MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and Hon.

Judge AMANTE PURISIMA, petitioners, vs. COURT OF APPEALS and ABOITIZ

SHIPPING CORPORATION, respondents.

[G.R. No. 94867. June 8, 2000]

ALLIED GUARANTEE INSURANCE COMPANY, petitioner, vs. COURT OF

APPEALS, Presiding Judge, RTC Manila, Br. 24 and ABOITIZ SHIPPING
CORPORATION, respondents.

[G.R. No. 95578. June 8, 2000]

EQUITABLE INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS,

Former First Division Composed of Hon. Justices RODOLFO NOCON, PEDRO
RAMIREZ, and JESUS ELBINIAS and ABOITIZ SHIPPING CORPORATION,
respondents.

DECISION

DE LEON, JR., J.:

Before us are three consolidated petitions. G.R. No. 92735 is a petition for
review filed under Rule 45 of the Rules of Court assailing the decision of the
Court of Appeals dated March 29, 1990 in CA-G.R. SP. Case No. 17427 which
set aside the writ of execution issued by the lower court for the full
indemnification of the claims of the petitioners, Monarch Insurance Company
(hereafter "Monarch") and Tabacalera Insurance Company, Incorporated
(hereafter "Tabacalera") against private respondent, Aboitiz Shipping
Corporation (hereafter "Aboitiz") on the ground that the latter is entitled to
the benefit of the limited liability rule in maritime law; G.R. No. 94867 is a
petition for certiorari under Rule 65 of the Rules of Court to annul and set
aside the decision of the Court of Appeals dated August 15, 1990 in CA-G.R.
SP No. 20844 which ordered the lower court to stay the execution of the
judgment in favor of the petitioner, Allied Guarantee Insurance Company

(hereafter "Allied") against Aboitiz insofar as it impairs the rights of the other
claimants to their pro-rata share in the insurance proceeds from the sinking
of the M/V P. Aboitiz, in accordance with the rule on limited liability; and G.R.
No. 95578 is a petition for review under Rule 45 of the Rules of Court seeking
a reversal of the decision of the Court of Appeals dated August 24, 1990 and
its resolution dated October 4, 1990 in C.A. G.R. Civil Case No. 15071 which
modified the judgment of the lower court by applying the hypothecary rule on
limited liability to limit the lower courts award of actual damages to petitioner
Equitable Insurance Corporation (hereafter "Equitable") to its pro-rata share
in the insurance proceeds from the sinking of the M/V P. Aboitiz.

All cases arose from the loss of cargoes of various shippers when the M/V P.
Aboitiz, a common carrier owned and operated by Aboitiz, sank on her
voyage from Hong Kong to Manila on October 31, 1980. Seeking
indemnification for the loss of their cargoes, the shippers, their successors-ininterest, and the cargo insurers such as the instant petitioners filed separate
suits against Aboitiz before the Regional Trial Courts. The claims numbered
one hundred and ten (110) for the total amount of P41,230,115.00 which is
almost thrice the amount of insurance proceeds of P14,500,000.00 plus
earned freight of P500,000.00 according to Aboitiz. To this day, some of these
claims, including those of herein petitioners, have not yet been settled.

G.R. No. 92735.

Monarch and Tabacalera are insurance carriers of lost cargoes. They

indemnified the shippers and were consequently subrogated to their rights,
interests and actions against Aboitiz, the cargo carrier.[1] Because Aboitiz
refused to compensate Monarch, it filed two complaints against Aboitiz,
docketed as Civil Cases Nos. 82-2767 and 82-2770. For its part, Tabacalera
also filed two complaints against the same defendant, docketed as Civil
Cases Nos. 82-2768 and 82-2769. As these four (4) cases had common
causes of action, they were consolidated and jointly tried.[2]

In Civil Case No. 82-2767 where Monarch also named Malaysian International
Shipping Corporation and Litonjua Merchant Shipping Agency as Aboitizs codefendants, Monarch sought recovery of P29,719.88 representing the value
of three (3) pallets of glass tubing that sank with the M/V P. Aboitiz, plus
attorneys fees of not less than P5,000.00, litigation expenses, interest at the

legal rate on all these amounts, and cost of suit.[3] Civil Case No. 82-2770
was a complaint filed by Monarch against Aboitiz and co-defendants
Compagnie Maritime des Chargeurs Reunis and F.E. Zuellig (M), Inc. for the
recovery of P39,579.66 representing the value of one case of motor vehicle
parts which was lost when the M/V P. Aboitiz sank on her way to Manila, plus
attorneys fees of not less than P10, 000.00 and cost of suit.[4]

Tabacalera sought against Franco Belgian Services, F. E. Zuellig and Aboitiz in

Civil Case No. 82-2768 the recovery of P284,218.00 corresponding to the
value of nine (9) cases of Renault spare parts, P213,207.00 for the value of
twenty-five (25) cases of door closers and P42,254.00 representing the value
of eighteen (18) cases of plastic spangle, plus attorneys fees of not less than
P50,000.00 and cost of suit.[5] In Civil Case No. 82-2769, Tabacalera claimed
from Hong Kong Island Shipping Co., Ltd., Citadel Lines and Aboitiz
indemnification in the amount of P75,058.00 for the value of four (4) cartons
of motor vehicle parts that foundered with the M/V P. Aboitiz, plus attorneys
fees of not less than P20,000.00 and cost of suit.[6]

In its answer with counterclaim, Aboitiz rejected responsibility for the claims
on the ground that the sinking of its cargo vessel was due to force majeure or
an act of God.[7] Aboitiz was subsequently declared as in default for its
failure to appear during the pre-trial. Its counsel filed a motion to set aside
the order of default with notice of his withdrawal as such counsel. Before the
motion could be acted upon, Judge Bienvenido Ejercito, the presiding judge of
the trial court, was promoted to the then Intermediate Appellate Court. The
cases were thus re-raffled to Branch VII of the RTC of Manila presided by
Judge Amante P. Purisima, the co-petitioner in G.R. No. 92735. Without
resolving the pending motion to set aside the order of default, the trial court
set the cases for hearing. However, since Aboitiz had repeatedly failed to
appear in court, the trial court denied the said motion and allowed Monarch
and Tabacalera to present evidence ex-parte.[8]

Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert,

a surveyor commissioned to investigate the possible cause of the sinking of
the cargo vessel. The survey established that on her voyage to Manila from
Hong Kong, the vessel did not encounter weather so inclement that Aboitiz
would be exculpated from liability for losses. In his note of protest, the master
of M/V P. Aboitiz described the wind force encountered by the vessel as from
ten (10) to fifteen (15) knots, a weather condition classified as typical and
moderate in the South China Sea at that particular time of the year. The

survey added that the seaworthiness of the vessel was in question especially
because the breaches of the hull and the serious flooding of two (2) cargo
holds occurred simultaneously in "seasonal weather."[9]

In due course, the trial court rendered judgment against Aboitiz but the
complaint against all the other defendants was dismissed. Aboitiz was held
liable for the following: (a) in Civil Case No. 82-2767, P29,719.88 with legal
interest from the filing of the complaint until fully paid plus attorneys fees of
P30,000.00 and cost of suit; (b) in Civil Case No. 82-2768, P539,679.00 with
legal interest of 12% per annum from date of filing of the complaint until fully
paid, plus attorneys fees of P30,000.00, litigation expenses and cost of suit;
(c) in Civil Case No. 82-2769, P75,058.00 with legal interest of 12% per
annum from date of filing of the complaint until fully paid, plus P5,000.00
attorneys fees, litigation expenses and cost of suit, and (d) in Civil Case No.
82-2770, P39,579.66 with legal interest of 12% per annum from date of filing
of the complaint until fully paid, plus attorneys fees of P5,000.00, litigation
expenses and cost of suit.

Aboitiz filed a motion for reconsideration of the decision and/or for new trial
to lift the order of default. The court denied the motion on August 27, 1986.
[10] Aboitiz appealed to the Court of Appeals but the appeal was dismissed
for its failure to file appellants brief. It subsequently filed an urgent motion for
reconsideration of the dismissal with prayer for the admission of its attached
appellants brief. The appellate court denied that motion for lack of merit in a
Resolution dated July 8, 1988.[11]

Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No.
84158, the petition was denied in the Resolution of October 10, 1988 for
being filed out of time. Aboitizs motion for the reconsideration of said
Resolution was similarly denied.[12] Entry of judgment was made in the case.
[13]

Consequently, Monarch and Tabacalera moved for execution of judgment. The

trial court granted the motion on April 4, 1989[14] and issued separate writs
of execution. However, on April 12, 1989, Aboitiz, invoking the real and
hypothecary nature of liability in maritime law, filed an urgent motion to
quash the writs of execution.[15] According to Aboitiz, since its liability is
limited to the value of the vessel which was insufficient to satisfy the

aggregate claims of all 110 claimants, to indemnify Monarch and Tabacalera

ahead of the other claimants would be prejudicial to the latter. Monarch and
Tabacalera opposed the motion to quash.[16]

On April 17, 1989, before the motion to quash could be heard, the sheriff
levied upon five (5) heavy equipment owned by Aboitiz for public auction
sale. At said sale, Monarch was the highest bidder for one (1) unit FL-151 Fork
Lift (big) and one (1) unit FL-25 Fork Lift (small). Tabacalera was also the
highest bidder for one (1) unit TCH TL-251 Hyster Container Lifter, one (1)
unit Hyster Top Lifter (out of order), and one (1) unit ER-353 Crane. The
corresponding certificates of sale[17] were issued to Monarch and Tabacalera.

On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz
filed a supplement to its motion, to add the fact that an auction sale had
taken place. On April 19, 1989, Judge Purisima issued an order denying the
motion to quash but freezing execution proceedings for ten (10) days to give
Aboitiz time to secure a restraining order from a higher court.[18] Execution
was scheduled to resume to fully satisfy the judgment when the grace period
shall have lapsed without such restraining order having been obtained by
Aboitiz.

Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition
with prayer for preliminary injunction and/or temporary restraining order
under CA-G.R. No. SP-17427.[19] On March 29, 1990, the appellate court
rendered a Decision the dispositive portion of which reads:

"WHEREFORE, the writ of certiorari is hereby granted, annulling the subject

writs of execution, auction sale, certificates of sale, and the assailed orders of
respondent Judge dated April 4 and April 19, 1989 insofar as the money value
of those properties of Aboitiz, levied on execution and sold at public auction,
has exceeded the pro-rata shares of Monarch and Tabacalera in the insurance
proceeds of Aboitiz in relation to the pro-rata shares of the 106 other
claimants.

"The writ of prohibition is also granted to enjoin respondent Judge, Monarch

and Tabacalera from proceeding further with execution of the judgments in
question insofar as the execution would satisfy the claims of Monarch and

Tabacalera in excess of their pro-rata shares and in effect reduce the balance
of the proceeds for distribution to the other claimants to their prejudice.

"The question of whether or how much of the claims of Monarch and

Tabacalera against the insurance proceeds has already been settled through
the writ of execution and auction sale in question, being factual issues, shall
be threshed out before respondent Judge.

"The writ of preliminary injunction issued in favor of Aboitiz, having served its
purpose, is hereby lifted. No pronouncement as to costs.

"SO ORDERED."[20]

Hence, the instant petition for review on certiorari where petitioners Monarch,
Tabacalera and Judge Purisima raise the following assignment of errors:

1.....The appellate court grievously erred in re-opening the Purisima

decisions, already final and executory, on the alleged ground that the issue of
real and hypothecary liability had not been previously resolved by Purisima,
the appellate court, and this Hon. Supreme Court;

2.....The appellate court erred when it resolved that Aboitiz is entitled to the
limited real and hypothecary liability of a ship owner, considering the facts on
record and the law on the matter.

3.....The appellate court erred when it concluded that Aboitiz does not have to
present evidence to prove its entitlement to the limited real and hypothecary
liability.

4.....The appellate court erred in ignoring the case of "Aboitiz Shipping

Corporation v. CA and Allied Guaranty Insurance Co., Inc." (G.R. No. 88159),
decided by this Honorable Supreme Court as early as November 13, 1989,
considering that said case, now factual and executory, is in pari materia with

the instant case.

5.....The appellate court erred in not concluding that irrespective of whether

Aboitiz is entitled to limited hypothecary liability or not, there are enough
funds to satisfy all the claimants.

6.....The appellate court erred when it concluded that Aboitiz had made an
"abandonment" as envisioned by Art. 587 of the Code of Commerce.

7.....The appellate court erred when it concluded that other claimants would
suffer if Tabacalera and Monarch would be fully paid.

8.....The appellate court erred in concluding that certiorari was the proper
remedy for Aboitiz.[21]

G.R. NOS. 94867 & 95578

Allied as insurer-subrogee of consignee Peak Plastic and Metal Products

Limited, filed a complaint against Aboitiz for the recovery of P278,536.50
representing the value of 676 bags of PVC compound and 10 bags of ABS
plastic lost on board the M/V P. Aboitiz, with legal interest from the date of
filing of the complaint, plus attorneys fees, exemplary damages and costs.
[22] Docketed as Civil Case No. 138643, the case was heard before the
Regional Trial Court of Manila, Branch XXIV, presided by Judge Sergio D.
Mabunay.

On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel

Manufacturing Corporation, filed an amended complaint against Franco
Belgian Services, F.E. Zuellig, Inc. and Aboitiz for the recovery of P194,794.85
representing the value of 76 drums of synthetic organic tanning substances
and 1,000 kilograms of optical bleaching agents which were also lost on
board the M/V P. Aboitiz, with legal interest from the date of filing of the
complaint, plus 25% attorneys fees, exemplary damages, litigation expenses
and costs of suit.[23] Docketed as Civil Case No. 138396, the complaint was

assigned to the Regional Trial Court of Manila, Branch VIII.

In its answer with counterclaim in the two cases, Aboitiz disclaimed

responsibility for the amounts being recovered, alleging that the loss was due
to a fortuitous event or an act of God. It prayed for the dismissal of the cases
and the payment of attorneys fees, litigation expenses plus costs of suit. It
similarly relied on the defenses of force mejeure, seaworthiness of the vessel
and exercise of due diligence in the carriage of goods as regards the crossclaim of its co-defendants.[24]

In support of its position, Aboitiz presented the testimonies of Capt. Gerry N.

Racines, master mariner of the M/V P. Aboitiz, and Justo C. Iglesias, a
meteorologist of the Philippine Atmospheric Geophysical and Astronomical
Services Administration (PAGASA). The gist of the testimony of Capt. Racines
in the two cases follows:

The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of
October 29, 1980 after securing a departure clearance from the Hong Kong
Port Authority. The departure was delayed for two hours because he (Capt.
Racines) was observing the direction of the storm that crossed the Bicol
Region. He proceeded with the voyage only after being informed that the
storm had abated. At about 8:00 oclock in the morning of October 30, 1980,
after more than twelve (12) hours of navigation, the vessel suddenly
encountered rough seas with waves about fifteen to twenty-five feet high. He
ordered his chief engineer to check the cargo holds. The latter found that sea
water had entered cargo hold Nos. 1 and 2. He immediately directed that
water be pumped out by means of the vessels bilge pump, a device capable
of ejecting 180 gallons of water per minute. They were initially successful in
pumping out the water.

At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report
from his chief engineer that the water level in the cargo holds was rapidly
rising. He altered the vessels course and veered towards the northern tip of
Luzon to prevent the vessel from being continuously pummeled by the
waves. Despite diligent efforts of the officers and crew, however, the vessel,
which was approximately 250 miles away from the eye of the storm, began to
list on starboard side at 27 degrees. Capt. Racines and his crew were not able
to make as much headway as they wanted because by 12:00 noon of the

same day, the cargo holds were already flooded with sea water that rose
from three to twelve feet, disabling the bilge pump from containing the water.

The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18
degrees North, longitude 170 degrees East in the South China Sea in between
Hong Kong, the Philippines and Taiwan with the nearest land being the
northern tip of Luzon, around 270 miles from Cape Bojeador, Bangui, Ilocos
Norte. Responding to the captains distress call, the M/V Kapuas (Capuas)
manned by Capt. Virgilio Gonzales rescued the officers and crew of the illfated M/V P. Aboitiz and brought them to Waileen, Taiwan where Capt. Racines
lodged his marine protest dated November 3, 1980.

Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz,

testified in both cases that during the inclusive dates of October 28-31, 1980,
a stormy weather condition prevailed within the Philippine area of
responsibility, particularly along the sea route from Hong Kong to Manila,
because of tropical depression "Yoning."[25] PAGASA issued weather bulletins
from October 28-30, 1980 while the storm was still within Philippine territory.
No domestic bulletins were issued the following day when the storm which hit
Eastern Samar, Southern Quezon and Southern Tagalog provinces, had made
its exit to the South China Sea through Bataan.

Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its
cargo were lost due to force majeure, relying mainly on the marine protest
filed by Capt. Racines as well as on the Beaufort Scale of Wind. In his marine
protest under oath, Capt. Racines affirmed that the wind force on October 2930, 1980 was only ten (10) to fifteen (15) knots. Under the Beaufort Scale of
Wind, said wind velocity falls under scale No. 4 that describes the sea
condition as "moderate breeze," and "small waves becoming longer, fairly
frequent white horses."[26]

To fortify its position, Equitable presented Rogelio T. Barboza who testified

that as claims supervisor and processor of Equitable, he recommended
payment to Axel Manufacturing Corporation as evidenced by the cash
voucher, return check and subrogation receipt. Barboza also presented a
letter of demand to Aboitiz which, however, the latter ignored.[27]

On April 24, 1984, the trial court rendered a decision that disposed of Civil
Case No. 138643 as follows:

"WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz

Shipping Company to pay plaintiff Allied Guarantee Insurance Company, Inc.
the sum of P278,536.50, with legal interest thereon from March 10, 1981,
then date of the filing of the complaint, until fully paid, plus P30,000.00 as
attorneys fees, with costs of suit.

"SO ORDERED."[28]

A similar decision was arrived at in Civil Case No. 138396, the dispositive
portion of which reads:

"WHEREFORE, in view of the foregoing, this Court hereby renders judgment in

favor of plaintiff and against defendant Aboitiz Shipping Corporation, to pay
the sum of P194, 794. 85 with legal rate of interest thereon from February 27,
1981 until fully paid; attorneys fees of twenty-five (25%) percent of the total
claim, plus litigation expenses and costs of litigation.

SO ORDERED."[29]

In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CAG.R. CV No. 04121. On March 23, 1987, the Court of Appeals affirmed the
decision of the lower court. A motion for reconsideration of the said decision
was likewise denied by the Court of Appeals on May 3, 1989. Aggrieved,
Aboitiz then filed a petition for review with this Court docketed as G.R. No.
88159 which was denied for lack merit. Entry of judgment was made and the
lower courts decision in Civil Case No. 138643 became final and executory.
Allied prayed for the issuance of a writ of execution in the lower court which
was granted by the latter on April 4, 1990. To stay the execution of the
judgment of the lower court, Aboitiz filed a petition for certiorari and
prohibition with preliminary injunction with the Court of Appeals docketed as
CA-G.R. SP No. 20844.[30] On August 15, 1990, the Court of Appeals
rendered the assailed decision, the dispositive portion of which reads as
follows:

"WHEREFORE, the challenged order of the respondent Judge dated April 4,

1990 granting the execution is hereby set aside. The respondent Judge is
further ordered to stay the execution of the judgment insofar as it impairs the
rights of the 100 other claimants to the insurance proceeds including the
rights of the petitioner to pay more than the value of the vessel or the
insurance proceeds and to desist from executing the judgment insofar as it
prejudices the pro-rata share of all claimants to the insurance proceeds. No
pronouncement as to costs.

"SO ORDERED."[31]

Hence, Allied filed the instant petition for certiorari, mandamus and injunction
with preliminary injunction and/or restraining order before this Court alleging
the following assignment of errors:

1.....Respondent Court of Appeals gravely erred in staying the immediate

execution of the judgment of the lower court as it has no authority nor
jurisdiction to directly or indirectly alter, modify, amend, reverse or invalidate
a final judgment as affirmed by the Honorable Supreme Court in G.R. No.
88159.

2.....Respondent Court of Appeals with grave abuse of discretion amounting

to lack or excess of jurisdiction, brushed aside the doctrine in G.R. No. 88159
which is now the law of the case and observance of time honored principles
of stare decisis, res adjudicata and estoppel by judgment.

3.....Real and hypothecary rule under Articles 587, 590 and 837 of the Code
of Commerce which is the basis of the questioned decision (Annex "C" hereof)
is without application in the face of the facts found by the lower court,
sustained by the Court of Appeals in CA-G.R. No. 04121 and affirmed in toto
by the Supreme Court in G.R. No. 88159.

4.....Certiorari as a special remedy is unavailing for private respondent as

there was no grave abuse of discretion nor lack or excess of jurisdiction for

Judge Mabunay to issue the order of April 4, 1990 which was in accord with
law and jurisprudence, nor were there intervening facts and/or supervening
events that will justify respondent court to issue a writ of certiorari or a
restraining order on a final and executory judgment of the Honorable
Supreme Court.[32]

From the decision of the trial court in Civil Case No. 138396 that favored
Equitable, Aboitiz likewise appealed to the Court of Appeals through CA-G.R.
CV No. 15071. On August 24, 1990, the Court of Appeals rendered the
Decision quoting extensively its Decision in CA-G.R. No. SP-17427 (now G.R.
No. 92735) and disposing of the appeal as follows:

"WHEREFORE, we hereby affirm the trial courts awards of actual damages,

attorney s fees and litigation expenses, with the exception of legal interest, in
favor of plaintiff-appellee Equitable Insurance Corporation as subrogee of the
consignee for the loss of its shipment aboard the M/V `P. Aboitiz and against
defendant-appellant Aboitiz Shipping Corporation. However, the amount and
payment of those awards shall be subject to a determination of the pro-rata
share of said appellee in relation to the pro-rata shares of the 109 other
claimants, which determination shall be made by the trial court. This case is
therefore hereby ordered remanded to the trial court which shall reopen the
case and receive evidence to determine appellees pro-rata share as
aforesaid. No pronouncement as to costs.

"SO ORDERED."[33]

On September 12, 1990, Equitable moved to reconsider the Court of Appeals

Decision. The Court of Appeals denied the motion for reconsideration on
October 4, 1990.[34] Consequently, Equitable filed with this Court a petition
for review alleging the following assignment of errors:

1.....Respondent Court of Appeals, with grave abuse of discretion amounting

to lack or excess of jurisdiction, erroneously brushed aside the doctrine in
G.R. No. 88159 which is now the law of the case as held in G.R. No. 89757
involving the same and identical set of facts and cause of action relative to
the sinking of the M/V `P. Aboitiz and observance of the time honored
principles of stare decisis, and estoppel by judgment.

2.....Real and hypothecary rule under Articles 587, 590 and 837 of the Code
of Commerce which is the basis of the assailed decision and resolution is
without application in the face of the facts found by the trial court which
conforms to the conclusion and finding of facts arrived at in a similar and
identical case involving the same incident and parties similarly situated in
G.R. No. 88159 already declared as the `law of the case in a subsequent
decision of this Honorable Court in G.R. No. 89757 promulgated on August 6,
1990.

3.....Respondent Court of Appeals gravely erred in concluding that limited

liability rule applies in case of loss of cargoes when the law itself does not
distinguish; fault of the shipowner or privity thereto constitutes one of the
exceptions to the application of limited liability under Article 587, 590 and
837 of the Code of Commerce, Civil Code provisions on common carriers for
breach of contract of carriage prevails.[35]

These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated
in the Resolution of August 5, 1991 on the ground that the petitioners "have
identical causes of action against the same respondent and similar reliefs are
prayed for."[36]

The threshold issue in these consolidated petitions is the applicability of the

limited liability rule in maritime law in favor of Aboitiz in order to stay the
execution of the judgments for full indemnification of the losses suffered by
the petitioners as a result of the sinking of the M/V P. Aboitiz. Before we can
address this issue, however, there are procedural matters that need to be
threshed out.

First. At the outset, the Court takes note of the fact that in G.R. No. 92735,
Judge Amante Purisima, whose decision in the Regional Trial Court is sought
to be upheld, is named as a co-petitioner. In Calderon v. Solicitor General,[37]
where the petitioner in the special civil action of certiorari and mandamus
was also the judge whose order was being assailed, the Court held that said
judge had no standing to file the petition because he was merely a nominal or
formal party-respondent under Section 5 of Rule 65 of the Rules of Court. He
should not appear as a party seeking the reversal of a decision that is
unfavorable to the action taken by him. The Court there said:

"Judge Calderon should be reminded of the well-known doctrine that a judge

should detach himself from cases where his decision is appealed to a higher
court for review. The raison detre for such doctrine is the fact that a judge is
not an active combatant in such proceeding and must leave the opposing
parties to contend their individual positions and for the appellate court to
decide the issues without his active participation. By filing this case,
petitioner in a way ceased to be judicial and has become adversarial
instead."[38]

While the petition in G.R. No. 92735 does not expressly show whether or not
Judge Purisima himself is personally interested in the disposition of this
petition or he was just inadvertently named as petitioner by the real parties
in interest, the fact that Judge Purisima is named as petitioner has not
escaped this Courts notice. Judges and litigants should be reminded of the
basic rule that courts or individual judges are not supposed to be interested
"combatants" in any litigation they resolve.

Second. The petitioners contend that the inapplicability of the limited liability
rule to Aboitiz has already been decided on by no less than this Court in G.R.
No. 88159 as early as November 13, 1989 which was subsequently declared
as "law of the case" in G.R. No. 89757 on August 6, 1990. Herein petitioners
cite the aforementioned cases in support of their theory that the limited
liability rule based on the real and hypothecary nature of maritime law has no
application in the cases at bar.

The existence of what petitioners insist is already the "law of the case" on the
matter of limited liability is at best illusory. Petitioners are either deliberately
misleading this Court or profoundly confused. As elucidated in the case of
Aboitiz Shipping Corporation vs. General Accident Fire and Life Assurance
Corporation,[39]

"An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp.
280-282, Rollo) shows that the same settles two principal matters, first of
which is that the doctrine of primary administrative jurisdiction is not
applicable therein; and second is that a limitation of liability in said case
would render inefficacious the extraordinary diligence required by law of
common carriers.

"It should be pointed out, however, that the limited liability discussed in said
case is not the same one now in issue at bar, but an altogether different
aspect. The limited liability settled in G.R. No. 88159 is that which attaches to
cargo by virtue of stipulations in the Bill of Lading, popularly known as
package limitation clauses, which in that case was contained in Section 8 of
the Bill of Lading and which limited the carriers liability to US$500.00 for the
cargo whose value was therein sought to be recovered. Said resolution did
not tackle the matter of the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law, which was not raised therein, and which
is the principal bone of contention in this case. While the matters threshed
out in G.R. No. 88159, particularly those dealing with the issues on primary
administrative jurisdiction and the package liability limitation provided in the
Bill of Lading are now settled and should no longer be touched, the instant
case raises a completely different issue."[40]

Third. Petitioners asseverate that the judgments of the lower courts, already
final and executory, cannot be directly or indirectly altered, modified,
amended, reversed or invalidated.

The rule that once a decision becomes final and executory, it is the
ministerial duty of the court to order its execution, is not an absolute one. We
have allowed the suspension of execution in cases of special and exceptional
nature when it becomes imperative in the higher interest of justice.[41] The
unjust and inequitable effects upon various other claimants against Aboitiz
should we allow the execution of judgments for the full indemnification of
petitioners claims impel us to uphold the stay of execution as ordered by the
respondent Court of Appeals. We reiterate our pronouncement in Aboitiz
Shipping Corporation vs. General Accident Fire and Life Assurance
Corporation on this very same issue.

"This brings us to the primary question herein which is whether or not

respondent court erred in granting execution of the full judgment award in
Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the
application of the limited liability enunciated under the appropriate articles of
the Code of Commerce. x x x. Collaterally, determination of the question of
whether execution of judgments which have become final and executory may
be stayed is also an issue.

"We shall tackle the latter issue first. This Court has always been consistent in
its stand that the very purpose for its existence is to see the accomplishment
of the ends of justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural consideration is
sancrosanct if such shall result in the subverting of justice. The right to
execution after finality of a decision is certainly no exception to this. Thus, in
Cabrias v. Adil (135 SCRA 355 [1885]), this Court ruled that:

xxx............xxx............xxx

x x x every court having jurisdiction to render a particular judgment has

inherent power to enforce it, and to exercise equitable control over such
enforcement. The court has authority to inquire whether its judgment has
been executed, and will remove obstructions to the enforcement thereof.
Such authority extends not only to such orders and such writs as may be
necessary to prevent an improper enforcement of the judgment. If a
judgment is sought to be perverted and made a medium of consummating a
wrong the court on proper application can prevent it."[42]

Fourth. Petitioners in G.R. No. 92735 aver that it was error for the respondent
Court of Appeals to allow Aboitiz the benefit of the limited liability rule
despite its failure to present evidence to prove its entitlement thereto in the
court below. Petitioners Monarch and Tabacalera remind this Court that from
the inception of G.R. No. 92735 in the lower court and all the way to the
Supreme Court, Aboitiz had not presented an iota of evidence to exculpate
itself from the charge of negligence for the simple reason that it was declared
as in default.[43]

It is true that for having been declared in default, Aboitiz was precluded from
presenting evidence to prove its defenses in the court a quo. We cannot,
however, agree with petitioners that this circumstance prevents the
respondent Court of Appeals from taking cognizance of Aboitiz defenses on
appeal.

It should be noted that Aboitiz was declared as in default not for its failure to

file an answer but for its absence during pre-trial and the trial proper. In
Aboitiz answer with counterclaim, it claimed that the sinking of the M/V P.
Aboitiz was due to an act of God or unforeseen event and that the said ship
had been seaworthy and fit for the voyage. Aboitiz also alleged that it
exercised the due diligence required by law, and that considering the real and
hypothecary nature of maritime trade, the sinking justified the
extinguishment of its liability for the lost shipment.[44]

A judgment of default does not imply a waiver of rights except that of being
heard and presenting evidence in defendants favor. It does not imply
admission by the defendant of the facts and causes of action of the plaintiff,
because the codal section[45] requires the latter to adduce evidence in
support of his allegations as an indispensable condition before final judgment
could be given in his favor. Nor could it be interpreted as an admission by the
defendant that the plaintiffs causes of action find support in the law or that
the latter is entitled to the relief prayed for.[46] This is especially true with
respect to a defendant who had filed his answer but had been subsequently
declared in default for failing to appear at the trial since he has had an
opportunity to traverse, via his answer, the material averments contained in
the complaint. Such defendant has a better standing than a defendant who
has neither answered nor appeared at trial.[47] The former should be allowed
to reiterate all affirmative defenses pleaded in his answer before the Court of
Appeals. Likewise, the Court of Appeals may review the correctness of the
evaluation of the plaintiffs evidence by the lower court.

It should also be pointed out that Aboitiz is not raising the issue of its
entitlement to the limited liability rule for the first time on appeal thus, the
respondent Court of Appeals may properly rule on the same.

However, whether or not the respondent Court of Appeals erred in finding,

upon review, that Aboitiz is entitled to the benefit of the limited liability rule is
an altogether different matter which shall be discussed below.

Rule on Limited Liability. The petitioners assert in common that the vessel
M/V P. Aboitiz did not sink by reason of force majeure but because of its
unseaworthiness and the concurrent fault and/or negligence of Aboitiz, the
captain and its crew, thereby barring Aboitiz from availing of the benefit of
the limited liability rule.

The principle of limited liability is enunciated in the following provisions of the

Code of Commerce:

Art. 587. The shipagent 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 goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all the equipments and the freight it
may have earned during the voyage.

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

Each co-owner may exempt himself from his 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 the freightage served during the voyage.

Article 837 applies the principle of limited liability in cases of collision, hence,
Arts. 587 and 590 embody the universal principle of limited liability in all
cases. In Yangco v. Laserna,[48] this Court elucidated on the import of Art.
587 as follows:

"The provision 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 the 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."[49]

"No vessel, no liability," expresses in a nutshell the limited liability rule. The
shipowners or agents liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. The total
destruction of the vessel extinguishes maritime liens because there is no
longer any res to which it can attach.[50] 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.[51]

Contrary to the petitioners theory that the limited liability rule has been
rendered obsolete by the advances in modern technology which considerably
lessen the risks involved in maritime trade, this Court continues to apply the
said rule in appropriate cases. This is not to say, however, that the limited
liability rule is without exceptions, namely: (1) where the injury or death to a
passenger is due either to the fault of the shipowner, or to the concurring
negligence of the shipowner and the captain;[52] (2) where the vessel is
insured; and (3) in workmens compensation claims.[53]

We have categorically stated that Article 587 speaks only of situations where
the fault or negligence is committed solely by the captain. In cases where the
ship owner is likewise to be blamed, Article 587 does not apply. Such a
situation will be covered by the provisions of the Civil Code on common
carriers.[54]

A finding that a fortuitous event was the sole cause of the loss of the M/V P.
Aboitiz would absolve Aboitiz from any and all liability pursuant to Article
1734(1) of the Civil Code which provides in part that common carriers are
responsible for the loss, destruction, or deterioration of the goods they carry,
unless the same is due to flood, storm, earthquake, lightning, or other natural
disaster or calamity. On the other hand, a finding that the M/V P. Aboitiz sank

by reason of fault and/or negligence of Aboitiz, the ship captain and crew of
the M/V P. Aboitiz would render inapplicable the rule on limited liability. These
issues are therefore ultimately questions of fact which have been subject of
conflicting determinations by the trial courts, the Court of Appeals and even
this Court.

In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving
Monarchs and Tabacaleras evidence, the trial court found that the complete
loss of the shipment on board the M/V P. Aboitiz when it sank was neither due
to a fortuitous event nor a storm or natural cause. For Aboitiz failure to
present controverting evidence, the trial court also upheld petitioners
allegation that the M/V P. Aboitiz was unseaworthy.[55] However, on appeal,
respondent Court of Appeals exculpated Aboitiz from fault or negligence and
ruled that:

"x x x, even if she (M/V P. Aboitiz) was found to be unseaworthy, this fault
(distinguished from civil liability) cannot be laid on the shipowners door. Such
fault was directly attributable to the captain. This is so, because under Art.
612 of the Code of Commerce, among the inherent duties of a captain, are to
examine the vessel before sailing and to comply with the laws on
navigation."[56];

and that:

"x x x although the shipowner may be held civilly liable for the captains fault
x x x having abandoned the vessel in question, even if the vessel was
unseaworthy due to the captains fault, Aboitiz is still entitled to the benefit
under the rule of limited liability accorded to shipowners by the Code of
Commerce."[57]

Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial
court, which found that the sinking of the M/V P. Aboitiz was not due to an act
of God or force majeure. It added that the evidence presented by the
petitioner Equitable demonstrated the negligence of Aboitiz Shipping
Corporation in the management and operation of its vessel M/V P. Aboitiz.[58]

However, Aboitiz appeal was favorably acted upon by the respondent Court of
Appeals which reiterated its ruling in G.R. No. 92735 that the
unseaworthiness of the M/V P. Aboitiz was not a fault directly attributable to
Aboitiz but to the captain, and that Aboitiz is entitled to the benefit of the
limited liability rule for having abandoned its ship.[59]

Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held
that the M/V P. Aboitiz was not lost due to a fortuitous event or force majeure,
and that Aboitiz had failed to satisfactorily establish that it had observed
extraordinary diligence in the vigilance over the goods transported by it.[60]

In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz
and found that the sinking of the vessel was due to its unseaworthiness and
the failure of its crew and master to exercise extraordinary diligence.[61]
Subsequently, however, Aboitiz petition before the Court of Appeals,
docketed as CA-G.R. SP No. 20844 (now G.R. No. 94867) to annul and set
aside the order of execution issued by the lower court was resolved in favor
of Aboitiz. The Court of Appeals brushed aside the issue of Aboitiz negligence
and/or fault and proceeded to allow the application of the limited liability rule
"to accomplish the aims of justice."[62] It elaborated thus: "To execute the
judgment in this case would prejudice the substantial right of other claimants
who have filed suits to claim their cargoes that was lost in the vessel that
sank and also against the petitioner to be ordered to pay more than what the
law requires."[63]

It should be pointed out that the issue of whether or not the M/V P. Aboitiz
sank by reason of force majeure is not a novel one for that question has
already been the subject of conflicting pronouncements by the Supreme
Court. In Aboitiz Shipping Corporation v. Court of Appeals,[64] this Court
approved the findings of the trial court and the appellate court that the
sinking of the M/V P. Aboitiz was not due to the waves caused by tropical
storm "Yoning" but due to the fault and negligence of Aboitiz, its master and
crew.[65] On the other hand, in the later case of Country Bankers Insurance
Corporation v. Court of Appeals,[66] this Court issued a Resolution on August
28, 1991 denying the petition for review on the ground that the Court of
Appeals committed no reversible error, thereby affirming and adopting as its
own, the findings of the Court of Appeals that force majeure had caused the
M/V P. Aboitiz to founder.

In view of these conflicting pronouncements, we find that now is the

opportune time to settle once and for all the issue of whether or not force
majeure had indeed caused the M/V P. Aboitiz to sink. After reviewing the
records of the instant cases, we categorically state that by the facts on
record, the M/V P. Aboitiz did not go under water because of the storm
"Yoning."

It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, during

the inclusive dates of October 28-31, 1980, a stormy weather condition
prevailed within the Philippine area of responsibility, particularly along the
sea route from Hong Kong to Manila, because of tropical depression "Yoning".
[67] But even Aboitiz own evidence in the form of the marine protest filed by
Captain Racines affirmed that the wind force when the M/V P. Aboitiz
foundered on October 31, 1980 was only ten (10) to fifteen (15) knots which,
under the Beaufort Scale of Wind, falls within scale No. 4 that describes the
wind velocity as "moderate breeze," and characterizes the waves as "small x
x x becoming longer, fairly frequent white horses."[68] Captain Racines also
testified in open court that the ill-fated M/V P. Aboitiz was two hundred (200)
miles away from storm "Yoning" when it sank.[69]

The issue of negligence on the part of Aboitiz, and the captain and crew of
the M/V P. Aboitiz has also been subject of conflicting rulings by this Court. In
G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals,
this Court found no error in the findings of the Court of Appeals that the M/V
P. Aboitiz sank by reason of force majeure, and that there was no negligence
on the part of its officers and crew. In direct contradiction is this Courts
categorical declaration in Aboitiz Shipping Corporation v. Court of Appeals,
[70] to wit:

"The trial court and the appellate court found that the sinking of the M/V P.
Aboitiz was not due to the waves caused by tropical storm "Yoning" but due
to the fault and negligence of petitioner, its master and crew. The court
reproduces with approval said findings x x x."[71]

However, in the subsequent case of Aboitiz Shipping Corporation v. General

Accident Fire and Life Assurance Corporation, Ltd.,[72] this Court exculpated
Aboitiz from fault and/or negligence while holding that the unseaworthiness
of the M/V P. Aboitiz was only attributable to the negligence of its captain and

crew. Thus,

"On this point, it should be stressed that unseaworthiness is not a fault that
can be laid squarely on petitioners lap, absent a factual basis for such
conclusion. The unseaworthiness found in some cases where the same has
been ruled to exist is directly attributable to the vessels crew and captain,
more so on the part of the latter since Article 612 of the Code of Commerce
provides that among the inherent duties of a captain is to examine a vessel
before sailing and to comply with the laws of navigation. Such a construction
would also put matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain and crew of the
vessel was not sustained for lack of basis, the finding therein contained to the
effect that the vessel was seaworthy deserves merit. Despite appearances, it
is not totally incompatible with the findings of the trial court and the Court of
Appeals, whose finding of "unseaworthiness" clearly did not pertain to the
structural condition of the vessel which is the basis of the BMIs findings, but
to the condition it was in at the time of the sinking, which condition was a
result of the acts of the captain and the crew."[73]

It therefore becomes incumbent upon this Court to answer with finality the
nagging question of whether or not it was the concurrent fault and/or
negligence of Aboitiz and the captain and crew of the ill-fated vessel that had
caused it to go under water.

Guided by our previous pronouncements and illuminated by the evidence

now on record, we reiterate our findings in Aboitiz Shipping Corporation v.
General Accident Fire and Life Assurance Corporation, Ltd.[74], that the
unseaworthiness of the M/V P. Aboitiz had caused it to founder. We, however,
take exception to the pronouncement therein that said unseaworthiness
could not be attributed to the ship owner but only to the negligent acts of the
captain and crew of the M/V P. Aboitiz. On the matter of Aboitiz negligence,
we adhere to our ruling in Aboitiz Shipping Corporation v. Court of Appeals,
[75] that found Aboitiz, and the captain and crew of the M/V P. Aboitiz to have
been concurrently negligent.

During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735),
petitioners Monarch and Tabacalera presented a survey from Perfect Lambert,
a surveyor based in Hong Kong that conducted an investigation on the

possible cause of the sinking of the vessel. The said survey established that
the cause of the sinking of the vessel was the leakage of water into the M/V P.
Aboitiz which probably started in the forward part of the No. 1 hull, although
no explanation was proffered as to why the No. 2 hull was likewise flooded.
Perfect Lambert surmised that the flooding was due to a leakage in the shell
plating or a defect in the water tight bulk head between the Nos. 1 and 2
holds which allowed the water entering hull No.1 to pass through hull No. 2.
The surveyor concluded that whatever the cause of the leakage of water into
these hulls, the seaworthiness of the vessel was definitely in question
because the breaches of the hulls and serious flooding of the two cargo holds
occurred simultaneously in seasonal weather.[76]

We agree with the uniform finding of the lower courts that Aboitiz had failed
to prove that it observed the extraordinary diligence required of it as a
common carrier. We therefore reiterate our pronouncement in Aboitiz
Corporation v. Court of Appeals[77] on the issue of Aboitiz liability in the
sinking of its vessel, to wit:

"In accordance with Article 1732 of the Civil Code, the defendant common
carrier from the nature of its business and for reasons of public policy, is
bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by it according to all
circumstances of the case. While the goods are in the possession of the
carrier, it is but fair that it exercise extraordinary diligence in protecting them
from loss or damage, and if loss occurs, the law presumes that it was due to
the carriers fault or negligence; that is necessary to protect the interest of the
shipper which is at the mercy of the carrier x x x. In the case at bar, the
defendant failed to prove hat the loss of the subject cargo was not due to its
fault or negligence."[78]

The failure of Aboitiz to present sufficient evidence to exculpate itself from

fault and/or negligence in the sinking of its vessel in the face of the foregoing
expert testimony constrains us to hold that Aboitiz was concurrently at fault
and/or negligent with the ship captain and crew of the M/V P. Aboitiz. This is in
accordance with the rule that in cases involving the limited liability of
shipowners, the initial burden of proof of negligence or unseaworthiness rests
on the claimants. However, once the vessel owner or any party asserts the
right to limit its liability, the burden of proof as to lack of privity or knowledge
on its part with respect to the matter of negligence or unseaworthiness is
shifted to it.[79] This burden, Aboitiz had unfortunately failed to discharge.

That Aboitiz failed to discharge the burden of proving that the

unseaworthiness of its vessel was not due to its fault and/or negligence
should not however mean that the limited liability rule will not be applied to
the present cases. The peculiar circumstances here demand that there should
be no strict adherence to procedural rules on evidence lest the just claims of
shippers/insurers be frustrated. The rule on limited liability should be applied
in accordance with the latest ruling in Aboitiz Shipping Corporation v. General
Accident Fire and Life Assurance Corporation, Ltd.,[80] promulgated on
January 21, 1993, that claimants be treated as "creditors in an insolvent
corporation whose assets are not enough to satisfy the totality of claims
against it."[81] To do so, the Court set out in that case the procedural
guidelines:

"In the instant case, there is, therefore, a need to collate all claims
preparatory to their satisfaction from the insurance proceeds on the vessel
M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant
can be given precedence over the others by the simple expedience of having
completed its action earlier than the rest. Thus, execution of judgment in
earlier completed cases, even those already final and executory must be
stayed pending completion of all cases occasioned by the subject sinking.
Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not
enough to satisfy all claims.

"x x x............x x x............x x x.

" In fairness to the claimants, and as a matter of equity, the total proceeds of
the insurance and pending freightage should now be deposited in trust.
Moreover, petitioner should institute the necessary limitation and distribution
action before the proper admiralty court within 15 days from finality of this
decision, and thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the same pending
final resolution of all incidents, for final pro-rating and settlement
thereof."[82] (Underscoring supplied.)

There is no record that Aboitiz has instituted such action or that it has
deposited in trust the insurance proceeds and freightage earned. The
pendency of the instant cases before the Court is not a reason for Aboitiz to

disregard the aforementioned order of the Court. In fact, had Aboitiz complied
therewith, even these cases could have been terminated earlier. We are
inclined to believe that instead of filing the suit as directed by this Court,
Aboitiz tolerated the situation of several claimants waiting to get hold of its
insurance proceeds, which, if correctly handled must have multiplied in
amount by now. By its failure to abide by the order of this Court, it had
caused more damage to the claimants over and above that which they have
endured as a direct consequence of the sinking of the M/V P. Aboitiz. It was
obvious that from among the many cases filed against it over the years,
Aboitiz was waiting for a judgment that might prove favorable to it, in blatant
violation of the basic provisions of the Civil Code on abuse of rights.

Well aware of the 110 claimants against it, Aboitiz preferred to litigate the
claims singly rather than exert effort towards the consolidation of all claims.
Consequently, courts have arrived at conflicting decisions while claimants
waited over the years for a resolution of any of the cases that would lead to
the eventual resolution of the rest. Aboitiz failed to give the claimants their
due and to observe honesty and good faith in the exercise of its rights.[83]

Aboitiz blatant disregard of the order of this Court in Aboitiz Shipping

Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.[84]
cannot be anything but willful on its part. An act is considered willful if it is
done with knowledge of its injurious effect; it is not required that the act be
done purposely to produce the injury.[85] Aboitiz is well aware that by not
instituting the said suit, it caused the delay in the resolution of all claims
against it. Having willfully caused loss or injury to the petitioners in a manner
that is contrary to morals, good customs or public policy, Aboitiz is liable for
damages to the latter.[86]

Thus, for its contumacious act of defying the order of this Court to file the
appropriate action to consolidate all claims for settlement, Aboitiz must be
held liable for moral damages which may be awarded in appropriate cases
under the Chapter on human relations of the Civil Code (Articles 19 to 36).
[87]

On account of Aboitiz refusal to satisfy petitioners claims in accordance with

the directive of the Court in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd., it acted in gross and evident bad

faith. Accordingly, pursuant to Article 2208 of the Civil Code,[88] petitioners

should be granted attorneys fees.

WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED.
The decisions of the Court of Appeals in CA-G.R. No. SP-17427 dated March
29, 1990, CA-G.R. SP No. 20844 dated August 15, 1990, and CA-G.R. CV No.
15071 dated August 24, 1990 are AFFIRMED with the MODIFICATION that
respondent Aboitiz Shipping Corporation is ordered to pay each of the
respective petitioners the amounts of P100,000.00 as moral damages and
P50,000.00 as attorneys fees, and treble the cost of suit.

Respondent Aboitiz Shipping Corporation is further directed to comply with

the Order promulgated by this Court on January 21, 1993 in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.,
G.R. No. 100446, January 21, 1993, to (a) institute the necessary limitation
and distribution action before the proper Regional Trial Court, acting as
admiralty court, within fifteen (15) days from the finality of this decision, and
(b) thereafter to deposit with the said court the insurance proceeds from the
loss of the vessel, M/V P. Aboitiz, and the freightage earned in order to
safeguard the same pending final resolution of all incidents relative to the
final pro-rating thereof and to the settlement of all claims.

SO ORDERED.
G.R. No. 74811

September 30, 1988

CHUA YEK HONG, petitioner,

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

Francisco D. Estrada for petitioner.

Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:

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

The basic facts are not disputed:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental

Mindoro, while private respondents are the owners of the vessel, "M/V
Luzviminda I," a common carrier engaged in coastwise trade from the
different ports of Oriental Mindoro to the Port of Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at

P101,227.40, on board the vessel "M/V Luzviminda I" for shipment from
Puerta Galera, Oriental Mindoro, to Manila. Said cargo, however, did not reach
Manila because somewhere between Cape Santiago and Calatagan,
Batangas, the vessel capsized and sank with all its cargo.

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

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

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

WHEREFORE, in view of the foregoing considerations, the court believes and

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

On appeal, respondent Appellate Court ruled to the contrary when it applied

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

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

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

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision,

petitioner has availed of the present recourse.

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

Article 587 of the Code of Commerce provides:

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

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

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

As this Court held:

If the ship owner or agent may in any way be held civilly liable at all for injury
to or death of passengers arising from the negligence of the captain in cases
of collisions or shipwrecks, his liability is merely co-extensive with his interest

in the vessel such that a total loss thereof results in its extinction. (Yangco vs.
Laserna, et al., supra).

The rationale therefor has been explained as follows:

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

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

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

Vergara, 6 Phil. 284 [1906]).

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

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

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

Moreover, Article 1766 of the Civil Code provides:

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

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

provisions of the Code of Commerce, more particularly Article 587, that

govern in this case.

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

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

costs.

SO ORDERED.
G.R. No. L-9534. September 29, 1956.]

MANILA STEAMSHIP CO., INC., Petitioner, vs. INSA ABDULHAMAN (MORO) and
LIM HONG TO, Respondents.

DECISION

REYES, J. B. L., J.:

This case was begun in the Court of First Instance of Zamboanga (Civil Case
No. 170) by Insa Abdulhaman against the Manila Steamship Co., owner of the
M/S Bowline Knot, and Lim Hong To, owner of the M/L Consuelo V, to
recover damages for the death of his (Plaintiffs) five children and loss of
personal properties on board the M/L Consuelo V as a result of a maritime
collision between said vessel and the M/S Bowline Knot on May 4, 1948, a

few kilometers distant from San Ramon Beach, Zamboanga City.

On appeal, the Court of Appeals found the following facts to have been
established:chanroblesvirtuallawlibrary

From 7:chanroblesvirtuallawlibrary00 to 8:chanroblesvirtuallawlibrary00

oclock in the evening of May 4, 1948, the M/L Consuelo V, laden with
cargoes and passengers left the port of Zamboanga City bound for Siokon
under the command of Faustino Macrohon. She was then towing a kumpit,
named Sta. Maria Bay. The weather was good and fair. Among her
passengers were the Plaintiff Insa Abdulhaman, his wife Carimla Mora and
their five children already mentioned. The Plaintiff and his wife paid their fare
before the voyage started.

On that same night the M/S Bowline Knot was navigating from Maribojoc
towards Zamboanga.

Between 9:chanroblesvirtuallawlibrary30 to 10:chanroblesvirtuallawlibrary00

in the evening the dark clouds bloated with rain began to fall and the gushing
strong wind began to blow steadily harder, lashing the waves into a choppy
and roaring sea. Such weather lasted for about an hour and then it became
fair although it was showering and the visibility was good enough.

When some of the passengers of the M/L Consuelo V were then sleeping
and some were lying down awake, all of a sudden they felt the shocking
collision of the M/L Consuelo V and a big motorship, which later on was
identified as the M/V Bowline Knot.

Because the M/L Consuelo V capsized, her crew and passengers, before
realizing what had happened, found themselves swimming and floating on
the crest of the waves and as a result of which nine (9) passengers were dead
and missing and all the cargoes carried on said boat, including those of the
Plaintiff as appear in the list, Exhibit A, were also lost.

Among the dead passengers found were Maria, Amlasa, Bidoaya and Bidalla,
all surnamed Inasa, while the body of the child Abdula Inasa of 6 years of age
was never recovered. Before the collision, none of the passengers were
warned or informed of the impending danger as the collision was so sudden
and unexpected. All those rescued at sea were brought by the M/V Bowline
Knot to Zamboanga City. (Decision of C. A., pp. 5-6).

As the cause of the collision, the Court of Appeals affirmed the findings of the
Board of Marine Inquiry, that the commanding officer of the colliding vessels
had both been negligent in operating their respective vessels. Wherefore, the
Court held the owners of both vessels solidarily liable to Plaintiff for the
damages caused to him by the collision, under Article 827 of the Code of
Commerce; chan roblesvirtualawlibrarybut exempted Defendant Lim Hong To
from liability by reason of the sinking and total loss of his vessel, the M/L
Consuelo V, while the other Defendant, the Manila Steamship Co., owner of
the M/S Bowline Knot, was ordered to pay all of Plaintiffs damages in the
amount of P20,784.00 plus one-half of the costs. It is from this judgment that
Defendant Manila Steamship Co. had appealed to this Court.

Petitioner Manila Steamship Co. pleads that it is exempt from any liability to
Plaintiff under Article 1903 of the Civil Code because it had exercised the
diligence of a good father of a family in the selection of its employees,
particularly Third Mate Simplicio Ilagan, the officer in command of its vessels,
the M/S Bowline Knot, at the time of the collision. This defense is untenable.
While it is true that Plaintiffs action against Petitioner is based on a tort or
quasi-delict, the tort in question is not a civil tort under the Civil Code but a
maritime tort resulting in a collision at sea, governed by Articles 826-939 of
the Code of Commerce. Under Article 827 of the Code of Commerce, in case
of collision between two vessels imputable to both of them, each vessel shall
suffer her own damage and both shall be solidarily liable for the damages
occasioned to their cargoes. The characteristic language of the law in making
the vessels solidarily liable for the damages due to the maritime collision
emphasizes the direct nature of the responsibilities on account of the collision
incurred by the shipowner under maritime law, as distinguished from the civil
law and mercantile law in general. This direct responsibility is recognized in
Article 618 of the Code of Commerce under which the captain shall be civilly
liable to the ship agent, and the latter is the one liable to third persons, as
pointed out in the collision case of Yueng Sheng Exchange & Trading Co. vs.
Urrutia & Co., 12 Phil. 747, 753:chanroblesvirtuallawlibrary

The responsibility involved in the present action is that derived from the
management of the vessel, which was defective on account of lack of skill,
negligence, or fault, either of the captain or of the crew, for which the captain
is responsible to the agent, who in his turn is responsible to the third party
prejudiced or damaged. (Article 618, Code of Commerce).

In fact, it is a general principle, well established maritime law and custom,

that shipowners and ship agents are civilly liable for the acts of the captain
(Code of Commerce, Article 586) and for the indemnities due the third
persons (Article 587); chan roblesvirtualawlibraryso that injured parties may
immediately look for reimbursement to the owner of the ship, it being
universally recognized that the ship master or captain is primarily the
representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256,
260). This direct liability, moderated and limited by the owners right of
abandonment of the vessel and earned freight (Article 587), has been
declared to exist, not only in case of breached contracts, but also in cases of
tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511,
515):chanroblesvirtuallawlibrary

In the second assignment of error, the Appellant contends that the

Defendant ought not to be held liable for the negligence of his agents and
employees.

It is proven that the agents and employees, through whose negligence the
explosion and fire in question occurred, were agents, employees and
mandatories of the Defendant. Where the vessel is one of freight, a public
concern or public utility, its owner or agents is liable for the tortious acts of
his agents (Articles 587, 613, and 618 Code of Commerce; chan
roblesvirtualawlibraryand Article 1902, 1903, 1908, Civil Code). This principle
has been repeatedly upheld in various decisions of this court.

The doctrines cited by the Appellant in support of his theory have reference
to the relations between principal and agent in general, but not to the
relations between ship agent and his agents and employees; chan
roblesvirtualawlibraryfor this reason they cannot be applied in the present
case.

It is easy to see that to admit the defense of due diligence of a bonus

paterfamilias (in the selection and vigilance of the officers and crew) as
exempting the shipowner from any liability for their faults, would render
nugatory the solidary liability established by Article 827 of the Code of
Commerce for the greater protection of injured parties. Shipowners would be
able to escape liability in practically every case, considering that the
qualifications and licensing of ship masters and officers are determined by
the State, and that vigilance is practically impossible to exercise over officers
and crew of vessels at sea. To compel the parties prejudiced to look to the
crew for indemnity and redress would be an illusory remedy for almost always
its members are, from captains down, mere wage earners.

We, therefore, find no reversible error in the refusal of the Court of Appeals to
consider the defense of the Manila Steamship Co., that it is exempt from
liability for the collision with the M/L Consuelo V due to absence of
negligence on its parts in the selection and supervision of the officers and
crew of the M/S Bowline Knot.

The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55
Phil. 517, invoked by Petitioner, is not the point. Said case treated of a civil
tort, in that the vessel of the Defendant, allegedly negligently managed by its
captain in the course of its maneuvers to moor at Plaintiffs wharf, struck the
same and partially demolished it, causing damage to Plaintiff. Because the
tort allegedly committed was civil, the provisions of Article 1903 of the Civil
Code were correctly applied. The present case, on the other hand, involves
tortious conduct resulting in a maritime collision; chan
roblesvirtualawlibrarywherefore, the liability of the shipowner is, as already
stated, governed by the provisions of the Code of Commerce and not by the
Civil Code.

We agree, however, with Petitioner-Appellant, that the Court of Appeals was

in error in declaring the Respondent Lim Hong To, owner of the M/L Consuelo
V, exempt from liability to the original Plaintiff, Abdulhaman, in view of the
total loss of his own vessel, that sank as a result of the collision. It is to be
noted that both the master and the engineer of the motor launch Consuelo
V were not duly licensed as such (Exh. 2). In applying for permission to
operate, despite the lack of properly trained and experienced, crew,
Respondent Lim Hong To gave as a reason

that the income derived from the vessel is insufficient to pay licensed
officers who demand high salaries,

and expressly declared:chanroblesvirtuallawlibrary

That in case of any accident, damage or loss, I shall assume full risk and
responsibility for all the consequences thereof. (Exhibit 2).

His permit to operate, in fact, stipulated

that in case of any accident, damage or loss, the registered owner thereof
shall assume full risk and responsibility for all the consequences thereof, and
that said vessel shall be held answerable for any negligence, disregard or
violation of any of the conditions herein imposed and for any consequence
arising from such negligence, disregard or violations. (Exhibit 3.)

The Court of Appeals held that neither the letter (Exhibit 2) nor the permit
(Exhibit 3) contained any waiver of the right of Respondent Lim Hong To to
limit his liability to the value of his motor launch and that he did not lose the
statutory right to limit his liability by abandonment of the vessel, as conferred
by Article 587 of the Code of Commerce.

We find the ruling untenable. Disregarding the question whether mere

inability to meet the salary demands of duly licensed masters and engineers
constitutes non-availability thereof that would excuse noncompliance with the
law and authorize operation without licensed officers under Act 3553, the fact
remains that by operating with an unlicensed master, Lim Hong To
deliberately increased the risk to which the passengers and shippers of cargo
aboard the Consuelo V would be subjected. In his desire to reap greater
benefits in the maritime trade, Lim Hong To willfully augmented the dangers
and hazards to his vessels unwarry passengers, who would normally assume
that the launch officers possessed the necessary skill and experience to
evade the perils of the sea. Hence, the liability of said Respondent cannot be
the identical to that of a shipowner who bears in mind the safety of the
passengers and cargo by employing duly licensed officers. To hold, as the
Court of Appeals has done, that Lim Hong To may limit his liability to the

value of his vessels, is to erase all difference between compliance with law
and the deliberate disregard thereof. To such proposition we cannot assent.

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 the average is due to shipowners own fault. Faria
(Derecho Comercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial
precedents from various nations, sets the rule to be as
follows:chanroblesvirtuallawlibrary

Esta generalmente admitido que el propietario del buque no tiene derecho a

la limitacion legal de responsibilidad si los daos o averias que dan origen a
la limitacion provienen de sus propias culpas. El Convenio de Bruselas de 25
de agosto de 1924 tambien invalida la limitacion en el caso de culpa personal
en los accidentes o averas sobrevenidos (Art. 2).

To the same effect, a noted French author states:chanroblesvirtuallawlibrary

La limitacion de la responsabilidad maritima ha sido admitida para proteger

a los armadores contra los actos abusivos de sus encargados y no dejar su
patrimonio entero a la discrecion del personal de sus buques, porque este
personal cumple sus obligaciones en condiciones especiales; chan
roblesvirtualawlibrarypero los armadores no tienen por sobre los demas
derecho a ser amparados contra ellos mismos ni a ser protegidos contra sus
propios actos.

(Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.)

That Lim Hong To understood that he would incur greater liability than that
normally borne by shipowners, is clear from his assumption of full risk and
responsibility for all the consequences of the operation of the M/L Consuelo
V; chan roblesvirtualawlibrarya responsibility expressly assumed in his letter
Exhibit 2, and imposed in his special permit, in addition to the vessel itself
being held answerable. This express assumption of full risk and
responsibility would be meaningless unless intended to broaden the liability
of Respondent Lim Hong To beyond the value of his vessel.

In resume, we hold:chanroblesvirtuallawlibrary

(1) That the Manila Steamship Co., owner of the M/S Bowline Knot, is
directly and primarily responsible in tort for the injuries caused to the Plaintiff
by the collision of said vessel with the launch Consuelo V, through the
negligence of the crews of both vessels, and it may not escape liability on the
ground that it exercised due diligence in the selection and supervision of the
officers and crew of the Bowline Knot;

(2) That Lim Hong To, as owner of the motor launch Consuelo V, having
caused the same to sail without licensed officers, is liable for the injuries
caused by the collision over and beyond the value of said launch;

(3) That both vessels being at fault, the liability of Lim Hong To and Manila
Steamship Co. to the Plaintiff herein is in solidum, as prescribed by Article
827 of the Code of Commerce.

In view of the foregoing, the decision of the Court of Appeals is modified, and
that of the Court of First Instance affirmed, in the sense of declaring both
original Defendants solidarily liable to Plaintiff Insa Abdulhaman in the sum of
P20,784.00 and the cost of the litigation, without prejudice to the right of the
one who should pay the judgment in full to demand contribution from his coDefendant.
EN BANC

G.R. No. L-1600

June 1, 1906

THE PHILIPPINE SHIPPING COMPANY, ET AL., plaintiffs-appellants,

vs.
FRANCISCO GARCIA VERGARA, defendant-appellee.

Del-Pan, Ortigas and Fisher, for appellants.

Ledesma, Sumulong and Quintos, for appellee.

ARELLANO, C.J.:

The Philippine Shipping Company, the owner of the steamship Nuestra Sra.
de Lourdes, claims an indemnification of 44,000 pesos for the loss of the said
ship as a result of a collision. Ynchusti & Co. also claimed 24,705.64 pesos as
an indemnification for the loss of the cargo of hemp and coprax carried by
the said ship on her last trip. The defendant, Francisco Garcia Vergara, was
the owner of the steamship Navarra, which collided with the Lourdes.

From the judgment of the trial court the Philippine Shipping Company and the
defendant Vergara appealed, but the latter has failed to prosecute his appeal
by a bill of exceptions or otherwise. The only appellant who has prosecuted
this appeal now reduced its claim to 18,000 pesos, the value of the colliding
vessel.

The court below found as a matter of fact that the steamship Lourdes was
sailing in accordance with law, but that the Navarra was not, and was
therefore responsible for the collision. (Bill of exceptions, p. 7.) The court also
found as a fact that "both ships with their respective cargoes were entirely
lost." Construing article 837 of the Code Commerce, the court below held
"that the defendant was not responsible to the plaintiff for the value of the
steamship Lourdes, with the costs against the latter." (Bill of exceptions, p. 8.)

But the appellant, the Philippine Shipping Company, contends that the
defendant should pay to 18,000 pesos, the value of the Navarra at the time
of its loss; that this is the sense in which the provisions of article 837 of the
Code of Commerce should be understood; that said code has followed the
principles of the English law and not those of the American law, and that it
was immaterial whether the Navarra had been entirely lost, provided her
value at the time she was lost could be ascertained, since the extent of the
liability of the owner of the colliding vessel for the damages resulting from
the collision is to be determined in accordance with such value.

Article 837 of the Code Commerce provides: "The civil liability contracted by
the shipowners in the cases prescribed in this section shall be understood as
limited to the value of the vessel with all her equipment and all the freight
money earned during the voyage."

This section is a necessary consequence of the right to abandon the vessel

given to the shipowner in article 587 of the code, and it is one of the many
superfluities contained in the code. (Lorenzo Benito, "Lecciones," 352.)

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

ART. 590.
The part owners of a vessel shall be civilly liable, in the
proportion of their contribution to the common fund, for the results of the
acts of the captain referred to in article 587. Each part owner may exempt
himself from this liability by the abandonment, before a notary, of the part of
the vessel belonging to him.

The "Exposicion de motivos" of the Code of Commerce contains the following:

"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 who represents
the interest 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
for the owner of the vessel. Such liability is limited by the proposed code to
the value of the vessel and other things appertaining thereto."

There is no doubt that if the Navarra had not been entirely lost, the agent,
having held liable for the negligence of the captain of the vessel, could have
abandoned her with all her equipment and the freight money earned during
the voyage, thus bringing himself within the provisions of the article 837 in so

far as the subsidiary civil liability is concerned. This abandonment which

would have amounted to an offer of the value of the vessel, of her
equipment, and freight money earned could not have been refused, and the
agent could not have been personally compelled, under such circumstances,
to pay the 18,000 pesos, the estimated value of the vessel at the time of the
collision.

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

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

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

As evidence of this "real" nature of the maritime law we have (1) the
limitation of the liability of the agents to the actual value of the vessel and
the freight money, and (2) the right to retain the cargo and the embargo and

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

This repeals the civil law to such an extent that, in certain cases, where the
mortgaged property is lost no personal action lies against the owner or agent
of the vessel. For instance, where the vessel is lost the sailors and members
of the crew can not recover their wages; in case of collision, the liability of the
agent is limited as aforesaid, and in case of shipwrecks, those who loan their
money on the vessel and cargo lose all their rights and can not 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
maritime law, exclusively "real," according to which the liability of the parties
is limited to a thing to which is at 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 of 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 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, tonnage, 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 other liabilities arising from
collisions under article 837 and 838. (Madariaga, pp. 60-62, 63, 85.)

We accordingly hold that the defendant is liable for the indemnification to

which the plaintiff is entitled by reason of the collision, but he is not required
to pay such indemnification of the reason that the obligation thus incurred
has been extinguished on account of the loss of the thing bound for the
payment thereof, and in this respect the judgment of the court below is
affirmed except in so far as it requires the plaintiff to pay the costs of this
action, which is not exactly proper. After the expiration of twenty days let
judgment be entered in accordance herewith and ten days thereafter the
record be remanded to the Court of First Instance for execution. So ordered.
G.R. No. 100446

January 21, 1993

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.,
respondent.

Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.

Napoleon Rama collaborating counsel for petitioner.

Dollete, Blanco, Ejercito & Associates for private respondent.

MELO, J.:

This refers to a petition for review which seeks to annul and set aside the
decision of the Court of Appeals dated June 21, 1991, in CA G.R. SP No.
24918. The appellate court dismissed the petition for certiorari filed by herein
petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30,
1991 issued by the Regional Trial Court of the National Capital Judicial Region
(Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's
prayer for execution for the full amount of the judgment award. The trial

court in so doing swept aside petitioner's opposition which was grounded on

the real and hypothecary nature of petitioner's liability as ship owner. The
application of this established principle of maritime law would necessarily
result in a probable reduction of the amount to be recovered by private
respondent, since it would have to share with a number of other parties
similarly situated in the insurance proceeds on the vessel that sank.

The basic facts are not disputed.

Petitioner is a corporation organized and operating under Philippine laws and

engaged in the business of maritime trade as a carrier. As such, it owned and
operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a
voyage from Hongkong to the Philippines on October 31, 1980. Private
respondent General Accident Fire and Life Assurance Corporation, Ltd.
(GAFLAC), on the other hand, is a foreign insurance company pursuing its
remedies as a subrogee of several cargo consignees whose respective cargo
sank with the said vessel and for which it has priorly paid.

The incident of said vessel's sinking gave rise to the filing of suits for
recovery of lost cargo either by the shippers, their successor-in-interest, or
the cargo insurers like GAFLAC as subrogees. The sinking was initially
investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26,
1984), which found that such sinking was due to force majeure and that
subject vessel, at the time of the sinking was seaworthy. This administrative
finding notwithstanding, the trial court in said Civil Case No. 144425 found
against the carrier on the basis that the loss subject matter therein did not
occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was
allowed to prove, and. was later awarded, its claim. This decision in favor of
GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v.
Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel,
encountering rough sailing. The attempted execution of the judgment award
in said case in the amount of P1,072,611.20 plus legal interest has given rise
to the instant petition.

On the other hand, other cases have resulted in findings upholding the
conclusion of the BMI that the vessel was seaworthy at the time of the
sinking, and that such sinking was due to force majeure. One such ruling was
likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance

Corporation v. Court of Appeals, et al., August 28, 1991 and was sustained.
Part of the task resting upon this Court, therefore, is to reconcile the resulting
apparent contrary findings in cases originating out of a single set of facts.

It is in this factual milieu that the instant petition seeks a pronouncement as

to the applicability of the doctrine of limited liability on the totality of the
claims vis a vis the losses brought about by the sinking of the vessel M/V P.
ABOITIZ, as based on the real and hypothecary nature of maritime law. This is
an issue which begs to be resolved considering that a number of suits alleged
in the petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend
and whose resolution shall well-nigh result in more confusion than presently
attends the instant case.

In support of the instant petition, the following arguments are submitted by

the petitioner:

1.
The Limited Liability Rule warrants immediate stay of execution of
judgment to prevent impairment of other creditors' shares;

2.
The finding of unseaworthiness of a vessel is not necessarily
attributable to the shipowner; and

3
The principle of "Law of the Case" is not applicable to the present
petition. (pp. 2-26, Rollo.)

On the other hand, private respondent opposes the foregoing contentions,

arguing that:

1.
There is no limited liability to speak of or applicable real and
hypothecary rule under Article 587, 590, and 837 of the Code of Commerce in
the face of the facts found by the lower court (Civil Case No. 144425), upheld
by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the
Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of
the Case; and

2.
Under the doctrine of the Law of the Case, cases involving the same
incident, parties similarly situated and the same issues litigated should be
decided in conformity therewith following the maxim stare decisis et non
quieta movere. (pp. 225 to 279, Rollo.)

Before proceeding to the main bone of contention, it is important to

determine first whether or not the Resolution of this Court in G.R. No. 88159,
Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied
Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars
and precludes the instant petition as argued by respondent GAFLAC.

An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp.
280 to 282, Rollo) shows that the same settles two principal matters, first of
which is that the doctrine of primary administrative jurisdiction is not
applicable therein; and second is that a limitation of liability in said case
would render inefficacious the extraordinary diligence required by law of
common carriers.

It should be pointed out, however, that the limited liability discussed in said
case is not the same one now in issue at bar, but an altogether different
aspect. The limited liability settled in G.R. No. 88159 is that which attaches to
cargo by virtue of stipulations in the Bill of Lading, popularly known as
package limitation clauses, which in that case was contained in Section 8 of
the Bill of Lading and which limited the carrier's liability to US$500.00 for the
cargo whose value was therein sought to be recovered. Said resolution did
not tackle the matter of the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law, which was not raised therein, and which
is the principal bone of contention in this case. While the matters threshed
out in G.R. No. 88159, particularly those dealing with the issues on primary
administrative jurisdiction and the package liability limitation provided in the
Bill of Lading are now settled and should no longer be touched, the instant
case raises a completely different issue. It appears, therefore, that the
resolution in G.R. 88159 adverted to has no bearing other than factual to the
instant case.

This brings us to the primary question herein which is whether or not

respondent court erred in granting execution of the full judgment award in

Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the
application of the limited liability enunciated under the appropriate articles of
the Code of Commerce. The articles may be ancient, but they are timeless
and have remained to be good law. Collaterally, determination of the question
of whether execution of judgments which have become final and executory
may be stayed is also an issue.

We shall tackle the latter issue first. This Court has always been consistent in
its stand that the very purpose for its existence is to see to the
accomplishment of the ends of justice. Consistent with this view, a number of
decisions have originated herefrom, the tenor of which is that no procedural
consideration is sacrosanct if such shall result in the subverting of substantial
justice. The right to an execution after finality of a decision is certainly no
exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court
ruled that:

. . . It is a truism that every court has the power "to control, in the
furtherance of justice, the conduct of its ministerial officers, and of all other
persons in any manner connected with a case before it, in every manner
appertaining thereto. It has also been said that:

. . . every court having jurisdiction to render a particular judgment has

inherent power to enforce it, and to exercise equitable control over such
enforcement. The court has authority to inquire whether its judgment has
been executed, and will remove obstructions to the enforcement thereof.
Such authority extends not only to such orders and such writs as may be
necessary to carry out the judgment into effect and render it binding and
operative, but also to such orders and such writs as may be necessary to
prevent an improper enforcement of the judgment. If a judgment is sought to
be perverted and made a medium of consummating a wrong the court on
proper application can prevent it. (at p. 359)

and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257
[1987]), this Court found that:

The rule that once a decision becomes final and executory, it is the
ministerial duty of the court to order its execution, admits of certain

exceptions as in cases of special and exceptional nature where it becomes

the imperative in the higher interest of justice to direct the suspension of its
execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary to
accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when certain
facts and circumstances transpired after the judgment became final which
would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA
354). (at p. 201)

We now come to the determination of the principal issue as to whether the

Limited Liability Rule arising out of the real and hypothecary nature of
maritime law should apply in this and related cases. We rule in the
affirmative.

In deciding the instant case below, the Court of Appeals took refuge in this
Court's decision in G.R. No. 89757 upholding private respondent's claims in
that particular case, which the Court of Appeals took to mean that this Court
has "considered, passed upon and resolved Aboitiz's contention that all
claims for the losses should first be determined before GAFLAC's judgment
may be satisfied," and that such ruling "in effect necessarily negated the
application of the limited liability principle" (p. 175, Rollo). Such conclusion is
not accurate. The decision in G.R. No. 89757 considered only the
circumstances peculiar to that particular case, and was not meant to traverse
the larger picture herein brought to fore, the circumstances of which
heretofore were not relevant. We must stress that the matter of the Limited
Liability Rule as discussed was never in issue in all prior cases, including
those before the RTCs and the Court of Appeals. As discussed earlier, the
"limited liability" in issue before the trial courts referred to the package
limitation clauses in the bills of lading and not the limited liability doctrine
arising from the real and hypothecary nature of maritime trade. The latter
rule was never made a matter of defense in any of the cases a quo, as
properly it could not have been made so since it was not relevant in said
cases. The only time it could come into play is when any of the cases
involving the mishap were to be executed, as in this case. Then, and only
then, could the matter have been raised, as it has now been brought before
the Court.

The real and hypothecary nature of maritime law simply means that the
liability of the carrier in connection with losses related to maritime contracts
is confined to the vessel, which is hypothecated for such obligations or which
stands as the guaranty for their settlement. It has its origin by reason of the

conditions and risks attending maritime trade in its earliest years when such
trade was replete with innumerable and unknown hazards since vessels had
to go through largely uncharted waters to ply their trade. It was designed to
offset such adverse conditions and to encourage people and entities to
venture into maritime commerce despite the risks and the prohibitive cost of
shipbuilding. Thus, the liability of the vessel owner and agent arising from the
operation of such vessel were confined to the vessel itself, its equipment,
freight, and insurance, if any, which limitation served to induce capitalists
into effectively wagering their resources against the consideration of the
large profits attainable in the trade.

It might be noteworthy to add in passing that despite the modernization of

the shipping industry and the development of high-technology safety devices
designed to reduce the risks therein, the limitation has not only persisted, but
is even practically absolute in well-developed maritime countries such as the
United States and England where it covers almost all maritime casualties.
Philippine maritime law is of Anglo-American extraction, and is governed by
adherence to both international maritime conventions and generally accepted
practices relative to maritime trade and travel. This is highlighted by the
following excerpts on the limited liability of vessel owners and/or agents;

Sec. 183.
The liability of the owner of any vessel, whether American or
foreign, for any embezzlement, loss, or destruction by any person of any
person or any property, goods, or merchandise shipped or put on board such
vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred,
without the privity or knowledge of such owner or owners shall not exceed
the amount or value of the interest of such owner in such vessel, and her
freight then pending. (Section 183 of the US Federal Limitation of Liability
Act).

and

1.
The owner of a sea-going ship may limit his liability in accordance with
Article 3 of this Convention in respect of claims arising, from any of the
following occurrences, unless the occurrence giving rise to the claim resulted
from the actual fault or privity of the owner;

(a)
loss of life of, or personal injury to, any person being carried in the
ship, and loss of, or damage to, any property on board the ship.

(b)
loss of life of, or personal injury to, any other person, whether on land
or on water, loss of or damage to any other property or infringement of any
rights caused by the act, neglect or default the owner is responsible for, or
any person not on board the ship for whose act, neglect or default the owner
is responsible: Provided, however, that in regard to the act, neglect or default
of this last class of person, the owner shall only be entitled to limit his liability
when the act, neglect or default is one which occurs in the navigation or the
management of the ship or in the loading, carriage or discharge of its cargo
or in the embarkation, carriage or disembarkation of its passengers.

(c)
any obligation or liability imposed by any law relating to the removal of
wreck and arising from or in connection with the raising, removal or
destruction of any ship which is sunk, stranded or abandoned (including
anything which may be on board such ship) and any obligation or liability
arising out of damage caused to harbor works, basins and navigable
waterways. (Section 1, Article I of the Brussels International Convention of
1957)

In this jurisdiction, on the other hand, its application has been well-nigh
constricted by the very statute from which it originates. The Limited Liability
Rule in the Philippines is taken up in Book III of the Code of Commerce,
particularly in Articles 587, 590, and 837, hereunder quoted in toto:

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

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

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

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

Taken together with related articles, the foregoing cover only liability for
injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions
(Art. 837).

In view of the foregoing, this Court shall not take the application of such
limited liability rule, which is a matter of near absolute application in other
jurisdictions, so lightly as to merely "imply" its inapplicability, because as
could be seen, the reasons for its being are still apparently much in existence
and highly regarded.

We now come to its applicability in the instant case. In the few instances
when the matter was considered by this Court, we have been consistent in
this jurisdiction in holding that the only time the Limited Liability Rule does
not apply is when there is an actual finding of negligence on the part of the
vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila
Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos
Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus,
is whether there is a finding of such negligence on the part of the owner in
the instant case.

A careful reading of the decision rendered by the trial court in Civil Case No.
144425 (pp. 27-33, Rollo) as well as the entirety of the records in the instant
case will show that there has been no actual finding of negligence on the part
of petitioner. In its Decision, the trial court merely held that:

. . . Considering the foregoing reasons, the Court holds that the vessel M/V
"Aboitiz" and its cargo were not lost due to fortuitous event or force majeure."
(p. 32, Rollo)

The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86,
Rollo) affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609
(pp. 34-50, Rollo) since both decisions did not make any new and additional
finding of fact. Both merely affirmed the factual findings of the trial court,
adding that the cause of the sinking of the vessel was because of
unseaworthiness due to the failure of the crew and the master to exercise
extraordinary diligence. Indeed, there appears to have been no evidence
presented sufficient to form a conclusion that petitioner shipowner itself was
negligent, and no tribunal, including this Court will add or subtract to such
evidence to justify a conclusion to the contrary.

The qualified nature of the meaning of "unseaworthiness," under the peculiar

circumstances of this case is underscored by the fact that in the Country
Banker's case, supra, arising from the same sinking, the Court sustained the
decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due
to force majeure.

On this point, it should be stressed that unseaworthiness is not a fault that

can be laid squarely on petitioner's lap, absent a factual basis for such a
conclusion. The unseaworthiness found in some cases where the same has
been ruled to exist is directly attributable to the vessel's crew and captain,
more so on the part of the latter since Article 612 of the Code of Commerce
provides that among the inherent duties of a captain is to examine a vessel
before sailing and to comply with the laws of navigation. Such a construction
would also put matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain and crew of the
vessel was not sustained for lack of basis, the finding therein contained to the
effect that the vessel was seaworthy deserves merit. Despite appearances, it
is not totally incompatible with the findings of the trial court and the Court of
Appeals, whose finding of "unseaworthiness" clearly did not pertain to the
structural condition of the vessel which is the basis of the BMI's findings, but
to the condition it was in at the time of the sinking, which condition was a
result of the acts of the captain and the crew.

The rights of a vessel owner or agent under the Limited Liability Rule are akin
to those of the rights of shareholders to limited liability under our corporation
law. Both are privileges granted by statute, and while not absolute, must be
swept aside only in the established existence of the most compelling of

reasons. In the absence of such reasons, this Court chooses to exercise

prudence and shall not sweep such rights aside on mere whim or surmise, for
even in the existence of cause to do so, such incursion is definitely punitive in
nature and must never be taken lightly.

More to the point, the rights of parties to claim against an agent or owner of a
vessel may be compared to those of creditors against an insolvent
corporation whose assets are not enough to satisfy the totality of claims as
against it. While each individual creditor may, and in fact shall, be allowed to
prove the actual amounts of their respective claims, this does not mean that
they shall all be allowed to recover fully thus favoring those who filed and
proved their claims sooner to the prejudice of those who come later. In such
an instance, such creditors too would not also be able to gain access to the
assets of the individual shareholders, but must limit their recovery to what is
left in the name of the corporation. Thus, in the case of Lipana v.
Development Bank of Rizal earlier cited, We held that:

In the instant case, the stay of execution of judgment is warranted by the fact
that the respondent bank was placed under receivership. To execute the
judgment would unduly deplete the assets of respondent bank to the obvious
prejudice of other depositors and creditors, since, as aptly stated in Central
Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a
bank is insolvent and has ordered it to cease operations, the Board becomes
the trustee of its assets for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or preference over another by an
attachment, execution or otherwise. (at p. 261).

In both insolvency of a corporation and the sinking of a vessel, the claimants

or creditors are limited in their recovery to the remaining value of accessible
assets. In the case of an insolvent corporation, these are the residual assets
of the corporation left over from its operations. In the case of a lost vessel,
these are the insurance proceeds and pending freightage for the particular
voyage.

In the instant case, there is, therefore, a need to collate all claims preparatory
to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz
and its pending freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of having filed or

completed its action earlier than the rest. Thus, execution of judgment in
earlier completed cases, even those already final and executory, must be
stayed pending completion of all cases occasioned by the subject sinking.
Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not
enough to satisfy all claims.

Finally, the Court notes that petitioner has provided this Court with a list of all
pending cases (pp. 175 to 183, Rollo), together with the corresponding claims
and the pro-rated share of each. We likewise note that some of these cases
are still with the Court of Appeals, and some still with the trial courts and
which probably are still undergoing trial. It would not, therefore, be entirely
correct to preclude the trial courts from making their own findings of fact in
those cases and deciding the same by allotting shares for these claims, some
of which, after all, might not prevail, depending on the evidence presented in
each. We, therefore, rule that the pro-rated share of each claim can only be
found after all the cases shall have been decided.

In fairness to the claimants, and as a matter of equity, the total proceeds of

the insurance and pending freightage should now be deposited in trust.
Moreover, petitioner should institute the necessary limitation and distribution
action before the proper admiralty court within 15 days from the finality of
this decision, and thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the same pending
final resolution of all incidents, for final pro-rating and settlement thereof.

ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the

Regional Trial Court of Manila, Branch IV dated April 30, 1991 and the Court of
Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby
directed to desist from proceeding with the execution of the judgment
rendered in Civil Case No. 144425 pending determination of the totality of
claims recoverable from the petitioner as the owner of the M/V P. Aboitiz.
Petitioner is directed to institute the necessary action and to deposit the
proceeds of the insurance of subject vessel as above-described within fifteen
(15) days from finality of this decision. The temporary restraining order
issued in this case dated August 7, 1991 is hereby made permanent.

SO ORDERED.