CRESCENT PETROLEUM, LTD., Petitioner, vs.

M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and

PORTSERV LIMITED
G.R. No. 155014 November 11, 2005
FACTS:
Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of Indian registry that is owned by respondent Shipping Corporation
of India (SCI), a corporation organized and existing under the laws of India and principally owned by the Government of India. It was time-
chartered by respondent SCI to Halla Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel
through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further sub-chartered the Vessel to Portserv Limited (Portserv).
Both Transmar and Portserv are corporations organized and existing under the laws of Canada.
On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a corporation organized and existing
under the laws of Canada that is engaged in the business of selling petroleum and oil products for the use and operation of oceangoing
vessels, to deliver marine fuel oils (bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request through an advice
via facsimile dated November 2, 1995. As security for the payment of the bunker fuels and related services, petitioner Crescent received
two (2) checks in the amounts of US$100,000.00 and US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Mar ine
Petrobulk Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of the bunker fuels to the Vessel.
On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to US$103,544 inclusive of barging and
demurrage charges to the Vessel at the port of Pioneer Grain, Vancouver, Canada. The Chief Engineer Officer of the Vessel duly
acknowledged and received the delivery receipt. Marine Petrobulk issued an invoice to petitioner Crescent for the US$101,400.00 worth
of the bunker fuels. Petitioner Crescent issued a check for the same amount in favor of Marine Petrobulk, which check was duly encashed.
Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21, 1995 to "Portserv Limited, and/or the
Master, and/or Owners, and/or Operators, and/or Charterers of M/V ‘Lok Maheshwari’" in the amount of US$103,544.00 with instruction
to remit the amount on or before December 1, 1995. The period lapsed and several demands were made but no payment was received.
Also, the checks issued to petitioner Crescent as security for the payment of the bunker fuels were dishonored for insufficiency of funds.
As a consequence, petitioner Crescent incurred additional expenses of US$8,572.61 for interest, tracking fees, and legal fees.
On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent instituted before the RTC of Cebu City an
action "for a sum of money with prayer for temporary restraining order and writ of preliminary attachment" against respondents Vessel
and SCI, Portserv and/or Transmar.
On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond at P2,710,000.00. Petitioner Crescent withdrew
its prayer for a temporary restraining order and posted the required bond.
On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/or Transmar through the Master of the
Vessel. On May 28, 1996, respondents Vessel and SCI, through Pioneer Insurance and Surety Corporation (Pioneer), filed an urgent ex-
parte motion to approve Pioneer’s letter of undertaking, to consider it as counter-bond and to discharge the attachment. On May 29, 1996,
the trial court granted the motion; thus, the letter of undertaking was approved as counter-bond to discharge the attachment.
ISSUE:
Whether the Philippine court has or will exercise jurisdiction and entitled to maritime lien under our laws on foreign vessel
docked on Philippine port and supplies furnished to a vessel in a foreign port?
RULING:
In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign port, whether such lien exists, or whether
the court has or will exercise jurisdiction, depends on the law of the country where the supplies were furnished, which must be pleaded
and proved.
The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor methodologies as the law of the place of supply. The
multiple-contact test to determine, in the absence of a specific Congressional directive as to the statute’s reach, which jurisdiction’s law
should be applied. The following factors were considered: (1) place of the wrongful act; (2) law of the flag; (3) allegiance or domicile of
the injured; (4) allegiance of the defendant shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the forum.
This is applicable not only to personal injury claims arising under the Jones Act but to all matters arising under maritime law in general
The Court cannot sustain petitioner Crescent’s insistence on the application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and
hold that a maritime lien exists. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under one – the law
of the forum. All other elements are foreign – Canada is the place of the wrongful act, of the allegiance or domicile of the injured and the
place of contract; India is the law of the flag and the allegiance of the defendant shipowner. Applying P.D. No. 1521,a maritime lien exists
would not promote the public policy behind the enactment of the law to develop the domestic shipping industry. Opening up our courts to
foreign suppliers by granting them a maritime lien under our laws even if they are not entitled to a mari time lien under their laws will
encourage forum shopping. In light of the interests of the various foreign elements involved, it is clear that Canada has the most significant
interest in this dispute. The injured party is a Canadian corporation, the sub-charterer which placed the orders for the supplies is also
Canadian, the entity which physically delivered the bunker fuels is in Canada, the place of contracting and negotiation is in Canada, and
the supplies were delivered in Canada.

POLIAND INDUSTRIAL LIMITED vs. NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE PHILIPPINES [G.R.
No. 143866. August 22, 2005]
FACTS:
Poliand is an assignee of the of the rights of Asian Hardwood over the outstanding obligation of National Development Corporation (NDC),
the latter being the owner of Galleon which previously secured credit accommodations from Asian Hardwood for its expenses on
provisions, oil, repair, among others.
Galleon also obtained loans from Japanese lenders to finance acquisition of vessels which was guaranteed by DBP in consideration of a
promise by Galleon to secure a first mortgage on the vessels. DBP later transferred ownership of the vessel to NDC.

A collection suit was filed after repeated demands of Poliand for the satisfaction of the obligation from Galleon, NDC and DBP went
unheeded.

ISSUE: Whether POLIAND has a maritime lien enforceable against NDC or DBP or both.

HELD:
Yes, Poliand has a maritime lien which is more superior than DBP’s mortgage lien.

“Before POLIAND’s claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the
enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of the vessel. One of
such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime
lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521,
which reads:

SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs, supplies, towage, use of dry
dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or
of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it s hall be
necessary to allege or prove that credit was given to the vessel.

Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its authorized person and
prior to the recording of the ship mortgage. Under the law, it must be established that the credit was extended to the vessel itself.

The trial court found that GALLEON’s advances obtained from Asian Hardwood were used to cover for the payment of bunker oil/fuel,
unused stores and oil, bonded stores, provisions, and repair and docking of the GALLEON vessels. These expenses clearly fall under
Section 21, P.D. No. 1521.

The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crew’s salary and wages.
DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have a status superior to DBP’s
preferred mortgage lien.

As stated in Section 21, P.D. No. 1521, a maritime lien may consist in “other necessaries spent for the vessel.” The ship modification cost
may properly be classified under this broad category because it was a necessary expenses for the vessel’s navigation. As long as an
expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for
necessaries under Section 21, P.D. No. 1521."

However, Only NDC is liable on the maritime lien

x x x [O]nly NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of
ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence,
the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem.[65] The expression “action in rem” is, in
its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as
responsible for the claim or obligation upon which the proceedings are based.[66] Considering that DBP subsequently transferr ed
ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the
vessels to NDC, the maritime lien subsists.

SHIPPING CORPORATION
G.R. No. 92735. June 8, 2000
FACTS:
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. Because Aboitiz refused to compensate Monarch, it fil ed two
complaints against Aboitiz which were consolidated and jointly tried.

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.
Aboitiz was subsequently declared as in default and allowed Monarch and Tabacalera to present evidence ex-parte.

ISSUE:
Whether or not the doctrine of limited liability applies in the instant case.

HELD:
Yes.
The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the sinking of its vessel in the face
of the foregoing expert testimony constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the ship captain and
crew of the M/V P. Aboitiz. [This is in accordance with the rule that in cases involving the limited liability of shipowners, the initial burden
of proof of negligence or unseaworthiness rests on the claimants. However, once the vessel owner or any party asserts the right to limit
its liability, the burden of proof as to lack of privity or knowledge on its part with respect to the matter of negligence or unseaworthiness
is shifted to it. This burden, Aboitiz had unfortunately failed to discharge.] That Aboitiz failed to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or negligence should not however mean that the limited liability rule will not be
applied to the present cases. The peculiar circumstances here demand that there should be no strict adherence to procedural r ules 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.,] 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."
MONARCH INSURANCE v. CA (2000)

FACTS
1) These are three consolidated petitions.
a. 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
which set aside the writ of execution issued by the lower court for the full indemnification of the claims of the petitioners,
"Monarch" and "Tabacalera" against private respondent, Aboitiz on the ground that the latter is entitled to the benefit of the
limited liability rule in maritime law;
b. 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 which ordered the lower court to stay the execution of the judgment in favor of the petitioner, Allied
Guarantee Insurance 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;
c. 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 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 to its pro-rata share in the insurance proceeds
from the sinking of the M/V P. Aboitiz.
2) GR 927735 – Monarch and Tabacalera case
a. 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
b. Monarch also named Malaysian International Shipping Corporation and Litonjua Merchant Shipping Agency as Aboitizs co-
defendants, 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
c. 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
 d. 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.
e. 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.
f. Aboitiz, invoking the real and hypothecary nature of liability in maritime law, filed an urgent motion to quash the writs of
execution
g. 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.
3) G.R. NOS. 94867 & 95578 – Allied Bank case and Equitable Insurance case
a. 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
b. 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.
c. 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
d. 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 cross-claim of its co-defendants
e. 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:
 i. 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.
ii. 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.
iii. 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. As a result, the vessel sank.
iv. 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."
f. 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 29-30, 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

ISSUE:

Whether the respondent CA erred in finding, upon review that, Aboitiz is entitled to the benefit of the limited liability rule? YES! Because
the vessel was not seaworthy, hence Civil Code on law of common carrier applies and that Aboitiz is liable.

RATIO:
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.

SC - 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, 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."

"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.
PUPORSE - 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 th ese
adverse conditions and to encourage shipbuilding and maritime commerce it was deemed necessary to confine the liability of the owner
or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any.

Contrary to the petitioners theory that the limited liability rule has been rendered obsolete by the advances in modern technology which
considerably lessen the risks involved in maritime trade, this Court continues to apply the said rule in appropriate cases.

EXCEPTIONS: 1) where the injury or death to a passenger is due either to the fault of the shipowner, or to the concurring negligence of
the shipowner and the captain; (2) where the vessel is insured; and (3) in workmens compensation claims

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

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, de struction, or
deterioration of the goods they carry, unless the same is due to fortuitous event.
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.

G.R. No. 92735 RULING:

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.
UNSEAWORTHY - 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

The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the sinking of its vessel in the face
of the foregoing expert testimony constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the ship captain and
crew of the M/V P. Aboitiz.

This is in accordance with the rule that in cases involving the limited liability of shipowners, the initial burden of proof of negligence or
unseaworthiness rests on the claimants. However, once the vessel owner or any party asserts the right to limit its liability, the burden of
proof as to lack of privity or knowledge on its part with respect to the matter of negligence or unseaworthiness is shifted to it.

This burden, Aboitiz had unfortunately failed to discharge. That Aboitiz failed to discharge the burden of proving that the unseaworthiness
of its vessel was not due to its fault and/or negligence should not however mean that the limited liability rule will not be applied to the
present cases.
Aboitiz shipping vs. General Accident Fire and Life
(GR No. 100446 January 21, 1993)
Facts: Petitioner is a corporation engaged in the business of maritime trade as a carrier. As such, it owned and operated the M/V P/
ABOITIZ, a common carrier that sank on voyage from Hong Kong to Manila. Private respondent GAFLAC is a foreign insurance company
pursuing its remedy as a subrogee of several cargo consignees whose respective cargo sank with the said vessel and for which it has
priory paid. The sinking of vessel gave rise to filling of suit to recover the lost cargo either by shippers, their successors-in-interest, or the
cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine Inquiry, which found that such
sinking was due to fortuitous event.
Issue: Whether or not the doctrine of limited liability is applicable to the case?
Held: The real an hypothecary nature of maritime law simple 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. Thus, the liability of
the vessel owner and agent arising form the operation of such vessel were confined to the vessel itself, its equipment, freig ht and
insurance, if any, which limitation served to induce capitalist into effectively wagering their resources against consideration of the large
attainable in the trade.
ABOITIZ SHIPPING CORP VS GENERAL FIRE AND LIFE ASSURANCE CORP
FACTS:
Aboitiz Shipping is the owner of M/V P. Aboitiz, a vessel w/c sank on a voyage from Hongkong to the Philippines. This sinking of the
vessel gave rise to the filing of several suits for recovery of the lost cargo either by the shippers their successors-in-interest, or the cargo
insurers like General Accident (GAFLAC).
Board of Marine Inquiry (BMI), on its initial investigation found that such sinking was due to force majeure and that subject vessel, at the
time of the sinking was seaworthy. The trial court rules against the carrier on the ground that the loss did not occur as a result of force
majeure. This was affirmed by the CA and ordered the immediate execution of the full judgment award.
However, other cases have resulted in the finding that vessel was seaworthy at the time of the sinking, and that such sinking was due
to force majeure.
Due to these different rulings, Aboitiz 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.
Aboitiz argued that the Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors'
shares.
ISSUE: Whether the Limited Liability Rule arising out of the real and hypothecary nature of maritime law should apply in this
and related cases.
RULING: The SC ruled in the affirmative.
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.
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.
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.
ISSUE 2: Whether there is a finding of such negligence on the part of the owner in this case.
RULING 2: The SC ruled in the negative.
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.
Decisions in other cases 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 Aboitiz the 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 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.
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.

Nat’l Development Co. v. CA and Development Insurance & Surety Corp.G.R. No. L-49407 August 19, 1988
Maritime Co. of the Philippines v. CA and Development Insurance & Surety Corp. G.R. No. L-49469 August 19, 1988
Paras, J.
FACTS:
In accordance with a memorandum agreement entered into between defendants NDC and MCP, NDC appointed MCP as its agent to
manage and operate Dona Nati vessel for and in its behalf and account.
E. Philipp Corporation loaded on board the vessel 1200 bales of American raw cotton consigned to the order of Manila Banking
Corporation, Manila and the People’s Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc.,
who represents Riverside Mills Corporatio; also loaded on the same vessel were the cargo
of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporationconsisting of 200 cartons of sodium lauryl sulfate
and 10 cases of aluminum foil.
En route to Manila the vessel figured in a collision with a Japanese vessel as a result of which 550 bales of aforesaid cargo of American
raw cotton as well as the cargo of KyokutoBoekui, Kaisa, Ltd were lost and/or destroyed.
Development Insurance & Surety Corp. paid the insurance and filed an action for recovery of money against NDC and MCP
ISSUES:
1. which laws govern loss or destruction of goods due to collision of vessels outsidePhilippine waters;
2. what is the extent of liability as well as the rules of prescriptionprovided thereunder
HELD:
1. “[T]he law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss,
destruction or deterioration” (Art. 1753).Since the goods in question are transported from San Francisco, California and Tokyo, Japan to
the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of both
captains of the colliding vessels the laws of the Philippines will apply.
Art 1735: in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have
acted negligently, unless it proves that it has observed the extraordinary diligence required by law collision – not one of those enumerated
under Art. 1734; hence, carrier is presumed to be at fault or to have acted negligently
2. Art. 826 of the Code of Commerce: where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall
indemnify the losses and damages incurred after an expert appraisal. But more in point Art. 827, ditto: if the collision is imputable to both
vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered bytheir
cargoes.
Art 826 to 839, ditto: the shipowner or carrier is not exempt from liability for damages arising from collision due to the fault or negligence
of the captain; primary liability isimposed on the shipowner or carrier in because of the accepted doctrine that the shipmaster or captain
is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage both the owner (NDC)
and agent (MPC) of the offending vessel are liable for the damage done where both are impleaded; that in case of collision, both the
owner and the agent are civilly—jointly and severally— responsible for the acts of the captain since the obligation which is the subject of
the action had its origin in a tortious act and did not arise from contract.
NATIONAL DEVELOPMENT COMPANY vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE AND SURETY
CORPORATION
G.R. No. L-49407 19 August 1988
Facts:
National Development Company (NDC) appointed Maritime Company of the Philippines (MCP) as its agent to manage and operate its
vessel, ‘Dona Nati’, for and in behalf of its account. In 1964, while en route to Japan from San Francisco, Dona Nati collided with a
Japanese vessel, ‘SS Yasushima Maru’, causing its cargo to be damaged and lost. The private respondent, as insurer to the consigners,
paid almost Php400,000.00 for said lost and damaged cargo. Hence, the private respondent instituted an action to recover from NDC.
Issue: Which laws govern the loss and destruction of goods due to collision of vessels outside Philippine waters?
Ruling:
In a previously decided case, it was held that the law of the country to which the goods are to be transported governs the li ability of the
common carrier in case of their loss, destruction or deterioration pursuant to Article 1753 of the Civil Code. It is immaterial that the
collision actually occurred in foreign waters, such as Ise Bay, Japan. It appears, however, that collision falls among matters not specifically
regulated by the Civil Code, hence, we apply Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with
collision of vessels.