FIRST DIVISION

[G.R. No. L-66935. November 11, 1985.]

ISABELA ROQUE, doing business under the name and style of

Isabela Roque Timber Enterprises and ONG CHIONG , petitioners, vs.
HON. INTERMEDIATE APPELLATE COURT and PIONEER INSURANCE
AND SURETY CORPORATION , respondents.

DECISION

GUTIERREZ , J : p

This petition for certiorari asks for the review of the decision of the Intermediate Appellate
Court which absolved the respondent insurance company from liability on the grounds that
the vessel carrying the insured cargo was unseaworthy and the loss of said cargo was
caused not by the perils of the sea but by the perils of the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay) a common
carrier, entered into a contract with the petitioners whereby the former would load and
carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya
Sound, Palawan to North Harbor, Manila. The petitioners insured the logs against loss for
P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but
the shipment never reached its destination because Mable 10 sank with the 811 pieces of
logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the
petitioners in their complaint and as found by both the trial and appellate courts, the barge
where the logs were loaded was not seaworthy such that it developed a leak. The appellate
court further found that one of the hatches was left open causing water to enter the barge
and because the barge was not provided with the necessary cover or tarpaulin, the
ordinary splash of sea waves brought more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of
P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the
latter ignored the demand. Another letter was sent to respondent Pioneer claiming the full
amount of P100,000.00 under the insurance policy but respondent refused to pay on the
ground that its liability depended upon the "Total loss by Total Loss of Vessel only". Hence,
petitioners commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the
decision reads:
"FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
"(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer
Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum
of P100,000.00;

"(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff,

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 in addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to
the former as down payment for transporting the logs in question;
"(c) Ordering the counterclaim of defendant Insurance against plaintiffs,
dismissed, for lack of merit, but as to its cross-claim against its co-defendant
Manila Bay Lighterage Corporation, the latter is ordered to reimburse the former
for whatever amount it may pay the plaintiffs as such surety;
"(d) Ordering the counterclaim of defendant Lighterage against plaintiffs,
dismissed for lack of merit;

"(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as

exemplary damages are ordered dismissed, for lack of merits; plaintiffs' claim for
attorney's fees in the sum of P10,000.00 is hereby granted, against both
defendants, who are, moreover ordered to pay the costs; and

"(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per
cent (6%) from March 25, 1975, until amount is fully paid."

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not
appeal. According to the petitioners, the transportation company is no longer doing
business and is without funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it had
salvaged part of the logs. The court ordered them to be sold to the highest bidder with the
funds to be deposited in a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and absolved
Pioneer from liability after finding that there was a breach of implied warranty of
seaworthiness on the part of the petitioners and that the loss of the insured cargo was
caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is
not covered by the marine insurance policy. llcd

After the appellate court denied their motion for reconsideration, the petitioners filed this
petition with the following assignments of errors:
I

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF

MARINE CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY
THE CARGO OWNER.

II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS
OF THE CARGO IN THIS CASE WAS CAUSED BY 'PERILS OF THE SHIP' AND NOT
BY 'PERILS OF THE SEA.'.

III

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE

RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
WERE RECOVERED.

In their first assignment of error, the petitioners contend that the implied warranty of
seaworthiness provided for in the Insurance Code refers only to the responsibility of the
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 shipowner who must see to it that his ship is reasonably fit to make in safety the
contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship, has
nothing to do with its seaworthiness. They argue that a cargo owner has no control over
the structure of the ship, its cables, anchors, fuel and provisions, the manner of loading his
cargo and the cargo of other shippers, and the hiring of a sufficient number of competent
officers and seamen.
The petitioners' arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not
bother to appeal the questioned decision. However, the petitioners state that Manila Bay
has ceased operating as a firm and nothing may be recovered from it. They are, therefore,
trying to recover their losses from the insurer.
The liability of the insurance company is governed by law.
Section 113 of the Insurance Code provides:
"In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy."

Section 99 of the same Code also provides in part.

'Marine insurance includes:

"(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, . . .
."

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo"
can be the subject of marine insurance and that once it is so made, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo whether he be the
shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of
Canton (40 Phil. 40):
"The same conclusion must be reached if the question be discussed with
reference to the seaworthiness of the ship. It is universally accepted that in every
contract of insurance upon anything which is the subject of marine insurance, a
warranty is implied that the ship shall be seaworthy at the time of the inception of
the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec.
106). . . ."

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is
immaterial in ordinary marine insurance and may not be used by him as a defense in order
to recover on the marine insurance policy. LLjur

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):
"There was no lookout, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was
in effect a warranty that a loss should not be so occasioned, and whether the fact
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 of unseaworthiness were known or unknown would be immaterial."

Since the law provides for an implied warranty of seaworthiness in every contract of
ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may
have no control over the vessel but he has full control in the choice of the common carrier
that will transport his goods. Or the cargo owner may enter into a contract of insurance
which specifically provides that the insurer answers not only for the perils of the sea but
also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case.
As stated by the private respondents:
"In marine cases, the risks insured against are 'perils of the sea' (Chute v. North
River Ins. Co., Minn - 214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a
policy does not cover a loss or injury which must inevitably take place in the
ordinary course of things. There is no doubt that the term 'perils of the sea'
extends only to losses caused by sea damage, or by the violence of the elements,
and does not embrace all losses happening at sea. They insure against losses
from extraordinary occurrences only, such as stress of weather, winds and waves,
lightning, tempests, rocks and the like. These are understood to be the 'perils of
the sea' referred in the policy, and not those ordinary perils which every vessel
must encounter. 'Perils of the sea' has been said to include only such losses as
are of extraordinary nature, or arise from some overwhelming power, which
cannot be guarded against by the ordinary exertion of human skill and prudence.
Damage done to a vessel by perils of the sea includes every species of damages
done to a vessel at sea, as distinguished from the ordinary wear and tear of the
voyage, and distinct from injuries suffered by the vessel in consequence of her
not being seaworthy at the outset of her voyage (as in this case). It is also the
general rule that everything which happens thru the inherent vice of the thing, or
by the act of the owners, master or shipper, shall not be reputed a peril, if not
otherwise borne in the policy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204;
Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct.
459)."

With regard to the second assignment of error, petitioners maintain, that the loss of the
cargo was caused by the perils of the sea, not by the perils of the ship because as found
by the trial court, the barge was turned loose from the tugboat east of Cabuli Point "where
it was buffeted by storm and waves." Moreover, petitioners also maintain that barratry,
against which the cargo was also insured, existed when the personnel of the tugboat and
the barge committed a mistake by turning loose the barge from the tugboat east of Cabuli
Point. The trial court also found that the stranding and foundering of Mable 10 was due to
improper loading of the logs as well as to a leak in the barge which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was occasioned
by the perils of the sea characterized by the "storm and waves" which buffeted the vessel,
the records show that the court ruled otherwise. It stated:
xxx xxx xxx
" . . . The other affirmative defense of defendant Lighterage, 'That the supposed
loss of the logs was occasioned by force majeure . . . .', was not supported by the
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 evidence. At the time Mable 10 sank, there was no typhoon but ordinary strong
wind and waves, a condition which is natural and normal in the open sea. The
evidence shows that the sinking of Mable 10 was due to improper loading of the
logs on one side so that the barge was tilting on one side and for that it did not
navigate on even keel; that it was no longer seaworthy that was why it developed
leak; that the personnel of the tugboat and the barge committed a mistake when it
turned loose the barge from the tugboat east of Cabuli point where it was
buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point
where it was protected by the mountain side from the storm and waves coming
from the east direction. . . ."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant
carrier developed a leak which allowed water to come in and that one of the hatches of
said barge was negligently left open by the person in charge thereof causing more water
to come in", and that "the loss of said plaintiffs' cargo was due to the fault, negligence,
and/or lack of skill of defendant carrier and/or defendant carrier's representatives on
barge Mable 10." LexLib

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather
than the perils of the sea. The facts clearly negate the petitioners' claim under the
insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton,
supra, we had occasion to elaborate on the term "perils of the ship." We ruled:
"It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from
the ordinary wear and tear of the ship, or from the negligent failure of the ship's
owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has
been aptly called the 'peril of the ship.' The insurer undertakes to insure against
perils of the sea and similar perils, not against perils of the ship. As was well said
by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887],
12 A. C., 503, 509), there must, in order to make the insurer liable, be 'some
casualty, something which could not be foreseen as one of the necessary
incidents of the adventure. The purpose of the policy is to secure an indemnity
against accidents which may happen, not against events which must happen.
"In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened
during the voyage, but to the failure of the ship's owner properly to repair a defect
of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that
which results from perils of the sea.

xxx xxx xxx

"Suffice it to say that upon the authority of those cases there is no room to doubt
the liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts
the perils of the sea from his engagement under the bill of lading, while this is the
very perils against which the insurer intends to give protection. As applied to the
present case it results that the owners of the damaged rice must look to the
shipowner for redress and not to the insurer. "

Neither can petitioners allege barratry on the basis of the findings showing negligence on
the part of the vessel's crew.
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 Barratry as defined in American Insurance Law is "any willful misconduct on the part of
master or crew in pursuance of some unlawful or fraudulent purpose without the consent
of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law,
quoted in Vance, Handbook on Law of Insurance, 1961, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest
error of judgment or mere negligence, unless criminally gross, can be barratry. (See Vance
on Law of Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or
fraudulent acts of the vessel's crew. There was only simple negligence or lack of skill.
Hence, the second assignment of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of
P8,000.00 representing the amount of the salvaged logs should have been awarded to
them. However, this should be deducted from the amounts which have been adjudicated
against Manila Bay Lighterage Corporation by the trial court. LibLex

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the
amount of P8,000.00 representing the value of the salvaged logs which was ordered to be
deposited in the Manila Banking Corporation in the name of Civil Case No. 86599 is hereby
awarded and ordered paid to the petitioners. The liability adjudged against Manila Bay
Lighterage Corporation in the decision of the trial court is accordingly reduced by the
same amount.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Relova J., is on leave.

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