditor may for any
reason attach the vessel itself to secure his claim without waiting for
a settlement of his rights by a final judgment, even to the prejudice
of a third person.
"This repeals the civil law to such an extent that, in certain cases,
where the mortgaged property is lostno personal action lies against
the owner or agent of the vessel. For instance, where the vessel is
lost the sailors and members of the crew cannot recover their
wages; in case of collision, the liability of the agent is limited as
aforesaid, and in case of shipwreck, those who loan their money on
the vessel and cargo lose all their rights and cannot claim
reimbursement under the law.
"There are two reasons why it is impossible to do away with these
privileges, to wit: (1) The risk to which the thing is exposed, and (2)
the real nature of the maritime law, exclusively real, according to
which the liability of the parties is limited to a thing which is at the
mercy of the waves. If the agent is only liable with the vessel and
freight money and both may be lost through the accidents of
navigation it is only just that the maritime creditor have some
means to obviating this precarious nature of his rights by detaining
the ship, his only security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and
which a purchaser of the same would be obliged to respect and
recognize are in addition to those existing in favor of the State by
virtue of the privileges which are granted to it by all the laws
pilot, tonnate, and port dues and other similar charges, the wages
of the crew earned during the last voyage as provided in article 646
of the Code of Commerce, salvage dues under article 842, the
indemnification due to the captain of the vessel in case his contract
is terminated on account of the voluntary sale of the ship and the
insolvency of the owner as provided in article 608, and all other
liabilities arising from collisions under articles 837 and 838."
We are shared in this conclusion by the eminent commentators on the subject.
Agustin Vicente y Gella, asserting, in his "Introduccion al Derecho Mercantil
Comparado" 1929 (pages 374-375), the like principle of limited liability of shipowners
or agent in cases of accidents, collisions, shipwrecks, etc., said:
De las responsabilities que pueden resultar como consequencia del
comercio maritimo, y no solo por hechos propios sino tambien por las que
se ocasionen por los del capitan y la tripulacion, responde frente a tercero el
naviero que representa el buque; pero el derecho maritimo es sobre todo
tradicional y siguiendo un viejo principio de la Edad Media la
responsabilidad del naviero se organiza de un modo especifico y

particularisimo que no encuentra similar en el derecho general de las
obligaciones.
Una forma corrientisima de verificarse el comercio maritimo durante la
epoca medieval, era prestar un propietario su navio para que cargase en el
mercancias determinada persona, y se hiciese a la mar, yendo al frente de
la expedicion un patron del buque, que llegado al puerto de destino se
encargaba de venderlas y retornaba al de salida despues de adquirir en
aquel otros efectos que igualmente revendia a su regreso, verificado lo cual
los beneficios de la expedicion se repartian entre el dueo del buque, el
cargador y el capitan y tripulantes en la proporcion estipulada. El derecho
maritimo empezo a considerar la asociacion asi formada como una
verdadera sociedad mercantil, de responsabilidad limitada, y de acuerdo
con los principios que gobiernan aquella en los casos de accidentes,
abordajes, naufragios, etc., se resolvia que el dueo del buque perdia la
nave, el cargador las mercancias embarcadas y el capitan y la tripulacion su
trabajo, sin que en ningun caso el tercer acreedor pudiese reclamar mayor
cantidad de ninguno de ellos, porque su responsabilidad quedaba limitada a
lo que cada uno aporto a la sociedad. Recogidas estas ideas en el derecho
comercial de tiempos posteriores, la responsabilidad del naviero se edifico
sobre aquellos principios, y derogando la norma general civil de que del
cumplimiento de sus obligaciones responde el deudor con todos sus bienes
presentes y futuros, la responsabilidad maritima se considero siempre
limitadaipso jure al patrimonio de mar. Y este es el origen de la regla
trascendental de derecho maritimo segun la cual el naviero se libera de toda
responsabilidad abandonando el buque y el flete a favor de los acreedores.
From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:
Ahora bien: hasta donde se extiende esta responsabilidad del naviero?
sobre que bienes pueden los acreedores resarcirse? Esta es otra
especialidad del Derecho maritimo; en el Derecho comun la responsabilidad
es limitada; tambien lo era en el antiguo Derecho maritimo romano; es daba
la actio exercitoria contra el exercitor navis sin ninguna restriccion, pero en
la Edad Media una idea nueva se introdujo en los usos maritimos. Las
cargas resultantes de las expediciones maritimas se consideraron limitadas
por los propietarios de las naves a los valores comprometidos por ellos en
cada expedicion; se separo ficticiamente el patrimonio de los navieros en
dos partes que todavia se designan de una manera bastante exacta; fortuna
de tierra y fortuna de mar o flotante; y se admitio la teoria de que esta era la
que respondia solo de las deudas provinientes de los actos del capitan o de
la tripulacion, es decir, que el conjunto del patrimonio del naviero escaparia
a estas cargas desde el momento en que abandonara la nave y los fletes a
los acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:
La responsabilidad del naviero, en el caso expuesto, se funda en el principio
de derecho comun de ser responsable todo el que pone al frente de un
establecimiento a una persona, de los daos o perjuicios que ocasionare

esta desempeando su cometido, y en que estando facultado el naviero
para la eleccion de capitan de la nave, viene a tener indirectamente culpa
en la negligencia o actos de este que o casionaron daos o perjuicios,
puesto que no se aseguro de su pericia o buena fe. Limitase, sin embargo,
la responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes
devengados durante el viaje; porque no pudiendo vigilar de un modo directo
e inmediato la conducta del capitan, hubiera sido duro hacerla extensiva a
todos sus bienes que podria comprometer el capitan con sus faltas o delitos.
The views of these learned commentators, including those of Estasen (Derecho
Mercantil, Vol. 4, 259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to
be desired and nothing to be doubted on the principle. It only remains to be noted that
the rule of limited liability provided for in our Code of Commerce reflects merely, or is
but a restatement, imperfect though it is, of the almost universal principle on the
subject. While previously under the civil or common law, the owner of a vessel was
liable to the full amount for damages caused by the misconduct of the master, by the
general maritime law of modern Europe, the liability of the shipowner was
subsequently limited to his interest in the vessel. (Norwich & N. Y. Trans.
Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the
British Parliament upon the liability of Englosh shipowners through a series of statutes
beginning in 1734 with the Act of 7 George II, chapter 15. The legislatures of
Massachusetts and Maine followed suit in 1818 and 1821, and finally, Congress
enacted the Limited Liability Act of March 3, 1851, embodying most of the provisions
contained in the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the
Revised Statutes (sec. 183, Tit. 46, Code of Laws of U. S. A.) reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability of the
owner of any vessel, for any embezzlement, loss, or destruction, by any
person, of any property, goods, or merchandise, shipped or put on board of
such vessel, or for any loss, damage, or injury by collision, or for any act,
matter or thing, loss, damage, or forfeiture, done, occasioned, or incurred
without the privity, or knowledge of such owner or owners, shall in no case
exceed the amount or value of the interest of such owner in such vessel, and
her freight then pending.
The policy which the rule is designed to promote is the encouragement of shipbuilding
and investment in maritime commerce. (Vide: Norwich & N. Y. Trans.
Co. v. Wright, supra; The Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in
that spirit that the American courts construed the Limited Liability Act of Congress
whereby the immunities of the Act were applied to claims not only for lost goods but
also for injuries and "loss of life of passengers, whether arising under the general law
of admiralty, or under Federal or State statutes." (The City of Columbus, 22 Fed. 460;
The Longfellow, 104 Fed. 360; Butler v. Boston & Savannah Steamship Co., 32 Law.
ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed. 836.) The Supreme Court
of the United States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed.
585, 589-590, accounting for the history of the principle, clinches our exposition of the
supporting authorities:
The history of the limitation of liability of shipowners is matter of common

knowledge. The learned opinion ofJudge 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 FrenchOrdonance de la Marine, in 1681, expressed the rule
thus: 'The proprietors of vessels shall be responsible for the acts of the
master, but they shall be discharged by abandoning the ship and freight.'
Valin, in his commentary on this passage, lib. 2, tit. 8, art. 2, after specifying
certain engagements of the master which are binding on the owners, without
any limit of responsibility, such as contracts for the benefit of the vessel,
made during the voyage (except contracts of bottomry) says: "With these
exceptions it is just that the owner should not be bound for the acts of the
master, except to the amount of the ship and freight. Otherwise he would run
the risk of being ruined by the bad faith or negligence of his captain, and the
apprehension of this would be fatal to the interests of navigation. It is quite
sufficient that he be exposed to the loss of his ship and of the freight, to
make it his interest, independently of any goods he may have on board to
select a reliable captain." Pardessus says: 'The owner is bound civilly for all
delinquencies committed by the captain within the scope of his authority, but
he may discharge himself therefrom by abandoning the ship and freight;
and, if they are lost, it suffices for his discharge, to surrender all claims in
respect of the ship and its freight," such as insurance, etc. Droit Commercial,
part 3, tit. 2, c. 3, sec. 2.
The same general doctrine is laid down by many other writers on maritime
law. So that it is evident that, by this law, the owner's liability was
coextensive with his interest in the vessel and its freight, and ceased by his
abandonment and surrender of these to the parties sustaining loss.
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in
any way be held civilly liable at all for injury to or death of passengers arising from the
negligence of the captain in cases of collisions or shipwrecks, his liability is merely 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 steamshipNegros, as a vessel engaged in interisland trade, is a common
carrier (De Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in
interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that
the relationship between the petitioner and the passengers who died in the mishap
rests on a contract of carriage. But assuming that petitioner is liable for a breach of
contract of carriage, the exclusively "real and hypothecary nature" of maritime law
operates to limit such liability to the value of the vessel, or to the insurance thereon, if
any. In the instant case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case
was in accordance with law of not, is immaterial. The vessel having totally perished,
any act of abandonment would be an idle ceremony.
Judgement is reversed and petitioner is hereby absolved of all the complaints, without
costs.
Avancea, C.J., Abad Santos, Diaz, Laurel, Horrilleno, and Ozaeta, JJ., concur.
aforesaid children brought all their belongings, including household

utensils valued at P 1,000.00, with the intention of living in Aklan
permanently.
G.R. No. L-51165 June 21, 1990
HEIRS OF AMPARO DE LOS SANTOS, HEIRS OF ERNANIE DELOS SANTOS,
HEIRS OF AMABELLA DELOS SANTOS, HEIRS OF LENNY DELOS SANTOS,
HEIRS OF MELANY DELOS SANTOS, HEIRS OF TERESA PAMATIAN, HEIRS OF
DIEGO SALEM, AND RUBEN REYES, petitioners,
vs.
HONORABLE COURT OF APPEALS AND COMPANIA MARITIMA, respondents.
Severino Z. Macavinta, Jr. for petitioners.
Dinglasan Law Office for private respondent.
MEDIALDEA. J.:
This petition for review on certiorari seeks to set aside the decision of the Court of
Appeals in CA-G.R. No. 58118-R affirming the decision in Civil Case No. 74593 of the
then Court of First Instance (now Regional Trial Court), Branch XI, Manila which
dismissed the petitioners' claim for damages against Compania Maritima for the injury
to and death of the victims as a result of the sinking of M/V Mindoro on November 4,
1967.
The trial court found the antecedent facts to be as follows:
This is a complaint originally filed on October 21, 1968 (p. 1, rec.)
and amended on October 24, 1968 (p. 16 rec.) by the heirs of Delos
Santos and others as pauper litigants against the Compania
Maritima, for damages due to the death of several passengers as a
result of the sinking of the vessel of defendant, the M/V 'Mindoro',
on November 4, 1967.
There is no dispute in the record that the M/V 'Mindoro' sailed from
pier 8 North Harbor, Manila, on November 2,1967 at about 2:00
(should have been 6:00 p.m.) in the afternoon bound for New
Washington, Aklan, with many passengers aboard. It appears that
said vessel met typhoon 'Welming' on the Sibuyan Sea, Aklan, at
about 5:00 in the morning of November 4, 1967 causing the death
of many of its passengers, although about 136 survived.
Mauricio delos Santos declared that on November 2, 1967 he
accompanied his common-law wife, Amparo delos Santos, and
children, namely: Romeo, Josie, Hernani, who was 10 years old,
Abella, 7 years old, Maria Lemia, 5 years old and Melany, 5 months
old, to pier 8, North Harbor, Manila, to board the M/V Mindoro
'bound for Aklan. It appears that Amparo delos Santos and the
As already stated, the boat met typhoon 'Welming' and due to the
strong waves it sank causing the drowning of many passengers
among whom were Amparo delos Santos and all the aforesaid
children. It appears also that Teresa Pamatian and Diego Salim,
who were also passengers also drowned. Plaintiff Ruben Reyes
was one of the survivors. 'The plaintiffs presented the birth and
death certificates of Amparo delos Santos and the children (Exhs.
1, I-1, J, J-1, K, K-1, L, L-1, 0 to S, pp. 180 to 194 rec.). They also
presented copies of the manifest of passengers of the M/V
'Mindoro' on November 2,1967 (Exhs. B & C, pp. 163 to 161 rec.).
Eliadora Crisostomo de Justo, one of the survivors, corroborated
the testimony of Mauricio delos Santos that he accompanied
Amparo delos Santos and her children to the port to board the M/V
Mindoro. She is a cousin of Amparo delos Santos' husband.
According to her, when she boarded the second deck of the vessel,
she saw about 200 persons therein. She tried to see whether she
could be accommodated in the third deck or first deck because the
second deck was very crowded. She admitted that she was not
included in the manifest because she boarded the boat without a
ticket, but she purchased one in the vessel. She testified further
that the boat was not able to reach its destination due to its sinking.
During the typhoon before the vessel sunk, she was able to board a
'balsa'.
Ruben Reyes, the other survivor, declared that he paid for his ticket
before boarding the M/V Mindoro. At that time he had with him
personal belongings and cash all in the amount of P2,900.00. It
appears that Felix Reyes Jakusalem, Teresa Pamatian and Amparo
delos Santos drowned during the sinking of the vessel. He was able
to swim on (sic) an island and was with the others, rescued later on
and brought to the hospital. The survivors were then taken ashore
(Exh. M, p. 188, rec.).
Dominador Salim declared that Teresa Pamatian, his aunt and
Diego Salim, his father, drowned along with the sinking of the M/V
Mindoro. Tins witness declared that he accompanied both his father
and his aunt to the pier to board the boat and at the time Teresa
Pamatian was bringing cash and personal belongings of about
P250.00 worth. His father brought with him P200.00 in cash plus
some belongings. He admitted that when his father boarded the
vessel he did not have yet a ticket.
The plaintiffs further submitted in evidence a copy of a Radiogram
stating among other things that the MN Mindoro was loaded also
with 3,000 cases of beer, one dump truck and 292 various goods
(Exhs. D and D-1, p. 162 rec).
investigation especially in those aspects unfavorable to the captain

(Exh. 1, folder of exhibits).
In alleging negligence on the part of the vessel, plaintiffs introduced

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

made by the Board of Marine Inquiry, dated March 5, 1968,
recommending among other things that the captain of the M/V
'Mindoro,' Felicito Irineo, should be exonerated. Moreover, Captain
Irineo went down with the vessel and his lips are forever sealed and
could no longer defend himself. This body also found that the ship's
compliment (sic) and crew were all complete and the vessel was in
seaworthy condition. If the M/V Mindoro' sank, it was through force
majeure (Exhs. 2 & 2-A, folder of exhibits).
It appears that in a decision of the Board of Marine Inquiry, dated

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

stenographic notes of the testimony of Francisco Punzalan, marine
officer, as well as of Abelardo F. Garcia, Harbor Pilot in Zamboanga
City, in Civil Case No. Q-12473 of Branch XXVIII, Court of First
Instance of Rizal, Quezon City Branch (Exhs. 3-H & 10-H, folder of
exhibits), and of Arturo Ilagan, boat captain, in Civil Case No. Q-1
5962 of Branch V, of the same Court (Exh. 9 folder of exhibits).
Upon agreement of the parties, the plaintiffs also introduced in

evidence the transcript of stenographic notes of the testimony of
Boanerjes Prado before Branch I of this Court (Exh. U, pp. 203220) and that of Felimon Rebano in the same branch (Exh. V, pp.
225-260 rec.).
It appears that five other vessels left the pier at Manila on

November 2, 1967, aside from the M/V Mindoro' (Exhs 4 & 4-A). A
certification of the Weather Bureau indicated the place of typhoon
'Welming' on November 2, 1967 (Exh. 6). A certification of the
shipyard named El Varadero de Manila stated among other things
that the M/V 'Mindoro' was dry-docked from August 25 to
September 6, 1967 and was found to be in a seaworthy condition
(Exh. 5), and that the said M/V 'Mindoro' was duly inspected by the
Bureau of Customs (Exhs. 7, 7-A & 7-B). Another certification was
introduced stating among other things that the Bureau of Customs
gave a clearance to the M/V 'Mindoro' after inspection (Exh. 8 folder
of exhibits). (CFI Decision, Records, pp. 468-471)
The defendant alleges that no negligence was ever established

and, in fact, the shipowners and their officers took all the necessary
precautions in operating the vessel. Furthermore, the loss of lives
as a result of the drowning of some passengers, including the
relatives of the herein plaintiff, was due to force majeure because of
the strong typhoon 'Welming.' It appears also that there was a note
of marine protest in connection with the sinking of the vessel as
substantiated by affidavits (Exhs. 3, 3-A, 3-B, 3-C, 3-D, 3-E, 3-F
and 3-G rec.). On this score Emer Saul, member of the PC Judge
Advocate General's Office, brought to Court records of this case
which were referred to their office by the Board of Marine Inquiry.
According to him the decision referred to by the plaintiffs was
appealed to the Department of National Defense, although he did
not know the result of the appeal. At any rate, he knew that the
Department of National Defense remanded the case to the Board of
Marine Inquiry for further investigation. In the second indorsement
signed by Efren I. Plana, Undersecretary of National Defense, it is
stated, among other things, that the hearings of the Board of Marine
Inquiry wherein the Philippine Coast Guard made the decision
lacked the necessary quorum as required by Section 827 of the
Tariff and Customs Code. Moreover, the decision of the
Commandant of the Philippine Coast Guard relied principally on the
findings reached by the Board of Officers after an ex-parte
On the basis of these facts, the trial court sustained the position of private respondent
Compania Maritima (Maritima, for short) and issued a decision on March 27, 1974, to
wit:
WHEREFORE, the Court finds that in view of lack of sufficient
evidence, the case be, as it is hereby DISMISSED.
For lack of evidence, the counterclaim is also hereby DISMISSED.
IT IS SO ORDERED. (Records, p. 474)
Forthwith, the petitioners' heirs and Reyes brought an appeal to the Court of Appeals.
As earlier mentioned, the appellate court affirmed the decision on appeal. While it
found that there was concurring negligence on the part of the captain which must be
imputable to Maritima, the Court of Appeals ruled that Maritima cannot be held liable
in damages based on the principle of limited liability of the shipowner or ship agent
under Article 587 of the Code of Commerce.
The heirs and Reyes now come to Us with the following assignment of errors:
ERROR I
THE HONORABLE RESPONDENT COURT OF APPEALS ERRED
IN NOT CONCENTRATING TO (sic) THE PROVISION OF LAW IN
THE NEW CIVIL CODE AS EXPRESSED) IN,
Art. 1766. In all matters not regulated by this
Code, the rights and obligations of common
carriers shall be governed by the Code of
Commerce and by special laws.
ERROR II
RESPONDENT COURT OF APPEALS ERRED IN NOT
REVERSING THE DECISION OF THE LOWER COURT OF
ORIGIN AFTER FINDING A SERIES OF FAULTS AND
NEGLIGENCE AND IN NOT ORDERING ITS CO-RESPONDENT
COMPANIA MARITIMA TO PAY THE DAMAGES IN
ACCORDANCE WITH THE LAW.
ERROR III
THE HONORABLE RESPONDENT COURT OF APPEALS ERRED
TO NOTE, OBSERVE AND COMPREHEND THAT ART. 587 OF
THE CODE OF COMMERCE IS ONLY FOR THE GOODSWHICH
THE VESSEL CARRIED AND DO NOT INCLUDE PERSONS.
(Rollo, p. 8)
The petition has merit. At the outset, We note that there is no dispute as to the finding
of the captain's negligence in the mishap. The present controversy centers on the
questions of Maritima's negligence and of the application of Article 587 of the Code of
Commerce. The said article provides:
Art. 587. The ship agent shall also be civilly liable for indemnities in
favor of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel, but
he may exempt himself therefrom by abandoning the vessel with all
her equipments and the freight it may have earned during the
voyage.
Under this provision, a shipowner or agent has the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled as of right to
abandon-"the vessel with all her equipments and the freight it may have earned
during the voyage" (Yangco v. Laserna, et al., 73 Phil. 330, 332). Notwithstanding the
passage of the New Civil Code, Article 587 of the Code of Commerce is still good law.
The reason lies in the peculiar nature of maritime law which is 94 exclusively real and
hypothecary that operates to limit such liability to the value of the vessel, or to the
insurance thereon, if any (Yangco v. Laserna, Ibid). As correctly stated by the
appellate court, "(t)his rule is found necessary to offset against the innumerable
hazards and perils of a sea voyage and to encourage shipbuilding and marine
commerce. (Decision, Rollo, p. 29). Contrary to the petitioners' supposition, the
limited liability doctrine applies not only to the goods but also in all cases like death or
injury to passengers wherein the shipowner or agent may properly be held liable for
the negligent or illicit acts of the captain (Yangco v. Laserna,Ibid). It must be stressed
at this point that Article 587 speaks only of situations where the fault or negligence is
committed solely by the captain. In cases where the shipowner is likewise to be
blamed, Article 587 does not apply (see Manila Steamship Co., Inc. v. Abdulhanan, et
al., 100 Phil. 32, 38). Such a situation will be covered by the provisions of the New
Civil Code on Common Carriers. Owing to the nature of their business and for
reasons of public policy, common carriers are tasked to observe extraordinary
diligence in the vigilance over the goods and for the safety of its passengers (Article
1733, New Civil Code). Further, they are bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances (Article 1755, New Civil Code).
Whenever death or injury to a passenger occurs, common carriers are presumed to
have been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New
Civil Code).
Guided by the above legal provisions, We painstakingly reviewed the records of the
case and found imprints of Maritima's negligence which compel Us to reverse the
conclusion of the appellate court.
Maritima claims that it did not have any information about typhoon 'Welming' until
after the boat was already at sea. Modem technology belie such contention. The
Weather Bureau is now equipped with modern apparatus which enables it to detect
any incoming atmospheric disturbances. In his summary report on tropical cyclone
'Welming' which occurred within the Philippine Area of Responsibility, Dr. Roman L.
Kintanar, Weather Bureau Director, stated that during the periods of November 15,
1967, the Bureau issued a total of seventeen (17) warnings or advisories of typhoon
'Welming' to shipping companies. Additionally, he reported that:
By 11:15 a.m. of November lst, or in less than twenty four hours,
the storm intensified into a typhoon. It was by then located at 8.7 N
137.3 E with sea level pressure of 978 millibars, an eye diameter of
about 18.53 kilometers and a maximum surface wind of 139
kilometers per hour. "As it moved along in the open sea, it
intensified further and by 11.07 a.m. of November 2, when its center
was at 103 N 131.4 E, it had attained surface winds of about 240
kilometers per hour. ... (Exh. Z, p. 131, Index of Exhibits, p. 11 5,
Emphasis supplied).
Considering the above report and the evidence on record showing the late departure
of the ship at 6:00 p.m. (instead of the scheduled 2:00 p.m. departure) on November
2, 1967, We find it highly improbable that the Weather Bureau had not yet issued any
typhoon bulletin at any time during the day to the shipping companies. Maritima
submitted no convincing evidence to show this omission. It's evidence showing the
Weather Bureau's forecast of November 3, 1967 is not persuasive. It merely indicated
the weather bulletin of that day. Nowhere could We find any statement therein from
the Weather Bureau that it had not issued any forecast on November I and 2, 1967
(Exh. 6, Records, p. 257). Significantly, the appellate court found that the ship's
captain through his action showed prior knowledge of the typhoon. The court said:
... It cannot be true that he was apprised of the typhoon only at
about 11:00 o'clock the following morning on November 3, 1967
when the Weather report was transmitted to him from the Weather
Bureau at which time he plotted its position. For in his radiogram
sent to defendant-appellee's office in Manila as early as 8:07 in the
morning of November 3, 1967 (Exh. D) he states in the concluding
portion 'still observing weather condition.' thereby implicitly
suggesting that he had known even before departure of the unusual
weather condition. ... (Decision, Rollo, p. 26)
If the captain knew of the typhoon beforehand, it is inconceivable for Maritima to be
totally in the dark of 'Welming.' In allowing the ship to depart late from Manila despite
the typhoon advisories, Maritima displayed lack of foresight and minimum concern for
the safety of its passengers taking into account the surrounding circumstances of the
case.
While We agree with the appellate court that the captain was negligent for
overloading the ship, We, however, rule that Maritima shares equally in his
negligence. We find that while M/V Mindoro was already cleared by the Bureau of
Customs and the Coast Guard for departure at 2:00 p.m. the ship's departure was,
however, delayed for four hours. Maritima could not account for the delay because it
neither checked from the captain the reasons behind the delay nor sent its
representative to inquire into the cause of such delay. It was due to this interim that
the appellate court noted that "(i)ndeed there is a great probability that unmanifested
cargo (such as dump truck, 3 toyota cars, steel bars, and 6,000 beer cases) and
passengers (about 241 more than the authorized 193 passengers) were loaded
during the four (4) hour interval" (Decision, p. 13, Rollo, p. 26). Perchance, a closer
supervision could have prevented the overloading of the ship. Maritima could have
directed the ship's captain to immediately depart in view of the fact that as of 11:07 in
the morning of November 2, 1967, the typhoon had already attained surface winds of
about 240 kilometers per hour. As the appellate court stated, '(v)erily, if it were not for
have reached (its) destination and this delay, the vessel could thereby have avoided
the effects of the storm" (Decision, Rollo p. 26). This conclusion was buttressed by
evidence that another ship, M/V Mangaren, an interisland vessel, sailed for New
Washington, Aklan on November 2, 1967, ahead of M/V Mindoro and took the same
route as the latter but it arrived safely (Exh. BB-2, Index of Exhibits, pp. 143-144 and
Exh. 4-A, Ibid, p. 254).
Maritima presents evidence of the seaworthy condition of the ship prior to its
departure to prove that it exercised extraordinary diligence in this case. M/V Mindoro
was drydocked for about a month. Necessary repairs were made on the ship. Life
saving equipment and navigational instruments were installed.
While indeed it is true that all these things were done on the vessel, Maritima,
however, could not present evidence that it specifically installed a radar which could
have allowed the vessel to navigate safely for shelter during a storm. Consequently,
the vessel was left at the mercy of ''Welming' in the open sea because although it was
already in the vicinity of the Aklan river, it was unable to enter the mouth of Aklan
River to get into New Washington, Aklan due to darkness and the Floripon Lighthouse
at the entrance of the Aklan River was not functioning or could not be seen at all (Exh.
3-H, Index of Exhibits, p. 192-195; see also Exh. 2-A, Ibid, p. 160). Storms and
typhoons are not strange occurrences. In 1967 alone before 'Welming,' there were
about 17 typhoons that hit the country (Exh. M, Index of Exhibits, p. 115), the latest of
which was typhoon Uring which occurred on October 20-25, which cost so much
damage to lives and properties. With the impending threat of 'Welming,' an important
device such as the radar could have enabled the ship to pass through the river and to
safety.
The foregoing clearly demonstrates that Maritima's lack of extraordinary diligence
coupled with the negligence of the captain as found by the appellate court were the
proximate causes of the sinking of M/V Mindoro.
Hence, Maritima is liable for the deaths and injury of the victims. amount of With the
above finding, We now come to the damages due to the petitioners. Ordinarily, We
would remand the case to the trial court for the reception of evidence. Considering
however, that this case has been pending for almost twenty-three (23) years now and
that since all the evidence had already been presented by both parties and received
by the trial court, We resolve to decide the corresponding damages due to petitioners
(see Samal v. Court of Appeals, 99 Phil. 230; Del Castillo v. Jaymalin, L-28256, March
17, 1982, 112 SCRA 629).
In their complaint filed with the Court of First Instance, petitioners prayed for moral,
actual and exemplary damages, as well as for attorney's fees plus costs.
Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of
damages for the death of a passenger caused by the breach of contract by a common
carrier is at least three thousand pesos (P3,000.00). The prevailing jurisprudence has
increased the amount of P3,000.00 to P30,000.00 (De Lima v. Laguna Tayabas Co.,
L-35697-99, April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the
civil indemnity of P30,000.00 to the heirs of each of the victims. For mental anguish
suffered due to the deaths of their relatives, Maritima should also pay to the heirs the
sum of P10,000.00 each as moral damages.
In addition, it was proven at the trial that at the time of death, (1) Amparo delos
Santos had with her cash in the sum of P1,000.00 and personal belongings valued at
P500.00; (2) Teresa Pamatian, cash in the sum of P250.00 and personal belongings
worth P200.00; and (3) Diego Salem, cash in the sum of P200.00 and personal
belongings valued at P100.00. Likewise, it was established that the heirs of Amparo
delos Santos and her deceased children incurred transportation and incidental
expenses in connection with the trial of this case in the amount of P500.00 while
Dominador Salem, son of victim Diego Salem and nephew of victim Teresa Pamatian
spent about P100.00 for expenses at the trial. With respect to petitioner Reyes, the
evidence shows that at the time of the disaster, he had in his possession cash in the
sum of P2,900.00 and personal belongings worth P100.00. Further, due to the
disaster, Reyes was unable to work for three months due to shock and he was
earning P9.50 a day or in a total sum of P855.00. Also, he spent about P100.00 for
court expenses. For such losses and incidental expenses at the trial of this case,
Maritima should pay the aforestated amounts to the petitioners as actual damages.
Reyes' claim for moral damages cannot be granted inasmuch as the same is not
recoverable in damage action based on the breach of contract of transportation under
Articles 2219 and 2220 of the New Civil Code except (1) where the mishap resulted in
the death of a passenger and (2) where it is proved that the carrier was guilty of fraud
or bad faith, even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109 Phil.
712). The exceptions do not apply in this case since Reyes survived the incident and
no evidence was presented to show that Maritima was guilty of bad faith. Mere
carelessness of the carrier does not per se constitute or justify an inference of malice
or bad faith on its part (Rex Taxicab Co., Inc. v. Bautista, supra).
Anent the claim for exemplary damages, We are not inclined to grant the same in the
absence of gross or reckless negligence in this case.
As regards the claim for attorney's fees, the records reveal that the petitioners
engaged the services of a lawyer and agreed to pay the sum of P 3,000.00 each on a
contingent basis (see TSN'S, July 21, 1971, p. 24; November 3, 1971, pp. 18 and 29).
In view hereof, We find the sum of P 10,000.00 as a reasonable compensation for the
legal services rendered.
ACCORDINGLY, the appealed decision is hereby REVERSED and judgment is
hereby rendered sentencing the private respondent to pay the following: (1)
P30,000.00 as indemnity for death to the heirs of each of the victims; (2) P10,000.00
as moral damages to the heirs of each of the victims; (3) P6,805.00 as actual
damages divided among the petitioners as follows: heirs of Amparo Delos Santos and
her deceased children, P2,000.00; heirs of Teresa Pamatian, P450.00; heirs of Diego
Salem, P400.00; and Ruben Reyes, P2,955.00; (4) P10,000.00 as attorney's fees;
and (5) the costs.
SO ORDERED.
Narvasa (Chairman), Cruz, Gancayco and Grio-Aquino, JJ., concur.

Transpo Chap6 Cases

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Transpo Chap6 Cases

Uploaded by

Copyright:

Available Formats

G.R. No.

October 17, 2008

ABOITIZ SHIPPING CORPORATION, petitioners,

October 17, 2008

ABOITIZ SHIPPING CORPORATION, petitioners,

October 17, 2008

ABOITIZ SHIPPING CORPORATION, petitioners,

On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment24 ordering

G.R. No. 160088

July 13, 2011

AGUSTIN P. DELA TORRE, Petitioner,

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

k. In the event that a THIRD PARTY is interested to purchase the said

4. That the SECOND PARTY (Larrazabal) is the one responsible to

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

THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS

insure the same. Unfortunately, they failed to do so in clear contravention of their

G.R. No. 143866. August 22, 2005

NDC liable for GALLEONs obligations based on the Memorandum of

may be necessary to allow the foreclosed vessels to engage on the international

WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS,

The case against defendant-appellant DBP is hereby DISMISSED.

Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the

RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING

4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of

DBP, not liable under LOI No. 1155

Civil Code provisions on

NDCs argument does not persuade the Court.

vessels navigation. As long as an expense on the vessel is indispensable to the

predecessors-in-interest who apparently had earlier or superior rights over the

G.R. No. 143866, Rollo, pp. 1294-1332.

authorization mentioned in the preceding subdivision, satisfying the same requisites;

G.R. No. L-47447-47449

October 29, 1941

TEODORO R. YANGCO, ETC., petitioner,

which the vessel carried; but he may exempt himself therefrom by

principles of maritime law that by agent it is to be understood the person

against the debtor or person liable. It will be observed that these

responsabilidad del naviero se organiza de un modo especifico y

establecimiento a una persona, de los daos o perjuicios que ocasionare

The history of the limitation of liability of shipowners is matter of common

aforesaid children brought all their belongings, including household

investigation especially in those aspects unfavorable to the captain

In alleging negligence on the part of the vessel, plaintiffs introduced

It appears also that there were findings and recommendations

It appears that in a decision of the Board of Marine Inquiry, dated

Defendant also introduced in evidence the transcripts of

Upon agreement of the parties, the plaintiffs also introduced in

It appears that five other vessels left the pier at Manila on

The defendant alleges that no negligence was ever established

You might also like