Republic of the Philippines a) 705 bales of lawanit hardwood;

SUPREME COURT
Manila b) 27 boxes and crates of tilewood assemblies and
the others ;and
FIRST DIVISION
c) 49 bundles of mouldings R & W (3) Apitong
  Bolidenized.

G.R. No. 131621 September 28, 1999 The goods, amounting to P6,067,178, were insured for the
same amount with MIC against various risks including "TOTAL
LOADSTAR SHIPPING CO., INC., petitioner,  LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in
vs. turn, was insured by Prudential Guarantee & Assurance, Inc.
COURT OF APPEALS and THE MANILA INSURANCE CO., (hereafter PGAI) for P4 million. On 20 November 1984, on its
INC., respondents. way to Manila from the port of Nasipit, Agusan del Norte, the
vessel, along with its cargo, sank off Limasawa Island. As a
  result of the total loss of its shipment, the consignee made a
claim with LOADSTAR which, however, ignored the same. As
DAVIDE, JR., C.J.: the insurer, MIC paid P6,075,000 to the insured in full settlement
of its claim, and the latter executed a subrogation receipt
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in therefor.
this petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, seeks to reverse and set aside the On 4 February 1985, MIC filed a complaint against LOADSTAR
following: (a) the 30 January 1997 decision 1 of the Court of and PGAI, alleging that the sinking of the vessel was due to the
Appeals in CA-G.R. CV No. 36401, which affirmed the decision fault and negligence of LOADSTAR and its employees. It also
of 4 October 1991 2 of the Regional Trial Court of Manila, prayed that PGAI be ordered to pay the insurance proceeds
Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to from the loss the vessel directly to MIC, said amount to be
pay private respondent Manila Insurance Co. (hereafter MIC) deducted from MIC's claim from LOADSTAR.
the amount of P6,067,178, with legal interest from the filing of
the compliant until fully paid, P8,000 as attorney's fees, and the In its answer, LOADSTAR denied any liability for the loss of the
costs of the suit; and (b) its resolution of 19 November shipper's goods and claimed that sinking of its vessel was due
1997, 3 denying LOADSTAR's motion for reconsideration of said to force majeure. PGAI, on the other hand, averred that MIC
decision. had no cause of action against it, LOADSTAR being the party
insured. In any event, PGAI was later dropped as a party
The facts are undisputed.1âwphi1.nêt defendant after it paid the insurance proceeds to LOADSTAR.

On 19 November 1984, LOADSTAR received on board its M/V As stated at the outset, the court a quo rendered judgment in
"Cherokee" (hereafter, the vessel) the following goods for favor of MIC, prompting LOADSTAR to elevate the matter to the
shipment: court of Appeals, which, however, agreed with the trial court and
affirmed its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made not apply because said provisions
the following observations: bind only the shipper/consignee and
the carrier. When MIC paid the
1) LOADSTAR cannot be considered shipper for the goods insured, it was
a private carrier on the sole ground subrogated to the latter's rights as
that there was a single shipper on against the carrier, LOADSTAR. 6
that fateful voyage. The court noted
that the charter of the vessel was 5) There was a clear breach of the
limited to the ship, but LOADSTAR contract of carriage when the
retained control over its crew. 4 shipper's goods never reached their
destination. LOADSTAR's defense of
2) As a common carrier, it is the "diligence of a good father of a
Code of Commerce, not the Civil family" in the training and selection
Code, which should be applied in of its crew is unavailing because this
determining the rights and liabilities is not a proper or complete defense
of the parties. in culpa contractual.

3) The vessel was not seaworthy 6) "Art. 361 (of the Code of
because it was undermanned on the Commerce) has been judicially
day of the voyage. If it had been construed to mean that when goods
seaworthy, it could have withstood are delivered on board a ship in good
the "natural and inevitable action of order and condition, and the
the sea" on 20 November 1984, shipowner delivers them to the
when the condition of the sea was shipper in bad order and condition, it
moderate. The vessel sank, not then devolves upon the shipowner to
because of force majeure, but both allege and prove that the goods
because it was not seaworthy. were damaged by reason of some
LOADSTAR'S allegation that the fact which legally exempts him from
sinking was probably due to the liability." Transportation of the
"convergence of the winds," as merchandise at the risk and venture
stated by a PAGASA expert, was not of the shipper means that the latter
duly proven at the trial. The "limited bears the risk of loss or deterioration
liability" rule, therefore, is not of his goods arising from fortuitous
applicable considering that, in this events, force majeure, or the
case, there was an actual finding of inherent nature and defects of the
negligence on the part of the carrier.5 goods, but not those caused by the
presumed negligence or fault of the
4) Between MIC and LOADSTAR, carrier, unless otherwise proved. 7
the provisions of the Bill of Lading do
The errors assigned by LOADSTAR boil down to a unquestionably competent. With all these precautions, there
determination of the following issues: could be no other conclusion except that LOADSTAR exercised
the diligence of a good father of a family in ensuring the vessel's
(1) Is the M/V "Cherokee" a private seaworthiness.
or a common carrier?
LOADSTAR further claims that it was not responsible for the
(2) Did LOADSTAR observe due loss of the cargo, such loss being due to force majeure. It points
and/or ordinary diligence in these out that when the vessel left Nasipit, Agusan del Norte, on 19
premises. November 1984, the weather was fine until the next day when
the vessel sank due to strong waves. MCI's witness, Gracelia
Regarding the first issue, LOADSTAR submits that the vessel Tapel, fully established the existence of two typhoons,
was a private carrier because it was not issued certificate of "WELFRING" and "YOLING," inside the Philippine area of
public convenience, it did not have a regular trip or schedule nor responsibility. In fact, on 20 November 1984, signal no. 1 was
a fixed route, and there was only "one shipper, one consignee declared over Eastern Visayas, which includes Limasawa
for a special cargo." Island. Tapel also testified that the convergence of winds
brought about by these two typhoons strengthened wind velocity
In refutation, MIC argues that the issue as to the classification of in the area, naturally producing strong waves and winds, in turn,
the M/V "Cherokee" was not timely raised below; hence, it is causing the vessel to list and eventually sink.
barred by estoppel. While it is true that the vessel had on board
only the cargo of wood products for delivery to one consignee, it LOADSTAR goes on to argue that, being a private carrier, any
was also carrying passengers as part of its regular business. agreement limiting its liability, such as what transpired in this
Moreover, the bills of lading in this case made no mention of any case, is valid. Since the cargo was being shipped at "owner's
charter party but only a statement that the vessel was a "general risk," LOADSTAR was not liable for any loss or damage to the
cargo carrier." Neither was there any "special arrangement" same. Therefore, the Court of Appeals erred in holding that the
between LOADSTAR and the shipper regarding the shipment of provisions of the bills of lading apply only to the shipper and the
the cargo. The singular fact that the vessel was carrying a carrier, and not to the insurer of the goods, which conclusion
particular type of cargo for one shipper is not sufficient to runs counter to the Supreme Court's ruling in the case of St.
convert the vessel into a private carrier. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National
Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen
As regards the second error, LOADSTAR argues that as a Phils., Inc. 10
private carrier, it cannot be presumed to have been negligent,
and the burden of proving otherwise devolved upon MIC. 8 Finally, LOADSTAR avers that MIC's claim had already
prescribed, the case having been instituted beyond the period
LOADSTAR also maintains that the vessel was seaworthy. stated in the bills of lading for instituting the same — suits based
Before the fateful voyage on 19 November 1984, the vessel was upon claims arising from shortage, damage, or non-delivery of
allegedly dry docked at Keppel Philippines Shipyard and was shipment shall be instituted within sixty days from the accrual of
duly inspected by the maritime safety engineers of the Philippine the right of action. The vessel sank on 20 November 1984; yet,
Coast Guard, who certified that the ship was fit to undertake a the case for recovery was filed only on 4 February 1985.
voyage. Its crew at the time was experienced, licensed and
MIC, on the other hand, claims that LOADSTAR was liable, different. The records do not disclose that the M/V "Cherokee,"
notwithstanding that the loss of the cargo was due toforce on the date in question, undertook to carry a special cargo or
majeure, because the same concurred with LOADSTAR's fault was chartered to a special person only. There was no charter
or negligence. party. The bills of lading failed to show any special arrangement,
but only a general provision to the effect that the M/V"Cherokee"
Secondly, LOADSTAR did not raise the issue of prescription in was a "general cargo carrier." 14 Further, the bare fact that the
the court below; hence, the same must be deemed waived. vessel was carrying a particular type of cargo for one shipper,
which appears to be purely coincidental, is not reason enough to
Thirdly, the " limited liability " theory is not applicable in the case convert the vessel from a common to a private carrier,
at bar because LOADSTAR was at fault or negligent, and especially where, as in this case, it was shown that the vessel
because it failed to maintain a seaworthy vessel. Authorizing the was also carrying passengers.
voyage notwithstanding its knowledge of a typhoon is
tantamount to negligence. Under the facts and circumstances obtaining in this case,
LOADSTAR fits the definition of a common carrier under Article
We find no merit in this petition. 1732 of the Civil Code. In the case of De Guzman v. Court of
Appeals,15 the Court juxtaposed the statutory definition of
Anent the first assigned error, we hold that LOADSTAR is a "common carriers" with the peculiar circumstances of that
common carrier. It is not necessary that the carrier be issued a case, viz.:
certificate of public convenience, and this public character is not
altered by the fact that the carriage of the goods in question was The Civil Code defines "common carriers" in the following terms:
periodic, occasional, episodic or unscheduled.
Art. 1732. Common carriers are
In support of its position, LOADSTAR relied on the 1968 case persons, corporations, firms or
of Home Insurance Co. v. American Steamship Agencies, associations engaged in the
Inc., 11 where this Court held that a common carrier transporting business of carrying or transporting
special cargo or chartering the vessel to a special person passengers or goods or both, by
becomes a private carrier that is not subject to the provisions of land, water, or air for compensation,
the Civil Code. Any stipulation in the charter party absolving the offering their services to the public.
owner from liability for loss due to the negligence of its agent is
void only if the strict policy governing common carriers is The above article makes no distinction between
upheld. Such policy has no force where the public at is not one whose principal business activity is the
involved, as in the case of a ship totally chartered for the use of carrying of persons or goods or both, and one who
a single party. LOADSTAR also cited Valenzuela does such carrying only as ancillary activity (in
Hardwood and Industrial Supply, Inc. v. Court of local idiom, as "a sideline". Article 1732 also
Appeals  12 and National Steel Corp. v. Court of Appeals, 13 both carefully avoids making any distinction between a
of which upheld the Home Insurance doctrine. person or enterprise offering transportation service
on a regular or scheduled basis and one offering
These cases invoked by LOADSTAR are not applicable in the such service on an occasional, episodic or
case at bar for the simple reason that the factual settings are unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services secured the necessary certificate of public
to the "general public," i.e., the general community convenience, would be offensive to sound public
or population, and one who offers services or policy; that would be to reward private respondent
solicits business only from a narrow segment of precisely for failing to comply with applicable
the general population. We think that Article 1733 statutory requirements The business of a common
deliberately refrained from making such carrier impinges directly and intimately upon the
distinctions. safety and well being and property of those
members of the general community who happen to
xxx xxx xxx deal with such carrier. The law imposes duties and
liabilities upon common carriers for the safety and
It appears to the Court that private respondent is protection of those who utilize their services and
properly characterized as a common carrier even the law cannot allow a common carrier to render
though he merely "back-hauled" goods for other such duties and liabilities merely facultative by
merchants from Manila to Pangasinan, although simply failing to obtain the necessary permits and
such backhauling was done on a periodic or authorizations.
occasional rather than regular or scheduled
manner, and eventhough private Moving on to the second assigned error, we find that the M/V
respondent's principal occupation was not the "Cherokee" was not seaworthy when it embarked on its voyage
carriage of goods for others. There is no dispute on 19 November 1984. The vessel was not even sufficiently
that private respondent charged his customers a manned at the time. "For a vessel to be seaworthy, it must be
fee for hauling their goods; that fee frequently fell adequately equipped for the voyage and manned with a
below commercial freight rates is not relevant sufficient number of competent officers and crew. The failure of
here. a common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its duty
The Court of Appeals referred to the fact that prescribed in Article 1755 of the Civil Code." 16
private respondent held no certificate of public
convenience, and concluded he was not a Neither do we agree with LOADSTAR's argument that the
common carrier. This is palpable error. A "limited liability" theory should be applied in this case. The
certificate of public convenience is not a requisite doctrine of limited liability does not apply where there was
for the incurring of liability under the Civil Code negligence on the part of the vessel owner or
provisions governing common carriers. That agent. 17 LOADSTAR was at fault or negligent in not maintaining
liability arises the moment a person or firm acts as a seaworthy vessel and in having allowed its vessel to sail
a common carrier, without regard to whether or not despite knowledge of an approaching typhoon. In any event, it
such carrier has also complied with the did not sink because of any storm that may be deemed as force
requirements of the applicable regulatory statute majeure, inasmuch as the wind condition in the performance of
and implementing regulations and has been its duties, LOADSTAR cannot hide behind the "limited liability"
granted a certificate of public convenience or other doctrine to escape responsibility for the loss of the vessel and its
franchise. To exempt private respondent from the cargo.
liabilities of a common carrier because he has not
LOADSTAR also claims that the Court of Appeals erred in Since the stipulation in question is null and void, it follows
holding it liable for the loss of the goods, in utter disregard of that when MIC paid the shipper, it was subrogated to all
this Court's pronouncements in St. Paul Fire & Marine Ins. Co. the rights which the latter has against the common
v. Macondray & Co., Inc., 18 and National Union Fire Insurance carrier, LOADSTAR.
v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that
after paying the claim of the insured for damages under the Neither is there merit to the contention that the claim in this case
insurance policy, the insurer is subrogated merely to the rights was barred by prescription. MIC's cause of action had not yet
of the assured, that is, it can recover only the amount that may, prescribed at the time it was concerned. Inasmuch as neither
in turn, be recovered by the latter. Since the right of the assured the Civil Code nor the Code of Commerce states a specific
in case of loss or damage to the goods is limited or restricted by prescriptive period on the matter, the Carriage of Goods by Sea
the provisions in the bills of lading, a suit by the insurer as Act (COGSA) — which provides for a one-year period of
subrogee is necessarily subject to the same limitations and limitation on claims for loss of, or damage to, cargoes sustained
restrictions. We do not agree. In the first place, the cases relied during transit — may be applied suppletorily to the case at bar.
on by LOADSTAR involved a limitation on the carrier's liability to This one-year prescriptive period also applies to the insurer of
an amount fixed in the bill of lading which the parties may enter the goods. 22In this case, the period for filing the action for
into, provided that the same was freely and fairly agreed upon recovery has not yet elapsed. Moreover, a stipulation reducing
(Articles 1749-1750). On the other hand, the stipulation in the the one-year period is null and void; 23 it must, accordingly, be
case at bar effectively reduces the common carrier's liability for struck down.
the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not WHEREFORE, the instant petition is DENIED and the
liable for any loss or damage to shipments made at "owner's challenged decision of 30 January 1997 of the Court of Appeals
risk." Such stipulation is obviously null and void for being in CA-G.R. CV No. 36401 is AFFIRMED.
contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made

in a bill of lading. The first one exempting the
carrier from any and all liability for loss or damage
occasioned by its own negligence. The second is
one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one
limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher
value and pays a higher rate of. freight. According
to an almost uniform weight of authority, the first
and second kinds of stipulations are invalid as
being contrary to public policy, but the third is valid
and enforceable. 21
 Republic of the Philippines Before this Court are three consolidated Rule 45 petitions all
SUPREME COURT involving the issue of whether the real and hypothecary doctrine
Manila may be invoked by the shipowner in relation to the loss of
cargoes occasioned by the sinking of M/V P. Aboitiz on 31
SECOND DIVISION October 1980. The petitions filed by Aboitiz Shipping
Corporation (Aboitiz) commonly seek the computation of its
G.R. No. 121833              October 17, 2008 liability in accordance with the Court’s pronouncement in Aboitiz
Shipping Corporation v. General Accident Fire and Life
ABOITIZ SHIPPING CORPORATION, petitioners,  Assurance Corporation, Ltd.1 (hereafter referred to as "the
vs. 1993 GAFLAC case").
COURT OF APPEALS, MALAYAN INSURANCE COMPANY,
INC., COMPAGNIE MARITIME DES CHARGEURS REUNIS, The three petitions stemmed from some of the several suits filed
and F.E. ZUELLIG (M), INC., respondents. against Aboitiz before different regional trial courts by shippers
or their successors-in-interest for the recovery of the monetary
x-----------------------------------------x value of the cargoes lost, or by the insurers for the
reimbursement of whatever they paid. The trial courts awarded
G.R. No. 130752              October 17, 2008 to various claimants the amounts of ₱639,862.02, ₱646,926.30,
and ₱87,633.81 in G.R. Nos. 121833, 130752 and 137801,
ABOITIZ SHIPPING CORPORATION, petitioners,  respectively.
vs.
COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, ANTECEDENTS
in his capacity as Presiding Judge of the RTC, Branch 20;
ASIA TRADERS INSURANCE CORPORATION, and ALLIED G.R. No. 121833
GUARANTEE INSURANCE CORPORATION, respondents.
Respondent Malayan Insurance Company, Inc. (Malayan) filed
x-----------------------------------------x five separate actions against several defendants for the
collection of the amounts of the cargoes allegedly paid by
G.R. No. 137801              October 17, 2008 Malayan under various marine cargo policies 2 issued to the
insurance claimants. The five civil cases, namely, Civil Cases
ABOITIZ SHIPPING CORPORATION, petitioners,  No. 138761, No. 139083, No. 138762, No. R-81-526 and No.
vs. 138879, were consolidated and heard before the Regional Trial
EQUITABLE INSURANCE CORPORATION, respondents. Court (RTC) of Manila, Branch 54.

DECISION The defendants in Civil Case No. 138761 and in Civil Case No.
139083 were Malayan International Shipping Corporation, a
TINGA, J.: foreign corporation based in Malaysia, its local ship agent,
Litonjua Merchant Shipping Agency (Litonjua), and Aboitiz. The
defendants in Civil Case No. 138762 were Compagnie Maritime
des Chargeurs Reunis (CMCR), its local ship agent, F.E. Zuellig (₱73,569.94); and Sixty-Four Thousand Seven Hundred Four
(M), Inc. (Zuellig), and Aboitiz. Malayan also filed Civil Case No. Pesos and Seventy-Seven Centavos (₱64,704.77);
R-81-526 only against CMCR and Zuellig. Thus, defendants
CMCR and Zuellig filed a third-party complaint against Aboitiz. 4. In Civil Case No. 139083, defendant Aboitiz is adjudged liable
In the fifth complaint docketed as Civil Case No. 138879, only and ordered to pay plaintiff the amount of One Hundred Fifty-Six
Aboitiz was impleaded as defendant. Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four
Centavos (₱156,287.64);
The shipments were supported by their respective bills of lading
and insured separately by Malayan against the risk of loss or In Civil Case No. 138879, defendant Aboitiz is adjudged liable
damage. In the five consolidated cases, Malayan sought the and ordered to pay plaintiff the amount of Fifty-Two Thousand
recovery of amounts totaling ₱639,862.02. Six Hundred Eighty-Nine Pesos and Fifty Centavos
(₱52,689.50).
Aboitiz raised the defenses of lack of jurisdiction, lack of cause
of action and prescription. It also claimed that M/V P. All the aforesaid award shall bear interest at the legal rate from
Aboitiz was seaworthy, that it exercised extraordinary diligence the filing of the respective complaints. Considering that there is
and that the loss was caused by a fortuitous event. no clear showing that the cases fall under Article 2208, Nos. 4
and 5, of the Civil Code, and in consonance with the basic rule
After trial on the merits, the RTC of Manila rendered a Decision that there be no penalty (in terms of attorney’s fees) imposed on
dated 27 November 1989, adjudging Aboitiz liable on the money the right to litigate, no damages by way of attorney’s fees are
claims. The decretal portion reads: awarded; however, costs of the party/parties to whom judgment
awards are made shall be made by the party ordered to pay the
WHEREFORE, judgment is hereby rendered as follows: said judgment awards.

1. In Civil Case No. 138072 (R-81-526-CV), the defendants are SO ORDERED.3

adjudged liable and ordered to pay to the plaintiffs jointly and
severally the amount of ₱128,896.79; the third-party defendant Aboitiz, CMCR and Zuellig appealed the RTC decision to the
Aboitiz is adjudged liable to reimburse and ordered to pay the Court of Appeals. The appeal was docketed as CA-G.R. SP No.
defendants or whosoever of them paid the plaintiff up to the said 35975-CV. During the pendency of the appeal, the Court
amount; promulgated the decision in the 1993 GAFLAC case.

2. In Civil Case No. 138761, Aboitiz is adjudged liable and On 31 March 1995, the Court of Appeals (Ninth Division)
ordered to pay plaintiff the amount of One Hundred Sixty Three- affirmed the RTC decision. It disregarded Aboitiz’s argument
Thousand Seven Hundred Thirteen Pesos and Thirty-Eight that the sinking of the vessel was caused by a force majeure, in
Centavos (₱163,713.38). view of this Court’s finding in a related case, Aboitiz Shipping
Corporation v. Court of Appeals, et al. (the 1990 GAFLAC
3. In Civil Case No. 138762, defendant Aboitiz is adjudged liable case).4 In said case, this Court affirmed the Court of Appeals’
and ordered to pay plaintiff the sum of Seventy Three Thousand finding that the sinking of M/V P. Aboitiz was caused by the
Five Hundred Sixty-Nine Pesos and Ninety-Four Centavos negligence of its officers and crew. It is one of the numerous
collection suits against Aboitiz, which eventually reached this Aboitiz reiterated the defense of force majeure. The trial court
Court in connection with the sinking of M/V P. Aboitiz. rendered a decision11 on 25 April 1990 ordering Aboitiz to pay
damages in the amount of ₱646,926.30. Aboitiz sought
As to the computation of Aboitiz’s liability, the Court of Appeals reconsideration, arguing that the trial court should have
again based its ruling on the 1990 GAFLAC case that Aboitiz’s considered the findings of the Board of Marine Inquiry that the
liability should be based on the declared value of the shipment sinking of the M/V P. Aboitiz was caused by a typhoon and
in consonance with the exceptional rule under Section 4(5) 5 of should have applied the real and hypothecary doctrine in limiting
the Carriage of Goods by Sea Act. the monetary award in favor of the claimants. The trial court
denied Aboitiz’s motion for reconsideration.
Aboitiz moved for reconsideration6 to no avail. Hence, it filed this
petition for review on certiorari docketed as G.R. No. Aboitiz elevated the case to the Court of Appeals. While the
121833.7 The instant petition is based on the following grounds: appeal was pending, this Court promulgated the decision in the
1993 GAFLAC case. The Court of Appeals subsequently
THE COURT OF APPEALS SHOULD HAVE LIMITED THE rendered a decision on 30 May 1994, affirming the RTC
RECOVERABLE AMOUNT FROM ASC TO THAT AMOUNT decision.12
STIPULATED IN THE BILL OF LADING.
Aboitiz appealed the Court of Appeals decision to this Court. 13 In
IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD a Resolution dated 20 September 1995,14 the Court denied the
HAVE FOUND THAT THE TOTAL LIABILITY OF ASC IS petition for raising factual issues and for failure to show that the
LIMITED TO THE VALUE OF THE VESSEL OR THE Court of Appeals committed any reversible error. Aboitiz’s
INSURANCE PROCEEDS THEREOF.8 motion for reconsideration was also denied in a Resolution
dated 22 November 1995.15
On 4 December 1995, the Court issued a Resolution 9 denying
the petition. Aboitiz moved for reconsideration, arguing that the The 22 November 1995 Resolution became final and executory.
limited liability doctrine enunciated in the 1993 GAFLAC case On 26 February 1996, Asia Traders and Allied filed a motion for
should be applied in the computation of its liability. In the execution before the RTC of Manila, Branch 20. Aboitiz opposed
Resolution10 dated 6 March 1996, the Court granted the motion the motion. On 16 August 1996, the trial court granted the
and ordered the reinstatement of the petition and the filing of a motion and issued a writ of execution.
comment.
Alleging that it had no other speedy, just or adequate remedy to
G.R. No. 130752 prevent the execution of the judgment, Aboitiz filed with the
Court of Appeals a petition for certiorari and prohibition with an
Respondents Asia Traders Insurance Corporation (Asia urgent prayer for preliminary injunction and/or temporary
Traders) and Allied Guarantee Insurance Corporation (Allied) restraining order docketed as CA-G.R. SP No. 41696. 16 The
filed separate actions for damages against Aboitiz to recover by petition was mainly anchored on this Court’s ruling in the
way of subrogation the value of the cargoes insured by them 1993 GAFLAC case.
and lost in the sinking of the vessel M/V P. Aboitiz. The two
actions were consolidated and heard before the RTC of Manila, On 8 August 1997, the Court of Appeals (Special Seventeenth
Branch 20. Division) rendered the assailed decision dismissing the
petition.17 Based on the trial court’s finding that Aboitiz was ₱87,633.81, plus legal interest and attorney’s fees. 25 It found
actually negligent in ensuring the seaworthiness of M/V P. that Aboitiz was guilty of contributory negligence and, therefore,
Aboitiz, the appellate court held that the real and hypothecary liable for the loss.
doctrine enunciated in the 1993 GAFLAC case may not be
applied in the case. In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz
invoked the doctrine of limited liability and claimed that the
In view of the denial of its motion for reconsideration, 18 Aboitiz typhoon was the proximate cause of the loss. On 27 November
filed before this Court the instant petition for review on certiorari 1998, the Court of Appeals rendered a decision, affirming the
docketed as G.R. No. 130752.19 The petition attributes the RTC decision.26
following errors to the Court of Appeals:
The Court of Appeals (Fifteenth Division) ruled that the loss of
THE COURT OF APPEALS GRAVELY ERRED WHEN IT the cargoes and the sinking of the vessel were due to its
RULED THAT THE LOWER COURT HAD MADE AN unseaworthiness and the failure of the crew to exercise
EXPRESS FINDING OF THE ACTUAL NEGLIGENCE OF extraordinary diligence. Said findings were anchored on the
ABOITIZ IN THE SINKING OF THE M/V P. ABOITIZ THEREBY 1990 GAFLAC case and on this Court’s resolution dated
DEPRIVING ABOITIZ OF THE BENEFIT OF THE DOCTRINE November 13, 1989 in G.R. No. 88159, dismissing Aboitiz’s
OF THE REAL AND HYPOTHECARY NATURE OF MARITIME petition and affirming the findings of the appellate court on the
LAW.20 vessel’s unseaworthiness and the crew’s negligence.

THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT Its motion for reconsideration27 having been denied,28 Aboitiz
TO THE GAFLAC CASE DECIDED BY THE HONORABLE filed before this Court a petition for review on certiorari,
COURT WHICH SUPPORTS THE APPLICABILITY OF THE docketed as G.R. No. 137801,29 raising this sole issue, to wit:
REAL AND HYPOTHECARY NATURE OF MARITIME LAW IN
THE PRESENT CASE.21 WHETHER OR NOT THE DOCTRINE OF REAL AND
HYPOTHECARY NATURE OF MARITIME LAW (ALSO
G.R. No. 137801 KNOWN AS THE "LIMITED LIABILITY RULE") APPLIES. 30

On 27 February 1981, Equitable Insurance Corporation ISSUES

(Equitable) filed an action for damages against Aboitiz to
recover by way of subrogation the value of the cargoes insured The principal issue common to all three petitions is whether
by Equitable that were lost in the sinking of M/V P. Aboitiz.22 The Aboitiz can avail limited liability on the basis of the real and
complaint, which was docketed as Civil Case No. 138395, was hypothecary doctrine of maritime law. Corollary to this issue is
later amended to implead Seatrain Pacific Services S.A. and the determination of actual negligence on the part of Aboitiz.
Citadel Lines, Inc. as party defendants. 23 The complaint against
the latter defendants was subsequently dismissed upon motion These consolidated petitions similarly posit that Aboitiz’s liability
in view of the amicable settlement reached by the parties. to respondents should be limited to the value of the insurance
proceeds of the lost vessel plus pending freightage and not
On 7 September 1989, the RTC of Manila, Branch 7, rendered correspond to the full insurable value of the cargoes paid by
judgment24 ordering Aboitiz to pay Equitable the amount of
respondents, based on the Court’s ruling in the In the 1993 GAFLAC case, Aboitiz argued that the real and
1993 GAFLAC case. hypothecary doctrine warranted the immediate stay of execution
of judgment to prevent the impairment of the other creditors’
Respondents in G.R. No. 121833 counter that the limited liability shares. Invoking the rule on the law of the case, private
rule should not be applied because there was a finding of respondent therein countered that the 1990 GAFLAC case had
negligence in the care of the goods on the part of Aboitiz based already settled the extent of Aboitiz’s liability.
on this Court’s Resolution dated 4 December 1995 in G.R. No.
121833, which affirmed the trial court’s finding of negligence on Following the doctrine of limited liability, however, the Court
the part of the vessel’s captain. Likewise, respondent in G.R. declared in the 1993 GAFLAC case that claims against Aboitiz
No. 137801 relies on the finding of the trial court, as affirmed by arising from the sinking of M/V P. Aboitiz should be limited only
the appellate court, that Aboitiz was guilty of negligence. to the extent of the value of the vessel. Thus, the Court held that
the execution of judgments in cases already resolved with
Respondents in G.R No. 130752 argue that this Court had finality must be stayed pending the resolution of all the other
already affirmed in toto the appellate court’s finding that the similar claims arising from the sinking of M/V P. Aboitiz.
vessel was not seaworthy and that Aboitiz failed to exercise Considering that the claims against Aboitiz had reached more
extraordinary diligence in the handling of the cargoes. This than 100, the Court found it necessary to collate all these claims
being the law of the case, Aboitiz should not be entitled to the before their payment from the insurance proceeds of the vessel
limited liability rule as far as this petition is concerned, and its pending freightage. As a result, the Court exhorted the
respondents contend. trial courts before whom similar cases remained pending to
proceed with trial and adjudicate these claims so that the pro-
RULING of the COURT rated share of each claim could be determined after all the
cases shall have been decided.32
These consolidated petitions are just among the many others
elevated to this Court involving Aboitiz’s liability to shippers and In the 1993 GAFLAC case, the Court applied the limited liability
insurers as a result of the sinking of its vessel, M/V P. Aboitiz, rule in favor of Aboitiz based on the trial court’s finding therein
on 31 October 1980 in the South China Sea. One of those that Aboitiz was not negligent. The Court explained, thus:
petitions is the 1993 GAFLAC case, docketed as G.R. No.
100446.31 x x x In the few instances when the matter was considered by
this Court, we have been consistent in this jurisdiction in holding
The 1993 GAFLAC case was an offshoot of an earlier final and that the only time the Limited Liability Rule does not apply is
executory judgment in the 1990 GAFLAC case, where the when there is an actual finding of negligence on the part of the
General Accident Fire and Life Assurance Corporation, Ltd. vessel owner or agent x x x. The pivotal question, thus, is
(GAFLAC), as judgment obligee therein, sought the execution of whether there is finding of such negligence on the part of the
the monetary award against Aboitiz. The trial court granted owner in the instant case.
GAFLAC’s prayer for execution of the full judgment award. The
appellate court dismissed Aboitiz’s petition to nullify the order of A careful reading of the decision rendered by the trial court in
execution, prompting Aboitiz to file a petition with this Court. Civil Case No. 144425 as well as the entirety of the records in
the instant case will show that there has been no actual
finding of negligence on the part of petitioner. x x x
The same is true of the decision of this Court in G.R. No. 89757 Art. 837. The civil liability incurred by shipowners in the case
affirming the decision of the Court of Appeals in CA-G.R. CV prescribed in this section, shall be understood as limited to the
No. 10609 since both decisions did not make any new and value of the vessel with all its appurtenances and freightage
additional finding of fact. Both merely affirmed the factual served during the voyage.
findings of the trial court, adding that the cause of the sinking of
the vessel was because of unseaworthiness due to the failure of These articles precisely intend to limit the liability of the
the crew and the master to exercise extraordinary diligence. shipowner or agent to the value of the vessel, its appurtenances
Indeed, there appears to have been no evidence presented and freightage earned in the voyage, provided that the owner or
sufficient to form a conclusion that petitioner shipowner itself agent abandons the vessel.35When the vessel is totally lost in
was negligent, and no tribunal, including this Court, will add or which case there is no vessel to abandon, abandonment is not
subtract to such evidence to justify a conclusion to the required. Because of such total loss the liability of the shipowner
contrary.33 (Citations entitled) (Emphasis supplied) or agent for damages is extinguished. 36 However, despite the
total loss of the vessel, its insurance answers for the damages
The ruling in the 1993 GAFLAC case cited the real and for which a shipowner or agent may be held liable. 37
hypothecary doctrine in maritime law that the shipowner or
agent’s liability is merely co-extensive with his interest in the Nonetheless, there are exceptional circumstances wherein the
vessel such that a total loss thereof results in its extinction. "No ship agent could still be held answerable despite the
vessel, no liability" expresses in a nutshell the limited liability abandonment of the vessel, as where the loss or injury was due
rule.34 to the fault of the shipowner and the captain. The international
rule is to the effect that the right of abandonment of vessels, as
In this jurisdiction, the limited liability rule is embodied in Articles a legal limitation of a shipowner’s liability, does not apply to
587, 590 and 837 under Book III of the Code of Commerce, cases where the injury or average was occasioned by the
thus: shipowner’s own fault.38Likewise, the shipowner may be held
liable for injuries to passengers notwithstanding the exclusively
Art. 587. The ship agent shall also be civilly liable for the real and hypothecary nature of maritime law if fault can be
indemnities in favor of third persons which may arise from the attributed to the shipowner.39
conduct of the captain in the care of the goods which he loaded
on the vessel; but he may exempt himself therefrom by As can be gleaned from the foregoing disquisition in the
abandoning the vessel with all her equipment and the freight it 1993 GAFLAC case, the Court applied the doctrine of limited
may have earned during the voyage. liability in view of the absence of an express finding that
Aboitiz’s negligence was the direct cause of the sinking of the
Art. 590. The co-owners of the vessel shall be civilly liable in the vessel. The circumstances in the 1993 GAFLAC case, however,
proportion of their interests in the common fund for the results of are not obtaining in the instant petitions.
the acts of the captain referred to in Art. 587.
A perusal of the decisions of the courts below in all three
Each co-owner may exempt himself from this liability by the petitions reveals that there is a categorical finding of negligence
abandonment, before a notary, of the part of the vessel on the part of Aboitiz. For instance, in G.R. No. 121833, the
belonging to him. RTC therein expressly stated that the captain of M/V P.
Aboitiz was negligent in failing to take a course of action that
would prevent the vessel from sailing into the typhoon. In G.R. Notwithstanding this finding, the Court did not reverse but
No. 130752, the RTC concluded that Aboitiz failed to show that reiterated instead the pronouncement in GAFLAC to the effect
it had exercised the required extraordinary diligence in steering that the claimants be treated as "creditors in an insolvent
the vessel before, during and after the storm. In G.R. No. corporation whose assets are not enough to satisfy the totality of
137801, the RTC categorically stated that the sinking of M/V P. claims against it."43 The Court explained that the peculiar
Aboitiz was attributable to the negligence or fault of Aboitiz. In circumstances warranted that procedural rules of evidence be
all instances, the Court of Appeals affirmed the factual findings set aside to prevent frustrating the just claims of
of the trial courts. shippers/insurers. Thus, the Court in Monarch
Insurance ordered Aboitiz to institute the necessary limitation
The finding of actual fault on the part of Aboitiz is central to the and distribution action before the proper RTC and to deposit
issue of its liability to the respondents. Aboitiz’s contention, that with the said court the insurance proceeds of and the freightage
with the sinking of M/V P. Aboitiz, its liability to the cargo earned by the ill-fated ship.
shippers and shippers should be limited only to the insurance
proceeds of the vessel absent any finding of fault on the part of However, on 02 May 2006, the Court rendered a decision
Aboitiz, is not supported by the record. Thus, Aboitiz is not in Aboitiz Shipping Corporation v. New India Assurance
entitled to the limited liability rule and is, therefore, liable for the Company, Ltd.44 (New India), reiterating the well-settled principle
value of the lost cargoes as so duly alleged and proven during that the exception to the limited liability doctrine applies when
trial. the damage is due to the fault of the shipowner or to the
concurrent negligence of the shipowner and the captain. Where
Events have supervened during the pendency of the instant the shipowner fails to overcome the presumption of negligence,
petitions. On two other occasions, the Court ruled on separate the doctrine of limited liability cannot be applied.45 In New India,
petitions involving monetary claims against Aboitiz as a result of the Court clarified that the earlier pronouncement in Monarch
the 1980 sinking of the vessel M/V P. Aboitiz. One of them is the Insurance was not an abandonment of the doctrine of limited
consolidated petitions of Monarch Ins. Co., Inc v. Court of liability and that the circumstances therein still made the
Appeals,40 Allied Guarantee Insurance Company v. Court of doctrine applicable.46
Appeals41 and Equitable Insurance Corporation v. Court of
Appeals42 (hereafter collectively referred to as Monarch In New India, the Court declared that Aboitiz failed to discharge
Insurance) promulgated on 08 June 2000. This time, the its burden of showing that it exercised extraordinary diligence in
petitioners consisted of claimants against Aboitiz because either the transport of the goods it had on board in order to invoke the
the execution of the judgment awarding full indemnification of limited liability doctrine. Thus, the Court rejected Aboitiz’s
their claims was stayed or set aside or the lower courts awarded argument that the award of damages to respondent therein
damages only to the extent of the claimants’ proportionate share should be limited to its pro rata share in the insurance proceeds
in the insurance proceeds of the vessel. from the sinking of M/V P. Aboitiz.

In Monarch Insurance, the Court deemed it fit to settle once and The instant petitions provide another occasion for the Court to
for all this factual issue by declaring that the sinking of M/V P. reiterate the well-settled doctrine of the real and hypothecary
Aboitiz was caused by the concurrence of the unseaworthiness nature of maritime law. As a general rule, a ship owner’s liability
of the vessel and the negligence of both Aboitiz and the vessel’s is merely co-extensive with his interest in the vessel, except
crew and master and not because of force majeure. where actual fault is attributable to the shipowner. Thus, as an
exception to the limited liability doctrine, a shipowner or ship
agent may be held liable for damages when the sinking of the
vessel is attributable to the actual fault or negligence of the
shipowner or its failure to ensure the seaworthiness of the
vessel. The instant petitions cannot be spared from the
application of the exception to the doctrine of limited liability in
view of the unanimous findings of the courts below that both
Aboitiz and the crew failed to ensure the seaworthiness of
the M/V P. Aboitiz.

WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and

137801 are DENIED. The decisions of the Court of Appeals in
CA-G.R. SP No. 35975-CV, CA-G.R. SP No. 41696 and CA-
G.R. CV No. 43458 are hereby AFFIRMED. Costs against
petitioner.

SO ORDERED.
 Republic of the Philippines necessarily result in a probable reduction of the amount to be
SUPREME COURT recovered by private respondent, since it would have to share
Manila with a number of other parties similarly situated in the insurance
proceeds on the vessel that sank.
THIRD DIVISION
The basic facts are not disputed.
 
Petitioner is a corporation organized and operating under
G.R. No. 100446 January 21, 1993 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 SHIPPING CORPORATION, petitioner,  ABOITIZ," a common carrier which sank on a voyage from
vs. Hongkong to the Philippines on October 31, 1980. Private
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE respondent General Accident Fire and Life Assurance
CORPORATION, LTD., respondent. Corporation, Ltd. (GAFLAC), on the other hand, is a foreign
insurance company pursuing its remedies as a subrogee of
Sycip, Salazar, Hernandez & Gamaitan Law Office for several cargo consignees whose respective cargo sank with the
petitioner. said vessel and for which it has priorly paid.

Napoleon Rama collaborating counsel for petitioner. The incident of said vessel's sinking gave rise to the filing of
suits for recovery of lost cargo either by the shippers, their
Dollete, Blanco, Ejercito & Associates for private respondent. 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
MELO, J.: found that such sinking was due to force majeure and that
subject vessel, at the time of the sinking was seaworthy. This
This refers to a petition for review which seeks to annul and set administrative finding notwithstanding, the trial court in said Civil
aside the decision of the Court of Appeals dated June 21, 1991, Case No. 144425 found against the carrier on the basis that the
in CA G.R. SP No. 24918. The appellate court dismissed the loss subject matter therein did not occur as a result of force
petition for certiorari filed by herein petitioner, Aboitiz Shipping majeure. Thus, in said case, plaintiff GAFLAC was allowed to
Corporation, questioning the Order of April 30, 1991 issued by prove, and. was later awarded, its claim. This decision in favor
the Regional Trial Court of the National Capital Judicial Region of GAFLAC was elevated all the way up to this Court in G.R. No.
(Manila, Branch IV) in its Civil Case No. 144425 granting private 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with
respondent's prayer for execution for the full amount of the Aboitiz, like its ill-fated vessel, encountering rough sailing. The
judgment award. The trial court in so doing swept aside attempted execution of the judgment award in said case in the
petitioner's opposition which was grounded on the real and amount of P1,072,611.20 plus legal interest has given rise to the
hypothecary nature of petitioner's liability as ship owner. The instant petition.
application of this established principle of maritime law would
On the other hand, other cases have resulted in findings face of the facts found by the lower court (Civil
upholding the conclusion of the BMI that the vessel was Case No. 144425), upheld by the Appellate Court
seaworthy at the time of the sinking, and that such sinking was (CA G.R. No. 10609), and affirmed in toto by the
due to force majeure. One such ruling was likewise elevated to Supreme Court in G.R. No. 89757 which cited
this Court in G.R. No. 100373, Country Bankers Insurance G.R. No. 88159 as the Law of the Case; and
Corporation v. Court of Appeals, et al., August 28, 1991 and
was sustained. Part of the task resting upon this Court, 2. Under the doctrine of the Law of the Case,
therefore, is to reconcile the resulting apparent contrary findings cases involving the same incident, parties similarly
in cases originating out of a single set of facts. situated and the same issues litigated should be
decided in conformity therewith following the
It is in this factual milieu that the instant petition seeks a maxim stare decisis et non quieta movere. (pp.
pronouncement as to the applicability of the doctrine of limited 225 to 279, Rollo.)
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 Before proceeding to the main bone of contention, it is important
the real and hypothecary nature of maritime law. This is an to determine first whether or not the Resolution of this Court in
issue which begs to be resolved considering that a number of G.R. No. 88159, Aboitiz Shipping, Corporation vs. The
suits alleged in the petition number about 110 (p. 10 and pp. Honorable Court of Appeals and Allied Guaranty Insurance
175 to 183, Rollo) still pend and whose resolution shall well-nigh Company, Inc., dated November 13, 1989 effectively bars and
result in more confusion than presently attends the instant case. precludes the instant petition as argued by respondent
GAFLAC.
In support of the instant petition, the following arguments are
submitted by the petitioner: An examination of the November 13, 1989 Resolution in G.R.
No. 88159 (pp. 280 to 282, Rollo) shows that the same settles
1. The Limited Liability Rule warrants immediate two principal matters, first of which is that the doctrine of
stay of execution of judgment to prevent primary administrative jurisdiction is not applicable therein; and
impairment of other creditors' shares; second is that a limitation of liability in said case would render
inefficacious the extraordinary diligence required by law of
2. The finding of unseaworthiness of a vessel is common carriers.
not necessarily attributable to the shipowner; and
It should be pointed out, however, that the limited liability
3 The principle of "Law of the Case" is not discussed in said case is not the same one now in issue at bar,
applicable to the present petition. (pp. 2-26, Rollo.) but an altogether different aspect. The limited liability settled in
G.R. No. 88159 is that which attaches to cargo by virtue of
On the other hand, private respondent opposes the foregoing stipulations in the Bill of Lading, popularly known as package
contentions, arguing that: limitation clauses, which in that case was contained in Section 8
of the Bill of Lading and which limited the carrier's liability to
1. There is no limited liability to speak of or US$500.00 for the cargo whose value was therein sought to be
applicable real and hypothecary rule under Article recovered. Said resolution did not tackle the matter of the
587, 590, and 837 of the Code of Commerce in the Limited Liability Rule arising out of the real and hypothecary
nature of maritime law, which was not raised therein, and which inherent power to enforce it, and to
is the principal bone of contention in this case. While the matters exercise equitable control over such
threshed out in G.R. No. 88159, particularly those dealing with enforcement. The court has authority
the issues on primary administrative jurisdiction and the to inquire whether its judgment has
package liability limitation provided in the Bill of Lading are now been executed, and will remove
settled and should no longer be touched, the instant case raises obstructions to the enforcement
a completely different issue. It appears, therefore, that the thereof. Such authority extends not
resolution in G.R. 88159 adverted to has no bearing other than only to such orders and such writs as
factual to the instant case. may be necessary to carry out the
judgment into effect and render it
This brings us to the primary question herein which is whether binding and operative, but also to
or not respondent court erred in granting execution of the full such orders and such writs as may
judgment award in Civil Case No. 14425 (G.R. No. 89757), thus be necessary to prevent an improper
effectively denying the application of the limited liability enforcement of the judgment. If a
enunciated under the appropriate articles of the Code of judgment is sought to be perverted
Commerce. The articles may be ancient, but they are timeless and made a medium of
and have remained to be good law. Collaterally, determination consummating a wrong the court on
of the question of whether execution of judgments which have proper application can prevent it. (at
become final and executory may be stayed is also an issue. p. 359)

We shall tackle the latter issue first. This Court has always been and again in the case of Lipana v. Development Bank of
consistent in its stand that the very purpose for its existence is Rizal (154 SCRA 257 [1987]), this Court found that:
to see to the accomplishment of the ends of justice. Consistent
with this view, a number of decisions have originated herefrom, The rule that once a decision becomes final and
the tenor of which is that no procedural consideration is executory, it is the ministerial duty of the court to
sacrosanct if such shall result in the subverting of substantial order its execution, admits of certain exceptions as
justice. The right to an execution after finality of a decision is in cases of special and exceptional nature where it
certainly no exception to this. Thus, in Cabrias v. Adil (135 becomes the imperative in the higher interest of
SCRA 355 [1985]), this Court ruled that: justice to direct the suspension of its execution
(Vecine v. Geronimo, 59 OG 579); whenever it is
. . . It is a truism that every court has the power "to necessary to accomplish the aims of justice
control, in the furtherance of justice, the conduct of (Pascual v Tan, 85 Phil. 164); or when certain
its ministerial officers, and of all other persons in facts and circumstances transpired after the
any manner connected with a case before it, in judgment became final which would render the
every manner appertaining thereto. It has also execution of the judgment unjust (Cabrias v. Adil,
been said that: 135 SCRA 354). (at p. 201)

. . . every court having jurisdiction to We now come to the determination of the principal issue as to
render a particular judgment has whether the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law should apply in this and maritime commerce despite the risks and the prohibitive cost of
related cases. We rule in the affirmative. shipbuilding. Thus, the liability of the vessel owner and agent
arising from the operation of such vessel were confined to the
In deciding the instant case below, the Court of Appeals took vessel itself, its equipment, freight, and insurance, if any, which
refuge in this Court's decision in G.R. No. 89757 upholding limitation served to induce capitalists into effectively wagering
private respondent's claims in that particular case, which the their resources against the consideration of the large profits
Court of Appeals took to mean that this Court has "considered, attainable in the trade.
passed upon and resolved Aboitiz's contention that all claims for
the losses should first be determined before GAFLAC's It might be noteworthy to add in passing that despite the
judgment may be satisfied," and that such ruling "in effect modernization of the shipping industry and the development of
necessarily negated the application of the limited liability high-technology safety devices designed to reduce the risks
principle" (p. 175, Rollo). Such conclusion is not accurate. The therein, the limitation has not only persisted, but is even
decision in G.R. No. 89757 considered only the circumstances practically absolute in well-developed maritime countries such
peculiar to that particular case, and was not meant to traverse as the United States and England where it covers almost all
the larger picture herein brought to fore, the circumstances of maritime casualties. Philippine maritime law is of Anglo-
which heretofore were not relevant. We must stress that the American extraction, and is governed by adherence to both
matter of the Limited Liability Rule as discussed was never in international maritime conventions and generally accepted
issue in all prior cases, including those before the RTCs and the practices relative to maritime trade and travel. This is highlighted
Court of Appeals. As discussed earlier, the "limited liability" in by the following excerpts on the limited liability of vessel owners
issue before the trial courts referred to the package limitation and/or agents;
clauses in the bills of lading and not the limited liability doctrine
arising from the real and hypothecary nature of maritime trade. Sec. 183. The liability of the owner of any vessel,
The latter rule was never made a matter of defense in any of the whether American or foreign, for any
cases a quo, as properly it could not have been made so since it embezzlement, loss, or destruction by any person
was not relevant in said cases. The only time it could come into of any person or any property, goods, or
play is when any of the cases involving the mishap were to be merchandise shipped or put on board such vessel,
executed, as in this case. Then, and only then, could the matter or for any loss, damage, or forfeiture, done,
have been raised, as it has now been brought before the Court. occasioned, or incurred, without the privity or
knowledge of such owner or owners shall not
The real and hypothecary nature of maritime law simply means exceed the amount or value of the interest of such
that the liability of the carrier in connection with losses related to owner in such vessel, and her freight then
maritime contracts is confined to the vessel, which is pending. (Section 183 of the US Federal Limitation
hypothecated for such obligations or which stands as the of Liability Act).
guaranty for their settlement. It has its origin by reason of the
conditions and risks attending maritime trade in its earliest years —and—
when such trade was replete with innumerable and unknown
hazards since vessels had to go through largely uncharted 1. The owner of a sea-going ship may limit his
waters to ply their trade. It was designed to offset such adverse liability in accordance with Article 3 of this
conditions and to encourage people and entities to venture into Convention in respect of claims arising, from any
 of the following occurrences, unless the Art. 587. The ship agent shall also be civilly liable
occurrence giving rise to the claim resulted from for the indemnities in favor of third persons which
the actual fault or privity of the owner; may arise from the conduct of the captain in the
care of the goods which he loaded on the vessel;
(a) loss of life of, or personal injury to, any person but he may exempt himself therefrom by
being carried in the ship, and loss of, or damage abandoning the vessel with all her equipment and
to, any property on board the ship. the freight it may have earned during the voyage.

(b) loss of life of, or personal injury to, any other Art. 590. The co-owners of a vessel shall be civilly
person, whether on land or on water, loss of or liable in the proportion of their interests in the
damage to any other property or infringement of common fund for the results of the acts of the
any rights caused by the act, neglect or default the captain referred to in Art. 587.
owner is responsible for, or any person not on
board the ship for whose act, neglect or default the Each co-owner may exempt himself from this
owner is responsible: Provided, however, that in liability by the abandonment, before a notary, of
regard to the act, neglect or default of this last the part of the vessel belonging to him.
class of person, the owner shall only be entitled to
limit his liability when the act, neglect or default is Art. 837. The civil liability incurred by shipowners
one which occurs in the navigation or the in the case prescribed in this section (on
management of the ship or in the loading, carriage collisions), shall be understood as limited to the
or discharge of its cargo or in the embarkation, value of the vessel with all its appurtenances and
carriage or disembarkation of its passengers. freightage served during the voyage. (Emphasis
supplied)
(c) any obligation or liability imposed by any law
relating to the removal of wreck and arising from or Taken together with related articles, the foregoing cover only
in connection with the raising, removal or liability for injuries to third parties (Art. 587), acts of the captain
destruction of any ship which is sunk, stranded or (Art. 590) and collisions (Art. 837).
abandoned (including anything which may be on
board such ship) and any obligation or liability In view of the foregoing, this Court shall not take the application
arising out of damage caused to harbor works, of such limited liability rule, which is a matter of near absolute
basins and navigable waterways. (Section 1, application in other jurisdictions, so lightly as to merely "imply"
Article I of the Brussels International Convention of its inapplicability, because as could be seen, the reasons for its
1957) being are still apparently much in existence and highly regarded.

In this jurisdiction, on the other hand, its application has been We now come to its applicability in the instant case. In the few
well-nigh constricted by the very statute from which it originates. instances when the matter was considered by this Court, we
The Limited Liability Rule in the Philippines is taken up in Book have been consistent in this jurisdiction in holding that
III of the Code of Commerce, particularly in Articles 587, 590, the only time the Limited Liability Rule does not apply is when
and 837, hereunder quoted in toto: there is an actual finding of negligence on the part of the vessel
owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila factual basis for such a conclusion. The unseaworthiness found
Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of in some cases where the same has been ruled to exist is
Amparo delos Santos v. Court of Appeals, 186 SCRA 649 directly attributable to the vessel's crew and captain, more so on
[1967]). The pivotal question, thus, is whether there is a finding the part of the latter since Article 612 of the Code of Commerce
of such negligence on the part of the owner in the instant case. provides that among the inherent duties of a captain is to
examine a vessel before sailing and to comply with the laws of
A careful reading of the decision rendered by the trial court in navigation. Such a construction would also put matters to rest
Civil Case No. 144425 (pp. 27-33, Rollo) as well as the entirety relative to the decision of the Board of Marine Inquiry. While the
of the records in the instant case will show that there has been conclusion therein exonerating the captain and crew of the
no actual finding of negligence on the part of petitioner. In its vessel was not sustained for lack of basis, the finding therein
Decision, the trial court merely held that: contained to the effect that the vessel was seaworthy deserves
merit. Despite appearances, it is not totally incompatible with the
. . . Considering the foregoing reasons, the Court findings of the trial court and the Court of Appeals, whose
holds that the vessel M/V "Aboitiz" and its cargo finding of "unseaworthiness" clearly did not pertain to the
were not lost due to fortuitous event or force structural condition of the vessel which is the basis of the BMI's
majeure." (p. 32, Rollo) 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
The same is true of the decision of this Court in G.R. No. 89757 crew.
(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 The rights of a vessel owner or agent under the Limited Liability
decisions did not make any new and additional finding of fact. Rule are akin to those of the rights of shareholders to limited
Both merely affirmed the factual findings of the trial court, liability under our corporation law. Both are privileges granted by
adding that the cause of the sinking of the vessel was because statute, and while not absolute, must be swept aside only in the
of unseaworthiness due to the failure of the crew and the master established existence of the most compelling of reasons. In the
to exercise extraordinary diligence. Indeed, there appears to absence of such reasons, this Court chooses to exercise
have been no evidence presented sufficient to form a conclusion prudence and shall not sweep such rights aside on mere whim
that petitioner shipowner itself was negligent, and no tribunal, or surmise, for even in the existence of cause to do so, such
including this Court will add or subtract to such evidence to incursion is definitely punitive in nature and must never be taken
justify a conclusion to the contrary. lightly.

The qualified nature of the meaning of "unseaworthiness," under More to the point, the rights of parties to claim against an agent
the peculiar circumstances of this case is underscored by the or owner of a vessel may be compared to those of creditors
fact that in the Country Banker's case, supra, arising from the against an insolvent corporation whose assets are not enough
same sinking, the Court sustained the decision of the Court of to satisfy the totality of claims as against it. While each
Appeals that the sinking of the M/V P. Aboitiz was due to force individual creditor may, and in fact shall, be allowed to prove the
majeure. actual amounts of their respective claims, this does not mean
that they shall all be allowed to recover fully thus favoring those
On this point, it should be stressed that unseaworthiness is not who filed and proved their claims sooner to the prejudice of
a fault that can be laid squarely on petitioner's lap, absent a those who come later. In such an instance, such creditors too
would not also be able to gain access to the assets of the completely or pro-rata should the insurance proceeds and
individual shareholders, but must limit their recovery to what is freightage be not enough to satisfy all claims.
left in the name of the corporation. Thus, in the case of Lipana
v. Development Bank of Rizal earlier cited, We held that: Finally, the Court notes that petitioner has provided this Court
with a list of all pending cases (pp. 175 to 183, Rollo), together
In the instant case, the stay of execution of with the corresponding claims and the pro-rated share of each.
judgment is warranted by the fact that the We likewise note that some of these cases are still with the
respondent bank was placed under receivership. Court of Appeals, and some still with the trial courts and which
To execute the judgment would unduly deplete the probably are still undergoing trial. It would not, therefore, be
assets of respondent bank to the obvious entirely correct to preclude the trial courts from making their own
prejudice of other depositors and creditors, since, findings of fact in those cases and deciding the same by allotting
as aptly stated in Central Bank v. Morfe (63 SCRA shares for these claims, some of which, after all, might not
114), after the Monetary Board has declared that a prevail, depending on the evidence presented in each. We,
bank is insolvent and has ordered it to cease therefore, rule that the pro-rated share of each claim can only be
operations, the Board becomes the trustee of its found after all the cases shall have been decided.
assets for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an In fairness to the claimants, and as a matter of equity, the total
advantage or preference over another by an proceeds of the insurance and pending freightage should now
attachment, execution or otherwise. (at p. 261). be deposited in trust. Moreover, petitioner should institute the
necessary limitation and distribution action before the proper
In both insolvency of a corporation and the sinking of a vessel, admiralty court within 15 days from the finality of this decision,
the claimants or creditors are limited in their recovery to the and thereafter deposit with it the proceeds from the insurance
remaining value of accessible assets. In the case of an insolvent company and pending freightage in order to safeguard the same
corporation, these are the residual assets of the corporation left pending final resolution of all incidents, for final pro-rating and
over from its operations. In the case of a lost vessel, these are settlement thereof.
the insurance proceeds and pending freightage for the particular
voyage. ACCORDINGLY, the petition is hereby GRANTED, and the
Orders of the Regional Trial Court of Manila, Branch IV dated
In the instant case, there is, therefore, a need to collate all April 30, 1991 and the Court of Appeals dated June 21, 1991
claims preparatory to their satisfaction from the insurance are hereby set aside. The trial court is hereby directed to desist
proceeds on the vessel M/V P. Aboitiz and its pending from proceeding with the execution of the judgment rendered in
freightage at the time of its loss. No claimant can be given Civil Case No. 144425 pending determination of the totality of
precedence over the others by the simple expedience of having claims recoverable from the petitioner as the owner of the M/V
filed or completed its action earlier than the rest. Thus, P. Aboitiz. Petitioner is directed to institute the necessary action
execution of judgment in earlier completed cases, even those and to deposit the proceeds of the insurance of subject vessel
already final and executory, must be stayed pending completion as above-described within fifteen (15) days from finality of this
of all cases occasioned by the subject sinking. Then and only decision. The temporary restraining order issued in this case
then can all such claims be simultaneously settled, either dated August 7, 1991 is hereby made permanent.
SO ORDERED. (RTC). The RTC Decision in Civil Case No. 4609, an action for
Sum of Money and Damages, ordered the defendants, jointly
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur. and severally, to pay various damages to the plaintiff.

Republic of the Philippines The Facts:

SUPREME COURT
Manila Respondent Crisostomo G. Concepcion (Concepcion) owned
LCT-Josephine, a vessel registered with the Philippine Coast
THIRD DIVISION Guard. On February 1, 1984, Concepcion entered into a
"Preliminary Agreement"5 with Roland de la Torre (Roland) for
G.R. No. 160088               July 13, 2011 the dry-docking and repairs of the said vessel as well as for its
charter afterwards.6 Under this agreement, Concepcion agreed
AGUSTIN P. DELA TORRE, Petitioner,  that after the dry-docking and repair of LCT-Josephine, it
vs. "should" be chartered for ₱ 10,000.00 per month with the
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. following conditions:
CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE
TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA 1. The CHARTERER will be the one to pay the insurance
TORRE, Respondents. premium of the vessel

x - - - - - - - - - - - - - - - - - - - - - - -x 2. The vessel will be used once every three (3) months

for a maximum period of two (2) weeks
G.R. No. 160565
3. The SECOND PARTY (referring to Concepcion)
PHILIPPINE TRIGON SHIPYARD CORPORATION and agreed that LCT-Josephine should be used by the FIRST
ROLAND G. DELA TORRE, Petitioners,  PARTY (referring to Roland) for the maximum period of
vs. two (2) years
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE
and RAMON "BOY" LARRAZABAL, Respondents. 4. The FIRST PARTY (Roland) will take charge[x] of
maintenance cost of the said vessel. [Underscoring
DECISION Supplied]

MENDOZA, J.: On June 20, 1984, Concepcion and the Philippine Trigon

Shipyard Corporation7 (PTSC), represented by Roland, entered
These consolidated petitions1 for review on certiorari seek to into a "Contract of Agreement,"8 wherein the latter would charter
reverse and set aside the September 30, 2002 Decision 2 and LCT-Josephine retroactive to May 1, 1984, under the following
September 18, 2003 Resolution3 of the Court of Appeals (CA) in conditions:
CA-G.R. CV No. 36035, affirming in toto the July 10, 1991
Decision4 of the Regional Trial Court, Branch 60, Angeles City a. Chartered amount of the vessel – ₱ 20,000.00 per
month effective May 1, 1984;
 j. The owner (Concepcion) shall pay 50% downpayment c. Any cost for the additional equipment to be installed on
for the dry-docking and repair of the vessel and the the vessel will be borne by the FIRST PARTY (PTSC/
balance shall be paid every month in the amount of ₱ Roland) and the cost of the equipment will be deductible
10,000.00, to be deducted from the rental amount of the from the monthly rental of the vessel;
vessel;
d. In the event the vessel is grounded or other [force
k. In the event that a THIRD PARTY is interested to majeure] that will make the vessel non-opera[xx]ble, the
purchase the said vessel, the SECOND PARTY (PTSC/ rental of the vessel shall be suspended from the start
Roland) has the option for first priority to purchase the until the vessel will be considered operational;
vessel. If the SECOND PARTY (PTSC/Roland) refuses
the offer of the FIRST PARTY (Concepcion), shall give e. The cost for the dry-docking and/or repair of vessel
the SECOND PARTY (PTSC/Roland) enough time to turn shall not exceed ₱ 200,000.00, any excess shall be
over the vessel so as not to disrupt previous borne by the SECOND PARTY (TSL/Agustin);
commitments;
f. The SECOND PARTY (TSL/Agustin) undertakes to
l. That the SECOND PARTY (PTSC/Roland) has the shoulder the maintenance cost for the duration of the
option to terminate the contract in the event of the usage;
SECOND PARTY (PTSC/Roland) decide to stop
operating; g. All cost for the necessary repair of the vessel shall be
on the account of the SECOND PARTY (TSL/Agustin);
m. The SECOND PARTY (PTSC/Roland) shall give 90
days notice of such termination of contract; h. That the SECOND PARTY (TSL/Agustin) has the
option to terminate the contract in the event the SECOND
n. Next x x year of dry-docking and repair of vessel shall PARTY (TSL/Agustin) decides to stop operating;
be shouldered by the SECOND PARTY (PTSC/Roland);
(Underscoring Supplied] j. The FIRST PARTY (PTSC/Roland) will terminate the
services of all vessel’s crew and the SECOND PARTY
On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine (TSL/Agustin) shall have the right to replace and rehire
to Trigon Shipping Lines (TSL), a single proprietorship owned by the crew of the vessel.
Roland’s father, Agustin de la Torre (Agustin).9 The following are
the terms and conditions of that "Contract of Agreement:" 10 k. Insurance premium of the vessel will be divided equally
between the FIRST PARTY (PTSC/Rolando) and the
a. Chartered amount of the vessel ₱ 30,000.00 per month SECOND PARTY (TSL/ Agustin). [Underscoring
effective August, 1984; supplied]

b. Downpayment of the 50% upon signing of the contract On November 22, 1984, TSL, this time represented by Roland
and the balance every end of the month; per Agustin’s Special Power of Attorney,11 sub-chartered LCT-
Josephine to Ramon Larrazabal (Larrazabal) for the transport of
cargo consisting of sand and gravel to Leyte. The following were were underway for the refloating of his vessel. 14 Unfortunately,
agreed upon in that contract,12 to wit: this did not materialize.

1. That the FIRST PARTY (TSL by Roland) agreed that For this reason, Concepcion was constrained to institute a
LCT-Josephine shall be used by the SECOND PARTY complaint for "Sum of Money and Damages" against PTSC and
(Larrazabal) for and in consideration on the sum of FIVE Roland before the RTC. PTSC and Roland filed their answer
THOUSAND FIVE HUNDRED (₱ 5,500.00) PESOS, together with a third-party complaint against Agustin. Agustin, in
Philippine currency per day charter with the following turn, filed his answer plus a fourth-party complaint against
terms and conditions. Larrazabal. The latter filed his answer and counterclaim but was
subsequently declared in default by the RTC.15 Eventually, the
2. That the CHARTERER should pay ₱ 2,000.00 as fourth-party complaint against Larrazabal was dismissed when
standby pay even that will made (sic) the vessel non- the RTC rendered its decision in favor of Concepcion on July
opera[xx]ble cause[d] by natur[al] circumstances. 10, 1991.16 In said RTC decision, the following observations
were written:
3. That the CHARTERER will supply the consumed crude
oil and lube oil per charter day. The testimonies of Roland de la Torre and Hubart Sungayan
quoted above, show: (1) that the payloader was used to unload
4. That the SECOND PARTY (Larrazabal) is the one the cargo of sand and gravel; (2) that the payloader had to go
responsible to supervise in loading and unloading of inside the vessel and scoop up a load; (3) that the ramp
cargo load on the vessel. according to Roland de la Torre, "was not properly put into peak
(sic) such that the front line will touch the bottom, particularly will
5. That the SECOND PARTY (Larrazabal) shall give one touch the sea x x x"; (4) that "the tires (of the payloader) will be
week notice for such termination of contract. submerged to (sic) the sea"; (5) that according to Sungayan "the
ramp of the vessel was moving down"; (6) that the payloader
6. TERMS OF PAYMENTS that the SECOND PARTY had to be maneuvered by its operator who dumped the load at
(Larrazabal) agreed to pay 15 days in advance and the the side of the vessel; (7) that the dumping of the load changed
balance should be paid weekly. [Underscoring Supplied] the stability of the vessel and tilted it to the starboard side; and
(8) that the tilting caused the sliding of the cargo toward that
On November 23, 1984, the LCT-Josephine with its cargo of side and opened the manhole through which seawater rushed
sand and gravel arrived at Philpos, Isabel, Leyte. The vessel in.17
was beached near the NDC Wharf. With the vessel’s ramp
already lowered, the unloading of the vessel’s cargo began with Hubart Sungayan, who was the chiefmate of LCT-Josephine
the use of Larrazabal’s payloader. While the payloader was on and under the employ of TSL/Agustin, also admitted at the trial
the deck of the LCT-Josephine scooping a load of the cargo, the that it was TSL/Agustin, through its crew, who was in-charge of
vessel’s ramp started to move downward, the vessel tilted and LCT-Josephine’s operations although the responsibility of
sea water rushed in. Shortly thereafter, LCT-Josephine sank. 13 loading and unloading the cargo was under Larrazabal. Thus,
the RTC declared that the "efficient cause of the sinking of the
Concepcion demanded that PTSC/ Roland refloat LCT- LCT-JOSEPHINE was the improper lowering or positioning of
Josephine. The latter assured Concepcion that negotiations the ramp," which was well within the charge or responsibility of
the captain and crew of the vessel.18 The fallo of the RTC 4. The defendants’ counterclaim for the unpaid balance of
Decision reads: plaintiff’s obligation for the dry-docking and repair of the
vessel LCT JOSEPHINE in the amount of TWENTY-
WHEREFORE, in view of all the foregoing, judgment is hereby FOUR THOUSAND THREE HUNDRED FOUR PESOS
rendered as follows: AND THIRTY-FIVE CENTAVOS (₱ 24,304.35), being
valid, shall be deducted from the unpaid rentals, with
1. The defendants, Philippine Trigon Shipping interest on the said unpaid balance at the rate of 6% per
Corporation and Roland de la Torre, and the third-party annum from the date of the filing of the counter-claim on
defendant, Agustin de la Torre, shall pay the plaintiff, March 31, 1986;
jointly and severally, the sum of EIGHT HUNDRED
FORTY-ONE THOUSAND THREE HUNDRED EIGHTY 5. The counter-claim of the defendants in all other
SIX PESOS AND EIGHTY SIX CENTAVOS (₱ respects, for lack of merit, is hereby DISMISSED;
841,386.86) as the value of the LCT JOSEPHINE with
interest thereon at the legal rate of 6% per annum from 6. The fourth-party complaint against the fourth-party
the date of demand, that is from March 14, 1985, the date defendant, Ramon Larrazabal, being without basis, is
when counsel for the defendant Philippine Trigon likewise DISMISSED; and
Shipyard Corporation answered the demand of the
plaintiff, until fully paid; 7. The defendants and third-party defendant shall pay the
costs.
2. The defendants, Philippine Trigon Shipyard
Corporation and Roland de la Torre, shall pay to the SO ORDERED.19
plaintiff the sum of NINETY THOUSAND PESOS (₱
90,000.00) as unpaid rentals for the period from May 1, Agustin, PTSC and Roland went to the CA on appeal. The
1984, to November, 1984, and the sum of ONE appellate court, in agreement with the findings of the RTC,
HUNDRED SEVENTY THOUSAND PESOS (₱ affirmed its decision in toto.
170,000.00) as lost rentals from December, 1984, to April
30, 1986, with interest on both amounts at the rate of 6% Still not in conformity with the CA findings against them, Agustin,
per annum also from demand on March 14, 1985, until PTSC and Roland came to this Court through these petitions for
fully paid; review. In G.R. No. 160088, petitioner Agustin raises the
following issues:
3. The defendants and the third-party defendant shall
likewise pay to the plaintiff jointly and severally the sum AGUSTIN’S STATEMENT OF THE ISSUES
of TWENTY-FIVE THOUSAND PESOS (₱ 25,000.00) as
professional fee of plaintiff’s counsel plus FIVE I
HUNDRED PESOS (₱ 500.00) per appearance of said
counsel in connection with actual trial of this case, the THE COURT OF APPEALS ERRED IN HOLDING THAT
number of such appearances to be determined from the THE PROXIMATE CAUSE OF THE SINKING OF LCT
records of this case; JOSEPHINE IS THE NEGLIGENCE OF THE
PETITIONER (Agustin) AND THE RESPONDENTS THE COURT OF APPEALS ERRED IN NOT
TRIGON (PTSC) AND DE LA TORRE (Roland). EXCULPATING PETITIONER FROM LIABILITY BASED
ON THE LIMITED LIABILITY RULE.
II
VII
THE COURT OF APPEALS ERRED IN NOT HOLDING
RESPONDENT RAMON LARRAZABAL AS SOLELY THE COURT OF APPEALS ERRED IN NOT APPLYING
LIABLE FOR THE LOSS AND SINKING OF LCT THE PROVISIONS OF THE CODE OF COMMERCE ON
JOSEPHINE. THE LIABILITY OF THE SHIP CAPTAIN.20

III On the other hand, in G.R. No. 160565, PTSC and Roland
submit the following issues:
THE TRIAL COURT AND THE COURT OF APPEALS
GRAVELY ERRED IN TAKING JUDICIAL NOTICE OF PTSC and ROLAND’S STATEMENT OF THE ISSUES
THE CHARACTERISTICS OF THE LCT JOSEPHINE
AND PAYLOADER WITHOUT INFORMING THE I.
PARTIES OF THEIR INTENTION.
DID THE HONORABLE COURT OF APPEALS ERRxx
IV IN APPLYING THE PROVISIONS OF THE CIVIL CODE
OF THE PHILIPPINES PARTICULARLY ON
THE COURT OF APPEALS ERRED IN HOLDING CONTRACTS, LEASE, QUASI-DELICT AND DAMAGES
PETITIONER DIRECTLY AND SOLIDARILY LIABLE INSTEAD OF THE PROVISIONS OF THE CODE OF
WITH THE RESPONDENTS TRIGON AND DE LA COMMERCE ON MARITIME COMMERCE IN
TORRE DESPITE THE FACT THAT SUCH KIND OF ADJUDGING PETITIONERS LIABLE TO PRIVATE
LIABILITY IS NOT DULY ALLEGED IN THE RESPONDENT CONCEPCION.
COMPLAINT OF RESPONDENT CONCEPCION AND
NOT ONE OF THE ISSUES TRIED BY THE PARTIES. II.

V DID THE HONORABLE COURT OF APPEALS ERRxx

IN UPHOLDING THE FINDINGS OF FACT OF THE
THE COURT OF APPEALS ERRED IN HOLDING THAT TRIAL COURT.
PETITIONER IS LIABLE BASED ON CULPA
CONTRACTUAL. III.

VI DID THE HONORABLE COURT OF APPEALS

COMMITxx GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR IN EXCESS OF ITS
 JURISDICTION IN APPRECIATING THE FACTS OF the payloader from submerging, especially because of the
THE CASE. conformation of the sea and the shore. x x x.

IV. xxx

DID THE HONORABLE COURT OF APPEALS, IN The contract executed on June 20, 1984, between plaintiff-
ADJUDGING PETITIONERS JOINTLY AND appellee and defendants-appellants showed that the services of
SEVERALLY LIABLE WITH RESPONDENT AGUSTIN the crew of the owner of the vessel were terminated. This
DE LA TORRE, ERRxx WHEN IT MADE FINDINGS OF allowed the charterer, defendants-appellants, to employ their
FACT AND CONCLUSIONS OF LAW WHICH ARE own. The sub-charter contract between defendants-appellants
BEYOND THE ISSUES SET FORTH AND Philippine Trigon Shipyard Corp. and third-party defendant-
CONTEMPLATED IN THE ORIGINAL PLEADINGS OF appellant Trigon Shipping Lines showed similar provision where
THE PARTIES.21 the crew of Philippine Trigon had to be terminated or rehired by
Trigon Shipping Lines. As to the agreement with fourth-party
From the foregoing, the issues raised in the two petitions can be Larrazabal, it is silent on who would hire the crew of the vessel.
categorized as: (1) those referring to the factual milieu of the Clearly, the crew manning the vessel when it sunk belonged to
case; (2) those concerning the applicability of the Code of third-party defendant-appellant. Hubart Sungayan, the acting
Commerce, more specifically, the Limited Liability Rule; and (3) Chief Mate, testified that he was hired by Agustin de la Torre,
the question on the solidary liability of the petitioners. who in turn admitted to hiring the crew. The actions of fourth-
party defendant, Larrazabal and his payloader operator did not
As regards the issues requiring a review of the factual findings include the operation of docking where the problem
of the trial court, the Court finds no compelling reason to deviate arose.23 [Underscoring supplied]
from the rule that findings of fact of a trial judge, especially when
affirmed by the appellate court, are binding before this Similarly, the Court has examined the records at hand and
Court.22 The CA, in reviewing the findings of the RTC, made completely agree with the CA that the factual findings of the
these observations: RTC are in order.

We are not persuaded that the trial Court finding should be set With respect to petitioners’ position that the Limited Liability
aside. The Court a quo sifted through the records and arrived at Rule under the Code of Commerce should be applied to them,
the fact that clearly, there was improper lowering or positioning the argument is misplaced. The said rule has been explained to
of the ramp, which was not at "peak," according to de la Torre be that of the real and hypothecary doctrine in maritime law
and "moving down" according to Sungayan when the payloader where the shipowner or ship agent’s liability is held as merely
entered and scooped up a load of sand and gravel. Because of co-extensive with his interest in the vessel such that a total loss
this, the payloader was in danger of being lost (‘submerged’) thereof results in its extinction.24 In this jurisdiction, this rule is
and caused Larrazabal to order the operator to go back into the provided in three articles of the Code of Commerce. These are:
vessel, according to de la Torre’s version, or back off to the
shore, per Sungayan. Whichever it was, the fact remains that Art. 587. The ship agent shall also be civilly liable for the
the ramp was unsteady (moving) and compelled action to save 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 Rule has been conceived to protect. The petitioners cannot
abandoning the vessel with all her equipment and the freight it invoke this as a defense. In Yangco v. Laserna,26 this Court,
may have earned during the voyage. through Justice Moran, wrote:

--- The policy which the rule is designed to promote is the

encouragement of shipbuilding and investment in maritime
Art. 590. The co-owners of the vessel shall be civilly liable in the commerce.
proportion of their interests in the common fund for the results of
the acts of the captain referred to in Art. 587. x x x.

Each co-owner may exempt himself from this liability by the ‘Grotius, in his law of War and Peace, says that men would be
abandonment, before a notary, of the part of the vessel deterred from investing in ships if they thereby incurred the
belonging to him. apprehension of being rendered liable to an indefinite amount by
the acts of the master, x x x.’27
---
Later, in the case of Monarch Insurance Co., Inc. v. CA,28 this
Art. 837. The civil liability incurred by shipowners in the case Court, this time through Justice Sabino R. De Leon, Jr., again
prescribed in this section, shall be understood as limited to the explained:
value of the vessel with all its appurtenances and freightage
served during the voyage. ‘No vessel, no liability,’ expresses in a nutshell the limited
liability rule. The shipowner’s or agent’s liability is merely
Article 837 specifically applies to cases involving collision which coextensive with his interest in the vessel such that a total loss
is a necessary consequence of the right to abandon the vessel thereof results in its extinction. The total destruction of the
given to the shipowner or ship agent under the first provision – vessel extinguishes maritime liens because there is no longer
Article 587. Similarly, Article 590 is a reiteration of Article 587, any res to which it can attach. This doctrine is based on the real
only this time the situation is that the vessel is co-owned by and hypothecary nature of maritime law which has its origin in
several persons.25 Obviously, the forerunner of the Limited the prevailing conditions of the maritime trade and sea voyages
Liability Rule under the Code of Commerce is Article 587. Now, during the medieval ages, attended by innumerable hazards and
the latter is quite clear on which indemnities may be confined or perils. To offset against these adverse conditions and to
restricted to the value of the vessel pursuant to the said Rule, encourage shipbuilding and maritime commerce, it was deemed
and these are the – "indemnities in favor of third persons which necessary to confine the liability of the owner or agent arising
may arise from the conduct of the captain in the care of the from the operation of a ship to the vessel, equipment, and
goods which he loaded on the vessel." Thus, what is freight, or insurance, if any.29
contemplated is the liability to third persons who may have dealt
with the shipowner, the agent or even the charterer in case of In view of the foregoing, Concepcion as the real shipowner is
demise or bareboat charter. the one who is supposed to be supported and encouraged to
pursue maritime commerce. Thus, it would be absurd to apply
The only person who could avail of this is the shipowner, the Limited Liability Rule against him who, in the first place,
Concepcion. He is the very person whom the Limited Liability should be the one benefitting from the said rule. In
distinguishing the rights between the charterer and the In Yueng Sheng, it was further stressed that the charterer does
shipowner, the case of Yueng Sheng Exchange and Trading not completely and absolutely step into the shoes of the
Co. v. Urrutia & Co.30 is most enlightening. In that case, no less shipowner or even the ship agent because there remains
than Chief Justice Arellano wrote: conflicting rights between the former and the real shipowner as
derived from their charter agreement. The Court again quotes
The whole ground of this assignment of errors rests on the Chief Justice Arellano:
proposition advanced by the appellant company that ‘the
charterer of a vessel, under the conditions stipulated in the Their (the charterer’s) possession was, therefore, the uncertain
charter party in question, is the owner pro hac vice of the ship title of lease, not a possession of the owner, such as is that of
and takes upon himself the responsibilities of the owner.’ the agent, who is fully subrogated to the place of the owner in
regard to the dominion, possession, free administration, and
xxx navigation of the vessel.32

If G. Urrutia & Co., by virtue of the above-mentioned contract, Therefore, even if the contract is for a bareboat or demise
became the agents of the Cebu, then they must respond for the charter where possession, free administration and even
damages claimed, because the owner and the agent are civilly navigation are temporarily surrendered to the charterer,
responsible for the acts of the captain. dominion over the vessel remains with the shipowner. Ergo, the
charterer or the sub-charterer, whose rights cannot rise above
But G. Urrutia & Co. could not in any way exercise the powers that of the former, can never set up the Limited Liability Rule
or rights of an agent. They could not represent the ownership of against the very owner of the vessel. Borrowing the words of
the vessel, nor could they, in their own name and in such Chief Justice Artemio V. Panganiban, "Indeed, where the
capacity, take judicial or extrajudicial steps in all that relates to reason for the rule ceases, the rule itself does not apply." 33
commerce; thus if the Cebu were attached, they would have no
legal capacity to proceed to secure its release ; speaking The Court now comes to the issue of the liability of the charterer
generally, not even the fines could or ought to be paid by them, and the sub-charterer.
unless such fines were occasioned by their orders. x x x.
In the present case, the charterer and the sub-charterer through
The contract executed by Smith, Bell & Co., as agents for the their respective contracts of agreement/charter parties, obtained
Cebu, and G. Urrutia & Co., as charterers of the vessel, did not the use and service of the entire LCT-Josephine. The vessel
put the latter in the place of the former, nor make them agents of was likewise manned by the charterer and later by the sub-
the owner or owners of the vessel. With relation to those agents, charterer’s people. With the complete and exclusive
they retained opposing rights derived from the charter party of relinquishment of possession, command and navigation of the
the vessel, and at no time could they be regarded by the third vessel, the charterer and later the sub-charterer became the
parties, or by the authorities, or by the courts, as being in the vessel’s owner pro hac vice. Now, and in the absence of any
place of the owners or the agents in matters relating to the showing that the vessel or any part thereof was commercially
responsibilities pertaining to the ownership and possession of offered for use to the public, the above agreements/charter
the vessel. x x x.31 parties are that of a private carriage where the rights of the
contracting parties are primarily defined and governed by the
stipulations in their contract.34
Although certain statutory rights and obligations of charter same person who represented him in the Contract of Agreement
parties are found in the Code of Commerce, these provisions as with Larrazabal.1avvphi1
correctly pointed out by the RTC, are not applicable in the
present case. Indeed, none of the provisions found in the Code (S)ince the purpose of formally impleading a party is to assure
of Commerce deals with the specific rights and obligations him a day in court, once the protective mantle of due process of
between the real shipowner and the charterer obtaining in this law has in fact been accorded a litigant, whatever the
case. Necessarily, the Court looks to the New Civil Code to imperfection in form, the real litigant may be held liable as a
supply the deficiency.35 Thus, the RTC and the CA were both party.41
correct in applying the statutory provisions of the New Civil
Code in order to define the respective rights and obligations of In any case, all three petitioners are liable under Article 1170 of
the opposing parties. the New Civil Code.42 The necessity of insuring the LCT-
Josephine, regardless of who will share in the payment of the
Thus, Roland, who, in his personal capacity, entered into the premium, is very clear under the Preliminary Agreement and the
Preliminary Agreement with Concepcion for the dry-docking and subsequent Contracts of Agreement dated June 20, 1984 and
repair of LCT-Josephine, is liable under Article 118936 of the August 1, 1984, respectively. The August 17, 1984 letter of
New Civil Code. There is no denying that the vessel was not Concepcion’s representative, Rogelio L. Martinez, addressed to
returned to Concepcion after the repairs because of the Roland in his capacity as the president of PTSC inquiring about
provision in the Preliminary Agreement that the same "should" the insurance of the LCT-Josephine as well as reiterating the
be used by Roland for the first two years. Before the vessel importance of insuring the said vessel is quite telling.
could be returned, it was lost due to the negligence of Agustin to
whom Roland chose to sub-charter or sublet the vessel. August 17, 1984

PTSC is liable to Concepcion under Articles 1665 37 and Mr. Roland de la Torre
166738 of the New Civil Code. As the charterer or lessee under President
the Contract of Agreement dated June 20, 1984, PTSC was Phil. Trigon Shipyard Corp.
contract-bound to return the thing leased and it was liable for the Cebu City
deterioration or loss of the same.
Dear Sir:
Agustin, on the other hand, who was the sub-charterer or sub-
lessee of LCT-Josephine, is liable under Article 1651 of the New In connection with your chartering of LCT JOSEPHINE
Civil Code.39 Although he was never privy to the contract effect[ive] May 1, 1984, I wish to inquire regarding the insurance
between PTSC and Concepcion, he remained bound to of said vessel to wit:
preserve the chartered vessel for the latter. Despite his non-
inclusion in the complaint of Concepcion, it was deemed 1. Name of Insurance Company
amended so as to include him because, despite or in the
absence of that formality of amending the complaint to include 2. Policy No.
him, he still had his day in court40 as he was in fact impleaded
as a third-party defendant by his own son, Roland – the very 3. Amount of Premiums
 4. Duration of coverage already paid

Please send a Xerox copy of policy to the undersigned as soon

as possible.

In no case shall LCT JOSEPHINE sail without any insurance

coverage.

Hoping for your (prompt) action on this regard.

Truly yours,

(sgd)ROGELIO L. MARTINEZ
Owner’s representative43

Clearly, the petitioners, to whom the possession of LCT

Josephine had been entrusted as early as the time when it was
dry-docked for repairs, were obliged to insure the same.
Unfortunately, they failed to do so in clear contravention of their
respective agreements. Certainly, they should now all answer
for the loss of the vessel.

WHEREFORE, the petitions are DENIED.

SO ORDERED.
 Republic of the Philippines plaintiffs the compensation provided for in the Workmen's
SUPREME COURT Compensation Act.
Manila
The record of the cases was forwarded to the Court of Appeals
EN BANC for review, but as there was no question of fact involved in the
appeal, said court forwarded the record to this Court. The
G.R. No. L-773              December 17, 1946 appeal was pending when the Pacific War broke up, and
continued pending until after liberation, because the record of
DIONISIA ABUEG, ET AL., plaintiffs-appellees,  the cases was destroyed as a result of the battle waged by the
vs. forces of liberation against the enemy. As provided by law, the
BARTOLOME SAN DIEGO, defendant-appellant. record was reconstituted and we now proceed to dispose of the
appeal.
----------------------------
Appellant, who was the owner of the motor ships San Diego
CA-No. L-774              December 17, 1946 II and Bartolome S, states in his brief the following:

MARCIANA DE SALVACION, ET AL., plaintiffs-appellees,  There is no dispute as to the facts involved in these

vs. cases and they may be gathered from the pleadings and
BARTOLOME SAN DIEGO, defendant-appellant. the decision of the trial Court. In case CA-G.R. No. 773,
Dionisia Abueg is the widow of the deceased, Amado
---------------------------- Nuñez, who was a machinist on board the M/S San
Diego II belonging to the defendant-appellant. In case
CA-No. L-775              December 17, 1946 CA-G.R. No. 774, plaintiff-appellee, Marciana S. de
Salvacion, is the widow of the deceased, Victoriano
ROSARIO OCHING, ET AL., plaintiffs-appellees,  Salvacion, who was a machinist on board the
vs. M/S Bartolome S also belonging to the defendant-
BARTOLOME SAN DIEGO, defendant-appellant. appellant. In case CA-G.R. No. 775, the plaintiff-appellee,
Rosario R. Oching is the widow of Francisco Oching who
Lichauco, Picazo and Mejia for appellant. was a captain or patron of the defendant-appellant's
Cecilio I. Lim and Roberto P. Ancog for appellees. M/S Bartolome S.

The M/S San Diego II and the M/S Bartolome, while

engaged in fishing operations around Mindoro Island on
PADILLA, J.: Oct. 1, 1941 were caught by a typhoon as a
consequence of which they were sunk and totally lost.
This is appeal from a judgment rendered by the Court of First Amado Nuñez, Victoriano Salvacion and Francisco
Instance of Manila in the above-entitled cases awarding Oching while acting in their capacities perished in the
shipwreck (Appendix A, p. IV).
 It is also undisputed that the above-named vessels were ship as result of collision; nor the responsibility for wages of the
not covered by any insurance. (Appendix A, p. IV.). crew, but a liability created by a statute to compensate
employees and laborers in cases of injury received by or
Counsel for the appellant cite article 587 of the Code of inflicted upon them, while engaged in the performance of their
Commerce which provides that if the vessel together with all her work or employment, or the heirs and dependents and laborers
tackle and freight money earned during the voyage are and employees in the event of death caused by their
abandoned, the agent's liability to third persons for tortious acts employment. Such compensation has nothing to do with the
of the captain in the care of the goods which the ship carried is provisions of the Code of Commerce regarding maritime
extinguished (Yangco vs. Laserna, 73 Phil., 330); article 837 of commerce. It is an item in the cost of production which must be
the same code which provides that in cases of collision, the ship included in the budget of any well-managed industry.
owners' liability is limited to the value of the vessel with all her
equipment and freight earned during the voyage (Philippine Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57
Shipping company vs. Garcia, 6 Phil., 281), and article 643 of Phil., 446), and Murillo vs. Mendoza (66 Phil., 689), the question
the same Code which provides that if the vessel and freight are of the extinction of the shipowner's liability due to abandonment
totally lost, the agent's liability for wages of the crew is of the ship by him was not fully discussed, as in the case
extinguished. From these premises counsel draw the conclusion of Yangco vs. Laserma, supra, is not entirely correct. In the last
that appellant's liability, as owner of the two motor ships lost or mentioned case, the limitation of the shipowner's liability to the
sunk as a result of the typhoon that lashed the island of Mindoro value of the ship, equipment, freight, and insurance, if any, was
on October 1, 1941, was extinguished. the lis mota. In the case of Enciso vs. Dy-Liacco, supra, the
application of the Workmen's Compensation Act to a master or
The real and hypothecary nature of the liability of the shipowner patron who perished as a result of the sinking of the motorboat
or agent embodied in the provisions of the Maritime Law, Book of which he was the master, was the controversy submitted to
III, Code of Commerce, had its origin in the prevailing continues the court for decision. This Court held in that case that "It has
of the maritime trade and sea voyages during the medieval been repeatedly stated that the Workmen's Compensation Act
ages, attended by innumerable hazards and perils. To offset was enacted to abrogate the common law and our Civil Code
against these adverse conditions and encourage shipbuilding upon culpable acts and omissions, and that the employer need
and maritime commerce, it was deemed necessary to confine not be guilty of neglect or fault, in order that responsibility may
the liability of the owner or agent arising from the operation of a attach to him" (pp. 449-450); and that shipowner was liable to
ship to the vessel, equipment, and freight, or insurance, if any, pay compensation provided for in the Workmen's Compensation
so that if the shipowner or agent abandoned the ship, Act, notwithstanding the fact that the motorboat was totally lost.
equipment, and freight, his liability was extinguished. In the case of Murillo vs. Mendoza, supra, this Court held that
"The rights and responsibilities defined in said Act must be
But the provisions of the Code of Commerce invoked by governed by its own peculiar provisions in complete disregard of
appellant have no room in the application of the Workmen's other similar mercantile law. If an accident is compensable
Compensation Act which seeks to improve, and aims at the under the Workmen's Compensation Act, it must be
amelioration of, the condition of laborers and employees. It is compensated even when the workman's right is not recognized
not the liability for the damage or loss of the cargo or injury to, or by or is in conflict with other provisions of the Civil Code or the
death of, a passenger by or through the misconduct of the Code of Commerce. The reason behind this principle is that the
captain or master of the ship; nor the liability for the loss of the Workmen's Compensation Act was enacted by the Legislature
in abrogation of the other existing laws." This quoted part of the workmen or employees in factories, shops and other industrial
decision is in answer to the contention that it was not the and agricultural workplaces as well as in the interisland seas of
intention of the Legislature to repeal articles 643 and 837 of the the Archipelago." But we do not believe that the term "coastwise
Code of Commerce with the enactment of the Workmen's and interisland trade" has such a narrow meaning as to confine
Compensation Act. it to the carriage for hire of passengers and/or merchandise on
vessels between ports and places in the Philippines, because
In the memorandum filed by counsel for the appellant, a new while fishing is an industry, if the catch is brought to a port for
point not relied upon in the court below is raised. They contend sale, it is at the same time a trade.
that the motorboats engaged in fishing could not be deemed to
be in the coastwise and interisland trade, as contemplated in Finding no merit in the appeal filed in these cases, we affirm the
section 38 of the Workmen's Compensation Act (No. 3428), as judgment of the lower court, with costs against the appellant.
amended by Act no. 3812, inasmuch as, according to counsel, a
craft engaged in the coastwise and interisland trade is one that Moran, Bengzon, C.J., Paras, Feria, Pablo, Perfecto, Hilado,
carries passengers and/or merchandise for hire between ports Briones and Tuazon, JJ., concur.
and places in the Philippine Islands.lawphil.net

This new point raised by counsel for the appellant is inconsistent

with the first, for, if the motor ships in question, while engaged in
fishing, were to be considered as not engaged in interisland and
coastwise trade, the provisions of the Code of Commerce
invoked by them regarding limitation of the shipowner's liability
or extinction thereof when the shipowner abandons the ship,
cannot be applied (Lopez vs. Duruelo, 52 Phil., 229). Granting
however, that the motor ships run and operated by the appellant
were not engaged in the coastwise and interisland trade, as
contemplated in section 38 of the Workmen's Compensation
Act, as amended, still the deceased officers of the motor ships
in question were industrial employees within the purview of
section 39, paragraph (d), as amended, for industrial
employment "includes all employment or work at a trade,
occupation or profession exercised by an employer for the
purpose of gain." The only exceptions recognized by the Act are
agriculture, charitable institutions and domestic service. Even
employees engaged in agriculture for the operation of
mechanical implements, are entitled to the benefits of the
Workmen's Compensation Act (Francisco vs. Consing, 63 Phil.,
354). In Murillo vs. Mendoza, supra, this Court held that "our
Legislature has deemed it admissible to include in the
Workmen's Compensation Act all incidents that may occur to
 EN BANC merchandise then stored on said pier. 

[G.R. No. 24658. March 31, 1926. ] From the year 1913, plaintiff was the owner of a pier situated in
Talomo Bay, Davao. On the western side of this pier were two
OHTA DEVELOPMENT COMPANY, Plaintiff-Appellee, v. groups of posts, three to a group, about 20 feet apart and about
STEAMSHIP POMPEY, ALFREDO GALVEZ and NATIONAL 2 feet from the pier itself, which served as a protection to the
COAL COMPANY, Defendants-Appellants.  pier against the impact of vessels. Between 1921 and 1922, this
pier was repaired replacing such material as was not in good
Perfecto J. Salas Rodriguez for Appellants.  condition, and driving about 150 piles of pagatpat and 60 of
molave. According to the witness Sixto Babao, the officer in
Pablo Lorenzo for Appellee.  charge of the forest station of that province, pagatpat, when
placed in salt water, lasts from five to six years. 
SYLLABUS
1. CORPORATIONS; JURIDICAL PERSONALITY; ESTOPPEL. At about 7 o’clock in the morning of July 23, 1923, the
— He who contracts with a corporation as such cannot later steamship Pompey, in command of Captain Alfredo Galvez and
deny its personality.  possessing a certificate of public convenience issued by the
Commissioner of Public Utility in the name of "The National Coal
2. CARRIERS; LIABILITY OF. — Under article 619 of the Code Company," carrying cargo consisting principally of flour and rice-
of Commerce, it is the delivery of the cargo at the port of for the plaintiff, docked alongside the said pier. The ship docked
discharge that determines the cessation of the liability of the with her bow facing towards the land; and fastened her ropes to
captain for the cargo. In the instant case, when the merchandise the posts on the pier. The evidence shows that, previously,
was lost by the sinking of the pier, it had not yet been delivered, other ships docking alongside the said pier had the bow facing
and, consequently, was under the responsibility of the captain. towards the land and fastened a rope to a tree situated farther
The defendant company, as agent, is liable for the indemnities west on the beach, a precaution taken to avoid the ship from
arising from the lack of skill or negligence of the captain.  getting too close to the pier. When the Pompey docked, at the
time in question, she did not stretch a rope to the tree on the
3. SHIP AGENTS; LIABILITY OF. — The provision of article 587 shore, neither did she drop her bow anchors. After being thus
of the Code of Commerce, limiting the liability of the agent to the docked they proceeded to unload the flour and rice which was
value of the ship, its appurtenances and freight, is not applicable first deposited on the pier and later transported to the plaintiff’s
when no abandonment of the vessel is made. warehouse on land, where it was officially receipted for. The
work of discharging and the hauling of the cargo to the
DECISION warehouse of the plaintiff was done without any interference on
the part of the plaintiff and exclusively by laborers and the crew
AVANCEÑA, C.J. : the ship. The unloading of the cargo on to the pier done in a
hurry and their being but fifteen or twenty laborers engaged in
the hauling of the same to the plaintiff’s warehouse, a large
The judgment appealed from sentences the defendants to pay amount of cargo accumulated on the dock, with the result that at
the plaintiff the sum of P8,557.06, as damages suffered by the ten minutes past eleven on the same morning the pier sank with
latter by reason of the destruction of its pier and the loss of its all the merchandise. 
 the latter sank, the ship was carried along on account of the
It appears that at the time the pier sank there was a current from ropes; but neither can this explanation be accepted because the
west to east. As to this point the evidence in the record is posts to which the ropes were tied, except one, did not sink but
conflicting but, after studying it, we believe there actually was a only inclined. Furthermore, the inclination of these posts, which
current at that time. According to Captain Calvo, and judging by did not fall, does not explain the shifting of the ship to the space
the condition of the sea appears from one of the photographs formerly occupied by the dock, taking into account that,
presented in evidence, there was a strong undercurrent. The according to his testimony, the ship docked about 8 feet away
flour which floated after the sinking of the dock drifted from west from the pier and the inclination of the posts barely represents a
to east. The pier, when it sank, leaned towards the east as the distance of 1 foot from the base. Finally, this witness testified
posts, which did not collapse completely. After sinking of the that after the ship had docked he noticed that the pier was in a
pier the two groups of piles that served as a defense also rotten condition notwithstanding which, and realizing the danger
leaned towards the east, going beyond the western line formerly of unloading, he did not take any precaution and proceeded to
occupied by the pier; and the null of the ship came to a stop at a discharge the cargo, for the reason that he considered it a
point beyond where the piles of defense formerly stood, as will matter for the owners of the pier and not for him to take the
be noticed from the photograph, Exhibit B, taken after the necessary precautions. 
accident, and in which a man may be seen standing on the edge
of the sunken pier supporting himself on the hull of the ship. In Our conclusion is that the dock sank on account of the impact of
view of all of these circumstances it is evident that the current the ship as a result of the strong current at the time; that the
forced the ship towards the pier, the impact of which caused it to ship was not fastened with a rope to a tree on shore and that the
sink.  bow anchors had not been dropped. 

The sinking could not have been caused, as the defense Appellants challenged the personality of the plaintiff as a duly
contends, by the weight of the cargo and by the poor condition organized corporation. But besides the fact that there is
of the dock, because according to the evidence it had been evidence of this personality, appellants cannot challenge it after
recently repaired and, further, that the dock did not fall from its having acknowledged same when entering into the contract with
base but leaned towards the east, as did also the posts and the plaintiff as such corporation for the transportation of its
defense piles which facts indicate that the dock received the merchandise. 
impact of the ship from west to east. In support of its contention
of the defense presented, as its principal evidence, the Appellants urge that, according to the bills of lading of the lost
testimony of Captain Razon, who served as first mate of the merchandise, the defendant National Coal Company’s liability
Pompey on that trip, but we cannot give much weight to the ceased when the said merchandise was unloaded and placed
testimony of this witness. He affirmed that the defense piles fell on the dock. This contention is without merit. There is nothing in
without coming in contact with the ship, which is inconceivable the bills of lading to uphold it. Article 619 of the Code of
since the piles were not attached to the pier but were 2 feet Commerce provides that the captain shall be answerable for the
away from it, so that it cannot be understood how the sinking of cargo from the moment that it is delivered to him at the wharf or
the dock could have affected the defense piles. The subsequent alongside the ship in the harbor of embarkation until delivered
contact of the ship with the pier, as shown in the photographs on the shore or wharf of the port of discharge. Under this
presented as evidence, was explained by this witness who provision of the law it is the delivery of the cargo at the port of
states that, the vessel being tied to the posts of the pier when discharge that terminates the captain’s responsibility as to the
cargo. In the instant case, when the merchandise was lost on
account of the sinking of the dock it had not yet been delivered
and consequently it was under the responsibility of the captain.
The defendant National Coal Company, as the operator, is
responsible for the indemnities arising from the lack of skill or
negligence of the captain. (Articles 587 and 618 of the Code of
Commerce.) 

Appellants also contend that, at any rate, the liability of the other
defendants is subsidiary and limited to what the steamship
Pompey may answer for. This argument seems to be based
upon article 587 of the Code of Commerce which authorizes the
shipowner to abandon the ship with all its tackle and freight
earned during the voyage in order to answer for his liability to
third persons. But this is inapplicable, for the reason that in this
case there was no abandonment of the ship. We do not believe
that appellants based their contention upon article 837 which
refers to collisions, because that is not the case here. 

There may be other phases of the case which we have not

decided because they have not been raised in the briefs. What
we have said decides all the errors assigned by the appellants. 

The judgment appealed from is affirmed with costs against the

appellants. So ordered. 

Street, Villamor, Johns, Romualdez and Villa-Real, JJ., concur. 

Ostrand, J., dissents.
 SECOND DIVISION and existing under the laws of Canada that is engaged in the
business of selling petroleum and oil products for the use and
[G.R. NO. 155014 November 11, 2005] operation of oceangoing vessels, to deliver marine fuel oils
(bunker fuels) to the Vessel. Petitioner Crescent granted and
CRESCENT PETROLEUM, LTD., Petitioner, v. M/V "LOK confirmed the request through an advice via facsimile dated
MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, November 2, 1995. As security for the payment of the bunker
and PORTSERV LIMITED and/or TRANSMAR SHIPPING, fuels and related services, petitioner Crescent received two (2)
INC.,Respondents. checks in the amounts of US$100,000.00 and US$200,000.00.
Thus, petitioner Crescent contracted with its supplier, Marine
DECISION Petrobulk Limited (Marine Petrobulk), another Canadian
corporation, for the physical delivery of the bunker fuels to the
PUNO, J.: Vessel.

This Petition for Review on Certiorari under Rule 45 seeks the On or about November 4, 1995, Marine Petrobulk delivered the
(a) reversal of the November 28, 2001 Decision of the Court of bunker fuels amounting to US$103,544 inclusive of barging and
Appeals in CA-G.R. No. CV-54920,1 which dismissed for "want demurrage charges to the Vessel at the port of Pioneer Grain,
of jurisdiction" the instant case, and the September 3, 2002 Vancouver, Canada. The Chief Engineer Officer of the Vessel
Resolution of the same appellate court, 2 which denied duly acknowledged and received the delivery receipt.Marine
petitioner's motion for reconsideration, and (b) reinstatement of Petrobulk issued an invoice to petitioner Crescent for the
the July 25, 1996 Decision3 of the Regional Trial Court (RTC) in US$101,400.00 worth of the bunker fuels. Petitioner Crescent
Civil Case No. CEB-18679, which held that respondents were issued a check for the same amount in favor of Marine
solidarily liable to pay petitioner the sum prayed for in the Petrobulk, which check was duly encashed.
complaint.
Having paid Marine Petrobulk, petitioner Crescent issued a
The facts are as follows: Respondent M/V "Lok Maheshwari" revised invoice dated November 21, 1995 to "Portserv Limited,
(Vessel) is an oceangoing vessel of Indian registry that is owned and/or the Master, and/or Owners, and/or Operators, and/or
by respondent Shipping Corporation of India (SCI), a Charterers of M/V 'Lok Maheshwari' " in the amount of
corporation organized and existing under the laws of India and US$103,544.00 with instruction to remit the amount on or before
principally owned by the Government of India. It was time- December 1, 1995. The period lapsed and several demands
chartered by respondent SCI to Halla Merchant Marine Co. Ltd. were made but no payment was received. Also, the checks
(Halla), a South Korean company. Halla, in turn, sub-chartered issued to petitioner Crescent as security for the payment of the
the Vessel through a time charter to Transmar Shipping, Inc. bunker fuels were dishonored for insufficiency of funds.As a
(Transmar). Transmar further sub-chartered the Vessel to consequence, petitioner Crescent incurred additional expenses
Portserv Limited (Portserv). Both Transmar and Portserv are of US$8,572.61 for interest, tracking fees, and legal fees.
corporations organized and existing under the laws of Canada.
On May 2, 1996, while the Vessel was docked at the port of
On or about November 1, 1995, Portserv requested petitioner Cebu City, petitioner Crescent instituted before the RTC of Cebu
Crescent Petroleum, Ltd. (Crescent), a corporation organized City an action "for a sum of money with prayer for temporary
restraining order and writ of preliminary attachment" against (b) interest of US$10,978.50 as of July 3, 1996, plus additional
respondents Vessel and SCI, Portserv and/or Transmar. The interest at 18% per annum for the period thereafter, until the
case was raffled to Branch 10 and docketed as Civil Case No. principal account is fully paid;
CEB-18679.
(c) attorney's fees of P300,000.00; andcralawlibrary
On May 3, 1996, the trial court issued a writ of attachment
against the Vessel with bond at P2,710,000.00. Petitioner (d) P200,000.00 as litigation expenses.
Crescent withdrew its prayer for a temporary restraining order
and posted the required bond. SO ORDERED.

On May 18, 1996, summonses were served to respondents On August 19, 1996, respondents Vessel and SCI appealed to
Vessel and SCI, and Portserv and/or Transmar through the the Court of Appeals. They attached copies of the charter
Master of the Vessel.On May 28, 1996, respondents Vessel and parties between respondent SCI and Halla, between Halla and
SCI, through Pioneer Insurance and Surety Corporation Transmar, and between Transmar and Portserv. They pointed
(Pioneer), filed an urgent ex-parte motion to approve Pioneer's out that Portserv was a time charterer and that there is a clause
letter of undertaking, to consider it as counter-bond and to in the time charters between respondent SCI and Halla, and
discharge the attachment.On May 29, 1996, the trial court between Halla and Transmar, which states that "the Charterers
granted the motion; thus, the letter of undertaking was approved shall provide and pay for all the fuel except as otherwise
as counter-bond to discharge the attachment. agreed." They submitted a copy of Part II of the Bunker Fuel
Agreement between petitioner Crescent and Portserv containing
For failing to file their respective answers and upon motion of a stipulation that New York law governs the "construction,
petitioner Crescent, the trial court declared respondents Vessel validity and performance" of the contract. They likewise
and SCI, Portserv and/or Transmar in default. Petitioner submitted certified copies of the Commercial Instruments and
Crescent was allowed to present its evidence ex-parte. Maritime Lien Act of the United States (U.S.), some U.S. cases,
and some Canadian cases to support their defense.
On July 25, 1996, the trial court rendered its decision in favor of
petitioner Crescent, thus: On November 28, 2001, the Court of Appeals issued its assailed
Decision, which reversed that of the trial court, viz:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff [Crescent] and against the WHEREFORE, premises considered, the Decision dated July
defendants [Vessel, SCI, Portserv and/or Transmar]. 25, 1996, issued by the Regional Trial Court of Cebu City,
Branch 10, is hereby REVERSED and SET ASIDE, and a new
Consequently, the latter are hereby ordered to pay plaintiff one is entered DISMISSING the instant case for want of
jointly and solidarily, the following: jurisdiction.

(a) the sum of US$103,544.00, representing the outstanding The appellate court denied petitioner Crescent's motion for
obligation; reconsideration explaining that it "dismissed the instant action
primarily on the ground of forum non conveniens considering
that the parties are foreign corporations which are not doing 10. The respondents should be held jointly and solidarily liable.
business in the Philippines."
In a nutshell, this case is for the satisfaction of unpaid supplies
Hence, this petition submitting the following issues for furnished by a foreign supplier in a foreign port to a vessel of
resolution, viz: foreign registry that is owned, chartered and sub-chartered by
foreign entities.
1. Philippine courts have jurisdiction over a foreign vessel found
inside Philippine waters for the enforcement of a maritime lien Under Batas Pambansa Bilang 129, as amended by Republic
against said vessel and/or its owners and operators; Act No. 7691, RTCs exercise exclusive original jurisdiction "(i)n
all actions in admiralty and maritime where the demand or claim
2. The principle of forum non conveniens is inapplicable to the exceeds two hundred thousand pesos (P200,000) or in Metro
instant case; Manila, where such demand or claim exceeds four hundred
thousand pesos (P400,000)." Two (2) tests have been used to
3. The trial court acquired jurisdiction over the subject matter of determine whether a case involving a contract comes within the
the instant case, as well as over the res and over the persons of admiralty and maritime jurisdiction of a court - the locational
the parties; test and the subject matter test. The English rule follows the
locational test wherein maritime and admiralty jurisdiction, with a
4. The enforcement of a maritime lien on the subject vessel is few exceptions, is exercised only on contracts made upon the
expressly granted by law. The Ship Mortgage Acts as well as sea and to be executed thereon. This is totally rejected under
the Code of Commerce provides for relief to petitioner for its the American rule where the criterion in determining whether a
unpaid claim; contract is maritime depends on the nature and subject matter
of the contract, having reference to maritime service and
5. The arbitration clause in the contract was not rigid or inflexible transactions.4 In International Harvester Company of the
but expressly allowed petitioner to enforce its maritime lien in Philippines v. Aragon,5 we adopted the American rule and held
Philippine courts provided the vessel was in the Philippines; that "(w)hether or not a contract is maritime depends not on the
place where the contract is made and is to be executed, making
6. The law of the state of New York is inapplicable to the present the locality the test, but on the subject matter of the contract,
controversy as the same has not been properly pleaded and making the true criterion a maritime service or a maritime
proved; transaction."

7. Petitioner has legal capacity to sue before Philippine courts A contract for furnishing supplies like the one involved in this
as it is suing upon an isolated business transaction; case is maritime and within the jurisdiction of admiralty.6 It may
be invoked before our courts through an action in rem or quasi
8. Respondents were duly served summons although service of in rem or an action in personam. Thus:7
summons upon respondents is not a jurisdictional requirement,
the action being a suit quasi in rem; xxx

9. The trial court's decision has factual and legal bases; and, "Articles 579 and 584 [of the Code of Commerce] provide a
method of collecting or enforcing not only the liens created
under Section 580 but also for the collection of any kind of lien possession or charge of a vessel shall have authority to bind the
whatsoever."8 In the Philippines, we have a complete legislation, vessel.
both substantive and adjective, under which to bring an action in
rem against a vessel for the purpose of enforcing liens. The Sec. 23. Notice to Person Furnishing Repairs, Supplies and
substantive law is found in Article 580 of the Code of Necessaries. - The officers and agents of a vessel specified in
Commerce. The procedural law is to be found in Article 584 of Section 22 of this Decree shall be taken to include such officers
the same Code. The result is, therefore, that in the Philippines and agents when appointed by a charterer, by an owner pro hac
any vessel - even though it be a foreign vessel - found in any vice, or by an agreed purchaser in possession of the vessel; but
port of this Archipelago may be attached and sold under the nothing in this Decree shall be construed to confer a lien when
substantive law which defines the right, and the procedural law the furnisher knew, or by exercise of reasonable diligence could
contained in the Code of Commerce by which this right is to be have ascertained, that because of the terms of a charter party,
enforced.9 x x x.But where neither the law nor the contract agreement for sale of the vessel, or for any other reason, the
between the parties creates any lien or charge upon the vessel, person ordering the repairs, supplies, or other necessaries was
the only way in which it can be seized before judgment is by without authority to bind the vessel therefor.
pursuing the remedy relating to attachment under Rule 59 [now
Rule 57] of the Rules of Court.10 Petitioner Crescent submits that these provisions apply to both
domestic and foreign vessels, as well as domestic and foreign
But, is petitioner Crescent entitled to a maritime lien under our suppliers of necessaries. It contends that the use of the term
laws? Petitioner Crescent bases its claim of a maritime lien "any person" in Section 21 implies that the law is not restricted
on Sections 21, 22 and 23 of Presidential Decree No. to domestic suppliers but also includes all persons who supply
1521 (P.D. No. 1521), also known as the Ship Mortgage provisions and necessaries to a vessel, whether foreign or
Decree of 1978, viz: domestic. It points out further that the law does not indicate that
the supplies or necessaries must be furnished in the Philippines
Sec. 21. Maritime Lien for Necessaries; persons entitled to such in order to give petitioner the right to seek enforcement of the
lien. - Any person furnishing repairs, supplies, towage, use of lien with a Philippine court.11
dry dock or maritime railway, or other necessaries, to any
vessel, whether foreign or domestic, upon the order of the Respondents Vessel and SCI, on the other hand, maintain that
owner of such vessel, or of a person authorized by the owner, Section 21 of the P.D. No. 1521 or the Ship Mortgage Decree of
shall have a maritime lien on the vessel, which may be enforced 1978 does not apply to a foreign supplier like petitioner Crescent
by suit in rem, and it shall be necessary to allege or prove that as the provision refers only to a situation where the person
credit was given to the vessel. furnishing the supplies is situated inside the territory of the
Philippines and not where the necessaries were furnished in a
Sec. 22. Persons Authorized to Procure Repairs, Supplies and foreign jurisdiction like Canada.12
Necessaries. - The following persons shall be presumed to have
authority from the owner to procure repairs, supplies, towage, We find against petitioner Crescent.
use of dry dock or marine railway, and other necessaries for the
vessel: The managing owner, ship's husband, master or any I.
person to whom the management of the vessel at the port of
supply is entrusted. No person tortuously or unlawfully in
P.D. No. 1521 or the Ship Mortgage Decree of 1978 was that Danish law and not the Jones Act was applicable, the
enacted "to accelerate the growth and development of the Supreme Court adopted a multiple-contact test to determine,
shipping industry" and "to extend the benefits accorded to in the absence of a specific Congressional directive as to the
overseas shipping under Presidential Decree No. 214 to statute's reach, which jurisdiction's law should be applied. The
domestic shipping."13 It is patterned closely from the U.S. Ship following factors were considered: (1) place of the wrongful
Mortgage Act of 1920 and the Liberian Maritime Law relating to act; (2) law of the flag; (3) allegiance or domicile of the
preferred mortgages.14 Notably, Sections 21, 22 and 23 of P.D. injured; (4) allegiance of the defendant shipowner; (5) place
No. 1521 or the Ship Mortgage Decree of 1978 are identical to of contract; (6) inaccessibility of foreign forum; and (7) law
Subsections P, Q, and R, respectively, of the U.S. Ship of the forum.
Mortgage Act of 1920, which is part of the Federal Maritime Lien
Act. Hence, U.S. jurisprudence finds relevance to determining Several years after Lauritzen, the U.S. Supreme Court in the
whether P.D. No. 1521 or the Ship Mortgage Decree of 1978 case of Romero v. International Terminal Operating
applies in the present case. Co.22 again considered a foreign seaman's personal injury claim
under both the Jones Act and the general maritime law. The
The various tests used in the U.S. to determine whether a Court held that the factors first announced in the case of
maritime lien exists are the following: Lauritzen were applicable not only to personal injury claims
arising under the Jones Act but to all matters arising under
One. "In a suit to establish and enforce a maritime lien for maritime law in general.23
supplies furnished to a vessel in a foreign port, whether such
lien exists, or whether the court has or will exercise jurisdiction, Hellenic Lines, Ltd. v. Rhoditis24 was also a suit under the
depends on the law of the country where the supplies were Jones Act by a Greek seaman injured aboard a ship of Greek
furnished, which must be pleaded and proved."15 This principle registry while in American waters. The ship was operated by a
was laid down in the 1888 case of The Scotia,16 reiterated Greek corporation which has its largest office in New York and
in The Kaiser Wilhelm II17 (1916), in The Woudrichem18 (1921) another office in New Orleans and whose stock is more than
and in The City of Atlanta19 (1924). 95% owned by a U.S. domiciliary who is also a Greek citizen.
The ship was engaged in regularly scheduled runs between
Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which various ports of the U.S. and the Middle East, Pakistan, and
replaced such single-factor methodologies as the law of the India, with its entire income coming from either originating or
place of supply.20 terminating in the U.S. The contract of employment provided
that Greek law and a Greek collective bargaining agreement
In Lauritzen v. Larsen,21 a Danish seaman, while temporarily in would apply between the employer and the seaman and that all
New York, joined the crew of a ship of Danish flag and registry claims arising out of the employment contract were to be
that is owned by a Danish citizen. He signed the ship's articles adjudicated by a Greek court. The U.S. Supreme Court
providing that the rights of the crew members would be observed that of the seven factors listed in the Lauritzen
governed by Danish law and by the employer's contract with the test, four were in favor of the shipowner and against
Danish Seamen's Union, of which he was a member. While in jurisdiction. In arriving at the conclusion that the Jones Act
Havana and in the course of his employment, he was applies, it ruled that the application of the Lauritzen test is not a
negligently injured. He sued the shipowner in a federal district mechanical one. It stated thus: "[t]he significance of one or more
court in New York for damages under the Jones Act. In holding factors must be considered in light of the national interest
served by the assertion of Jones Act jurisdiction. (footnote limited to the unique circumstances surrounding a maritime lien
omitted) Moreover, the list of seven factors in Lauritzen was not as well as the statutory directives found in the Maritime Lien
intended to be exhaustive. x x x [T]he shipowner's base of Statute and that the initial choice of law determination is
operations is another factor of importance in determining significantly affected by the statutory policies surrounding
whether the Jones Act is applicable; and there well may be a maritime lien. It ruled that the facts in the case call for the
others." application of the Restatement (Second) of Conflicts of Law.
The U.S. Court gave much significance to the congressional
The principles enunciated in these maritime tort cases have intent in enacting the Maritime Lien Statute to protect the
been extended to cases involving unpaid supplies and interests of American supplier of goods, services or necessaries
necessaries such as the cases of Forsythe International U.K., by making maritime liens available where traditional services are
Ltd. v. M/V Ruth Venture,25and Comoco Marine Services v. routinely rendered. It concluded that the Maritime Lien Statute
M/V El Centroamericano.26 represents a relevant policy of the forum that serves the needs
of the international legal system as well as the basic policies
Three. The factors provided in Restatement (Second) of underlying maritime law. The court also gave equal importance
Conflicts of Law have also been applied, especially in to the predictability of result and protection of justified
resolving cases brought under the Federal Maritime Lien Act. expectations in a particular field of law. In the maritime realm, it
Their application suggests that in the absence of an effective is expected that when necessaries are furnished to a vessel in
choice of law by the parties, the forum contacts to be considered an American port by an American supplier, the American Lien
include: (a) the place of contracting; (b) the place of negotiation Statute will apply to protect that supplier regardless of the place
of the contract; (c) the place of performance; (d) the location of where the contract was formed or the nationality of the vessel.
the subject matter of the contract; and (e) the domicile,
residence, nationality, place of incorporation and place of The same principle was applied in the case of Swedish
business of the parties.27 Telecom Radio v. M/V Discovery I29 where the American court
refused to apply the Federal Maritime Lien Act to create a
In Gulf Trading and Transportation Co. v. The Vessel Hoegh maritime lien for goods and services supplied by foreign
Shield,28 an admiralty action in rem was brought by an companies in foreign ports. In this case, a Swedish company
American supplier against a vessel of Norwegian flag owned by supplied radio equipment in a Spanish port to refurbish a
a Norwegian Company and chartered by a London time Panamanian vessel damaged by fire. Some of the contract
charterer for unpaid fuel oil and marine diesel oil delivered while negotiations occurred in Spain and the agreement for supplies
the vessel was in U.S. territory. The contract was executed in between the parties indicated Swedish company's willingness to
London. It was held that because the bunker fuel was delivered submit to Swedish law. The ship was later sold under a contract
to a foreign flag vessel within the jurisdiction of the U.S., and of purchase providing for the application of New York law and
because the invoice specified payment in the U.S., the admiralty was arrested in the U.S. The U.S. Court of Appeals also held
and maritime law of the U.S. applied. The U.S. Court of Appeals that while the contacts-based framework set forth in Lauritzen
recognized the modern approach to maritime conflict of law was useful in the analysis of all maritime choice of law
problems introduced in the Lauritzen case. However, it observed situations, the factors were geared towards a seaman's injury
that Lauritzen involved a torts claim under the Jones Act while claim. As in Gulf Trading, the lien arose by operation of law
the present claim involves an alleged maritime lien arising from because the ship's owner was not a party to the contract under
unpaid supplies. It made a disclaimer that its conclusion is which the goods were supplied. As a result, the court found it
more appropriate to consider the factors contained in Section 6 if they are not entitled to a maritime lien under their laws will
of the Restatement (Second) of Conflicts of Law. The U.S. Court encourage forum shopping.
held that the primary concern of the Federal Maritime Lien Act is
the protection of American suppliers of goods and services. Finally. The submission of petitioner is not in keeping with the
reasonable expectation of the parties to the contract. Indeed,
The same factors were applied in the case of Ocean Ship when the parties entered into a contract for supplies in Canada,
Supply, Ltd. v. M/V Leah.30 they could not have intended the laws of a remote country like
the Philippines to determine the creation of a lien by the mere
II. accident of the Vessel's being in Philippine territory.

Finding guidance from the foregoing decisions, the Court cannot III.
sustain petitioner Crescent's insistence on the application of
P.D. No. 1521 or the Ship Mortgage Decree of 1978 and hold But under which law should petitioner Crescent prove the
that a maritime lien exists. existence of its maritime lien?cralawlibrary

First. Out of the seven basic factors listed in the case In light of the interests of the various foreign elements involved,
of Lauritzen, Philippine law only falls under one - the law of the it is clear that Canada has the most significant interest in this
forum. All other elements are foreign - Canada is the place of dispute. The injured party is a Canadian corporation, the sub-
the wrongful act, of the allegiance or domicile of the injured and charterer which placed the orders for the supplies is also
the place of contract; India is the law of the flag and the Canadian, the entity which physically delivered the bunker fuels
allegiance of the defendant shipowner. Balancing these basic is in Canada, the place of contracting and negotiation is in
interests, it is inconceivable that the Philippine court has any Canada, and the supplies were delivered in Canada.
interest in the case that outweighs the interests of Canada or
India for that matter. The arbitration clause contained in the Bunker Fuel Agreement
which states that New York law governs the "construction,
Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is validity and performance" of the contract is only a factor that
inapplicable following the factors under Restatement (Second) may be considered in the choice-of-law analysis but is not
of Conflict of Laws. Like the Federal Maritime Lien Act of the conclusive. As in the cases of Gulf Trading and Swedish
U.S., P.D. No. 1521 or the Ship Mortgage Decree of 1978 was Telecom, the lien that is the subject matter of this case arose by
enacted primarily to protect Filipino suppliers and was not operation of law and not by contract because the shipowner was
intended to create a lien from a contract for supplies between not a party to the contract under which the goods were supplied.
foreign entities delivered in a foreign port.
It is worthy to note that petitioner Crescent never alleged and
Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of proved Canadian law as basis for the existence of a maritime
1978 and rule that a maritime lien exists would not promote the lien. To the end, it insisted on its theory that Philippine law
public policy behind the enactment of the law to develop the applies. Petitioner contends that even if foreign law applies,
domestic shipping industry. Opening up our courts to foreign since the same was not properly pleaded and proved, such
suppliers by granting them a maritime lien under our laws even foreign law must be presumed to be the same as Philippine law
pursuant to the doctrine of processual presumption.
Thus, we are left with two choices: (1) dismiss the case for Third. It was not established that credit was extended to the
petitioner's failure to establish a cause of action 31 or (2) presume vessel. It is presumed that "in the absence of fraud or collusion,
that Canadian law is the same as Philippine law. In either case, where advances are made to a captain in a foreign port, upon
the case has to be dismissed. his request, to pay for necessary repairs or supplies to enable
his vessel to prosecute her voyage, or to pay harbor dues, or for
It is well-settled that a party whose cause of action or defense pilotage, towage and like services rendered to the vessel, that
depends upon a foreign law has the burden of proving the they are made upon the credit of the vessel as well as upon that
foreign law. Such foreign law is treated as a question of fact to of her owners."36 In this case, it was the sub-charterer Portserv
be properly pleaded and proved. 32 Petitioner Crescent's which requested for the delivery of the bunker fuels. The
insistence on enforcing a maritime lien before our courts issuance of two checks amounting to US$300,000 in favor of
depended on the existence of a maritime lien under the proper petitioner Crescent prior to the delivery of the bunkers as
law. By erroneously claiming a maritime lien under Philippine security for the payment of the obligation weakens petitioner
law instead of proving that a maritime lien exists under Crescent's contention that credit was extended to the Vessel.
Canadian law, petitioner Crescent failed to establish a cause of
action.33 We also note that when copies of the charter parties were
submitted by respondents in the Court of Appeals, the time
Even if we apply the doctrine of processual presumption, the charters between respondent SCI and Halla and between Halla
result will still be the same. Under P.D. No. 1521 or the Ship and Transmar were shown to contain a clause which states that
Mortgage Decree of 1978, the following are the requisites for "the Charterers shall provide and pay for all the fuel except as
maritime liens on necessaries to exist: (1) the "necessaries" otherwise agreed." This militates against petitioner Crescent's
must have been furnished to and for the benefit of the vessel; position that Portserv is authorized by the shipowner to contract
(2) the "necessaries" must have been necessary for the for supplies upon the credit of the vessel.
continuation of the voyage of the vessel; (3) the credit must
have been extended to the vessel; (4) there must be necessity Fourth. There was no proof of necessity of credit. A necessity of
for the extension of the credit; and (5) the necessaries must be credit will be presumed where it appears that the repairs and
ordered by persons authorized to contract on behalf of the supplies were necessary for the ship and that they were ordered
vessel.34 These do not avail in the instant case. by the master. This presumption does not arise in this case
since the fuels were not ordered by the master and there was no
First. It was not established that benefit was extended to the proof of necessity for the supplies.
vessel. While this is presumed when the master of the ship is
the one who placed the order, it is not disputed that in this case Finally. The necessaries were not ordered by persons
it was the sub-charterer Portserv which placed the orders to authorized to contract in behalf of the vessel as provided under
petitioner Crescent.35Hence, the presumption does not arise and Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of
it is incumbent upon petitioner Crescent to prove that benefit 1978 - the managing owner, the ship's husband, master or any
was extended to the vessel. Petitioner did not. person with whom the management of the vessel at the port of
supply is entrusted. Clearly, Portserv, a sub-charterer under a
Second. Petitioner Crescent did not show any proof that the time charter, is not someone to whom the management of the
marine products were necessary for the continuation of the vessel has been entrusted. A time charter is a contract for the
vessel. use of a vessel for a specified period of time or for the duration
of one or more specified voyages wherein the owner of the time-
chartered vessel retains possession and control through the
master and crew who remain his employees.37 Not enjoying the
presumption of authority, petitioner Crescent should have
proved that Portserv was authorized by the shipowner to
contract for supplies. Petitioner failed.

A discussion on the principle of forum non conveniens is

unnecessary.

IN VIEW WHEREOF, the Decision of the Court of Appeals in

CA-G.R. No. CV 54920, dated November 28, 2001, and its
subsequent Resolution of September 3, 2002 are AFFIRMED.
The instant Petition for Review on Certiorari is DENIED for lack
of merit. Cost against petitioner.

SO ORDERED.
 Republic of the Philippines landing to boats at anchor, and which was owned and operated
SUPREME COURT by the defendant Albino Jison, with Juan Duruelo as patron. The
Manila engineer (maquinista) aboard on this trip was one Rodolin
Duruelo, a boy of only 16 years of age. He is alleged to have
EN BANC been a mere novice without experience in the running of motor
boats; and the day of the occurrence now in contemplation is
G.R. No. L-29166             October 22, 1928 said to have been the third day of his apprenticeship in this
capacity. It is alleged that the Jison, upon this trip, was grossly
AUGUSTO LOPEZ, plaintiff-appellant,  overladen, having aboard fourteen passengers, while its
vs. capacity was only for eight or nine. As the motor boat
JUAN DURUELO, ET AL., defendants.  approached the San Jacinto in a perfectly quiet sea, it came too
ALBINO JISON, appellee. near to the stern of the ship, and as the propeller of the ship had
not yet ceased to turn, the blades of the propeller struck the
Angel S. Gamboa for appellant.  motor boat and sank it at once. It is alleged in the complaint that
Feria and La O for appellee. the approach of the Jison to this dangerous proximity with the
propeller of the San Jacinto was due to the fault, negligence and
lack of skill of the defendant Juan Duruelo, as patron of the
Jison. As the Jison sank, the plaintiff was thrown into the water
STREET, J.: against the propeller, and the revolving blades inflicted various
injuries upon him, consisting of a bruise in the breast, two
This action was instituted in the Court of First Instance of serious fractures of the bones of the left leg, and a compound
Occidental Negros by Augusto Lopez, for the purpose of fracture of the left femur. As a consequence of these injuries the
recovering damages for personal injuries inflicted upon him by plaintiff was kept in bed in a hospital in the City of Manila from
reason of the negligence of the defendants, Juan Duruelo and the 28th of February until October 19 of the year 1927, or
Albino Jison. The defendants demurred to the complaint, and approximately eight months. In the conclusion of his complaint
the demurrer having been sustained, the plaintiff elected to the plaintiff sets out the various items of damage which he
stand upon his complaint, which was accordingly dismissed; and suffered, amounting in all to something more than P120,000.
the plaintiff appealed. These damages he seeks to recover of the defendants in this
action.
The facts necessary to an understanding of the case as set out
in the complaint are briefly these: On February 10, 1927, the As a general ground of demurrer it is assigned by the
plaintiff, who is a resident of the municipality of Silay, Occidental defendants that the complaint does not show a right of action,
Negros, was desirous of embarking upon the interisland and in the course of the argument submitted with the demurrer
steamer San Jacinto in order to go to Iloilo. This boat was at the attention is directed to the fact that the complaint does not
time in the anchoring-ground of the port of Silay, some half a allege that a protest had been presented by the plaintiff, within
mile distant from the port. The plaintiff therefore embarked at the twenty-four hours after the occurrence, to the competent
landing in the motor boat Jison, which was then engaged in authority at the port where the accident occured. It is
conveying passengers and luggage back and forth from the
accordingly insisted that, under article 835 of the Code of When the mercantile codes speak of vessels, they refer
Commerce, the plaintiff has shown no cause of action. solely and exclusively to merchant ships, as they do not
include war ships furthermore, they almost always refer
Assuming that the article of the Code of Commerce relied upon to craft which are not accessory to another as is the case
states a condition precedent to the maintenance of an action in of launches, lifeboats, etc. Moreover, the mercantile laws,
case where protest is required and that the making of protest in making use of the words ship, vessels, boat,
must be alleged in the complaint in order to show a good cause embarkation, etc., refer exclusively to those which are
of action — an assumption that is possibly without basis, for the engaged in the transportation of passengers and freight
reason that lack of protest in a case where protest is necessary from one port to another or from one place to another; in
would seem to supply matter of defense proper to be set up in a word, they refer to merchant vessels and in no way can
the answer, — we nevertheless are of the opinion that protest they or should they be understood as referring to
was not necessary in the case now before us. The article in pleasure craft, yachts, pontoons, health service and
question (835, Code of Com.) is found in the section dealing harbor police vessels, floating storehouses, warships or
with collisions, and the context shows the collisions intended are patrol vessels, coast guard vessels, fishing vessels,
collisions of sea-going vessels. Said article cannot be applied to towboats, and other craft destined to other uses, such as
small boats engaged in river and bay traffic. The Third Book of for instance coast and geodetic survey, those engaged in
the Code of Commerce, dealing with Maritime Commerce, of scientific research and exploration, craft engaged in the
which the section of Collisions forms a part, was evidently loading and discharge of vessels from same to shore or
intended to define the law relative to mechant vessels and docks, or in transhipment and those small craft which in
marine shipping; and, as appears from said Code, the vessels harbors, along shore, bays, inlets, coves and anchorages
intended in that Book are such as are run by masters having are engaged in transporting passengers and baggage.
special training, with the elaborate apparatus of crew and (Estasen, Der. Mer., vol IV, p. 195.)
equipment indicated in the Code. The word "vessel" (Spanish
"buque," "nave"), used in the section referred to was not In Yu Con vs. Ipil (41 Phil., 770), this court held that a small
intended to include all ships, craft or floating structures of every vessel used for the transportation of merchandise by sea and for
kind without limitation, and the provisions of that section should the making of voyages from one port to another of these
not be held to include minor craft engaged only in river and bay Islands, equipped and victualed for this purpose by its owner, is
traffic. Vessels which are licensed to engage in maritime a vessel, within the purview of the Code of Commerce, for the
commerce, or commerce by sea, whether in foreign or determination of the character and effect of the relations created
coastwise trade, are no doubt regulated by Book III of the Code between the owners of the merchandise laden on it and its
of Commerce. Other vessels of a minor nature not engaged in owner. In the case before us the Jison, as we are informed in
maritime commerce, such as river boats and those carrying the complaint, was propelled by a second-hand motor, originally
passengers from ship to shore, must be governed, as to their used for a tractor plow; and it had a capacity for only eight
liability to passengers, by the provisions of the Civil Code or persons. The use to which it was being put was the carrying of
other appropriate special provisions of law. passengers and luggage between the landing at Silay and ships
in the harbor. This was not such a boat as is contemplated in
This conclusion is substantiated by the writer Estasen who article 835 of the Code of Commerce, requiring protest in case
makes comment upon the word "vessel" to the following effect: of collision.
In Yu Con vs. Ipil, supra, the author of the opinion quotes a considered not only those engaged in navigation, whether
passage from the treaties on Mercantile Law by Blanco. We now coastwise or on the high seas, but also floating docks,
have before us the latest edition of Blanco, and we reproduced pantoons, dredges, scows and any other floating apparatus
here, in both Spanish and English, not only the passage thus destined for the service of the industry or maritime commerce.
quoted but also the sentence immediately following said
passage; and this latter part of the quotation is quite pertinent to Yet notwithstanding these principles from which it would
the point now under consideration. seem that any

Says Blanco: floating apparatus which serves directly for the

transportation of things or persons or which inderectly is
Las palabras "nave" y "buque", en su sentido gramatical related to this industry, ought to be subjected to the
se aplican para designar cualquier clase de principles of the Code with reference to ownership,
embarcaciones, grandes o pequenas, mercantes o de transfer, rights, registration, etc., we agre with Benito
guerra, significacion que no difiere esencialmente de la (obra cit.) and it so happens in practice that they are not
juridica, con arreglo a la cual se consideran buques para aplicable to small which are subject to administrative
los efectos del Codigo y del Reglamento para la (customs) regulations in the matter of port service and in
organizacion del Registro mencantile, no solo las the fishing industry.1awph!l.net
embarcaciones destinadas a la navegacion de cabo taje
o altura, sino tambien los diques flotantes, pontones, We may add that the word "nave" in Spanish, which is used
dragas, ganguiles y cualquier otro aparato flotante interchangeably with "buque" in the Code of Commerce, means,
destinado a servicios de la industria o del comercio according to the Spanish-English Dictionary complied by
maritimo. "Aun cuando, corforme a este concepto legal, Edward R. Bensley and published at Paris in the year 1896,
parece que todo aparato flotante que sirve directamente "Ship, a vessel with decks and sails." Particularly significant in
para el trasporte de cosas o personas, o que this definition is the use of the word "decks" since a deck is not
inderectamente se relacionen con esta industria, han de a feature of the smallest types of water craft.
sujertarse a los preceptos del Codigo sobre propiedad,
transmision, derechos, inscripciones, etc., entendemos In this connection a most instructive case from a Federal Court
con el Sr. Benito (obra cit.) y asi ocurre en la practica, in the United States is that of the Mamie (5 Fed., 813), wherein
que no son aplicables a las pequeñas embarcaciones, it was held that only vessels engaged in what is ordinarily known
que solo estan sujetas a los de la administracion de as maritime commerce are within the provisions of law
marina para el servicio de los puertos o ejercicio de la conferring limited liability on the owner in case maritime
industria de la pesca. (Blanco, Der. Mer., vol. II, pag. 22.) disaster. In the course of the opinion in that case the author
cites the analogous provisions in the laws of foreign maritime,
The words "ship" (nave) and "vessel" (buque), in their nations, especially the provisions of the Commercial Code of
grammatical sense, are applied to designate every kind of craft, France; and it is observed that the word "vessel" in these codes
large or small, merchant vessels or war vessels, a signification is limited to ships and other sea-going vessels. "Its provisions
which does not differ essentially from its juridical meaning, are not applicable," said the court, "to vessels in inland
according to which vessels for the purposes of the Code and navigation, which are especially designated by the name of
Regulations for the organization of the Mercantile Registry, are boats." Quoting from the French author Dufour (1 Droit Mer.,
121), the writer of the opinion in the case cited further says: when, under any reasonable interpretation of the complaint, a
"Thus, as a general rule, it appears to me clearly, both by the cause of action can be made out; and the fact that a complaint
letter and spirit of the law, that the provisions of the Second is inartificially drawn or in a certain degree lacking in precision
Book of the Commercial Code [French] relate exclusively to constitutes no sufficient reason for dismissing it. In passing upon
maritime and not to fluvial navigation; and that consequently the a demurrer, every reasonable intendment is to be taken in favor
word 'ship' when it is found in these provisions, ought to be of the pleader. In this connection it should be borne in mind that
understand in the sense of a vessel serving the purpose of if a complaint does not show a good cause of action, the action
maritime navigation of seagoing vessel, and not in the sense of can be dismissed at a later stage of the proceedings; and even
a vessel devoted to the navigation of rivers." where no objection has been previously made, the point can be
raised in the Supreme Court under section 93 of the Code of
It is therefore clear that a passenger on a boat like the Jison, in Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little or no
the case before us, is not required to make protest as a appreciable prejudice to the defendant will therefore ordinarily
condition precedent to his right of action for the injury suffered result from overruling a demurrer, and no harm is done to
by him in the collision described in the complaint. In other anyone by requiring the defendant to answer. On the contrary,
words, article 835 of the Code of Commerce does not apply. But grave prejudice may result to a plaintiff from the erroneous
even if said provision had been considered applicable to the sustaining of a demurrer, because of the delay and even
case in hand, a fair interpretation of the allegations of the expense necessary to set the matter right upon appeal.
complaint indicates, we think, that the injuries suffered by the
plaintiff in this case were of such a nature as to excuse protest; The judgment appealed from is reversed, the demurrer
for, under article 836, it is provided that want to protest cannot overruled, and the defendant is required to answer the
prejudice a person not in a condition to make known his wishes. complaint within five days after notification of the return of this
An individual who has suffered a compound fracture of the decision to the court of origin. So ordered, with costs against the
femur and received other physical injuries sufficient to keep him appellee.
in a hospital for may months, cannot be supposed to have in a
condition to make protest within twenty-four hours of such Johnson, Malcolm, Villamor and Romualdez, JJ., concur. 
occurrence. It follows that the demurrer in this case was not well Ostrand, J., concurs in the result.
taken and should have been overruled.

In their brief in this court the attorneys for the defendant have
criticised the complaint for a general lack of certainty and
precision in more than one respect. However, we have read the
document attentively and, in our opinion, it states a good cause
of action upon a civil liability arising from tort under articles 1902
and 1903 of the Civil Code, and our attention has not been
drawn to any provision of law which would constitute an
obstacle to the maintenance of the action.

We have repeatedly called the attention of trial courts to the

general rule that a case should not be dismissed on demurrer
 Republic of the Philippines Shipping Corporation (GALLEON). It also prays that NDC and
SUPREME COURT DBP be ordered to pay the attorney’s fees and costs of the
proceedings as solidary debtors. In G.R. No. 143877, petitioner
SECOND DIVISION NDC seeks the reversal of the Court of
Appeals’ Decision ordering it to pay POLIAND the amount of
G.R. No. 143866. August 22, 2005 One Million Nine Hundred Twenty Thousand Two Hundred
Ninety-Eight and 56/100 United States Dollars
POLIAND INDUSTRIAL LIMITED, Petitioners,  (US$1,920,298.56), corresponding to the maritime lien in favor
vs. of POLIAND, plus interest.
NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT
BANK OF THE PHILIPPINES, and THE HONORABLE COURT ANTECEDENTS
OF APPEALS (Fourteenth Division) respondents.
The following factual antecedents are matters of record.
G.R. No. 143877. August 22, 2005
Between October 1979 and March 1981, Asian Hardwood
NATIONAL DEVELOPMENT COMPANY, Petitioners,  Limited (Asian Hardwood), a Hong Kong corporation, extended
vs. credit accommodations in favor of GALLEON totaling
POLIAND INDUSTRIAL LIMITED, Respondent. US$3,317,747.32.2 At that time, GALLEON, a domestic
corporation organized in 1977 and headed by its president,
DECISION Roberto Cuenca, was engaged in the maritime transport of
goods. The advances were utilized to augment GALLEON’s
TINGA, J.: working capital depleted as a result of the purchase of five new
vessels and two second-hand vessels in 1979 and
Before this Court are two Rule 45 consolidated petitions for competitiveness of the shipping industry. GALLEON had
review seeking the review of the Decision1 of the Court of incurred an obligation in the total amount of US$3,391,084.91 in
Appeals (Fourth Division) in CA-G.R. CV No. 53257, which favor of Asian Hardwood.
modified the Decision of the Regional Trial Court, Branch 61,
Makati City in Civil Case No. 91-2798. Upon motion of the To finance the acquisition of the vessels, GALLEON obtained
Development Bank of the Philippines (DBP), the two petitions loans from Japanese lenders, namely, Taiyo Kobe Bank, Ltd.,
were consolidated since both assail the same Decision of the Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979,
Court of Appeals. GALLEON, through Cuenca, and DBP executed a Deed of
Undertaking3 whereby DBP guaranteed the prompt and punctual
In G.R. No. 143866, petitioner Poliand Industrial Limited payment of GALLEON’s borrowings from the Japanese lenders.
(POLIAND) seeks judgment declaring the National Development To secure DBP’s guarantee under the Deed of Undertaking,
Company (NDC) and the DBP solidarily liable in the amount of GALLEON promised, among others, to secure a first mortgage
US$2,315,747.32, representing the maritime lien in favor of on the five new vessels and on the second-hand vessels. Thus,
POLIAND and the net amount of loans incurred by Galleon GALLEON executed on January 25, 1982 a mortgage contract
over five of its vessels namely, M/V "Galleon Honor," M/V
"Galleon Integrity," M/V "Galleon Dignity," M/V "Galleon Pride," embodied in a Deed of Assignment executed on April 29,
and M/V "Galleon Trust" in favor of DBP. 4 1989.10 World Universal, in turn, assigned the credit to petitioner
POLIAND sometime in July 1989.11
Meanwhile, on January 21, 1981, President Ferdinand Marcos
issued Letter of Instruction (LOI) No. 1155, directing NDC to On March 24, 1988, then President Aquino issued
acquire the entire shareholdings of GALLEON for the amount Administrative Order No. 64, directing NDC and Philippine
originally contributed by its shareholders payable in five (5) Export and Foreign Loan Guarantee Corporation (now Trade
years without interest cost to the government. In the same LOI, and Investment Development Corporation of the Philippines) to
DBP was to advance to GALLEON within three years from its transfer some of their assets to the National Government,
effectivity the principal amount and the interest thereon of through the Asset Privatization Trust (APT) for disposition.
GALLEON’s maturing obligations. Among those transferred to the APT were the five GALLEON
vessels sold at the foreclosure proceedings.
On August 10, 1981, GALLEON, represented by its president,
Cuenca, and NDC, represented by Minister of Trade Roberto On September 24, 1991, POLIAND made written demands on
Ongpin, forged a Memorandum of Agreement,5 whereby NDC GALLEON, NDC, and DBP for the satisfaction of the
and GALLEON agreed to execute a share purchase agreement outstanding balance in the amount of US$2,315,747.32. 12 For
within sixty days for the transfer of GALLEON’s shareholdings. failure to heed the demand, POLIAND instituted a collection suit
Thereafter, NDC assumed the management and operations of against NDC, DBP and GALLEON filed on October 10, 1991
GALLEON although Cuenca remained president until May 9, with the Regional Trial Court, Branch 61, Makati City. POLIAND
1982.6 Using its own funds, NDC paid Asian Hardwood on claimed that under LOI No. 1155 and the Memorandum of
January 15, 1982 the amount of US$1,000,000.00 as partial Agreement between GALLEON and NDC, defendants
settlement of GALLEON’s obligations.7 GALLEON, NDC, and DBP were solidarily liable to POLIAND as
assignee of the rights of the credit advances/loan
On February 10, 1982, LOI No. 1195 was issued directing the accommodations to GALLEON. POLIAND also claimed that it
foreclosure of the mortgage on the five vessels. For failure of had a preferred maritime lien over the proceeds of the
GALLEON to pay its debt despite repeated demands from DBP, extrajudicial foreclosure sale of GALLEON’s vessels mortgaged
the vessels were extrajudicially foreclosed on various dates and by NDC to DBP. The complaint prayed for judgment ordering
acquired by DBP for the total amount of ₱539,000,000.00. DBP NDC, DBP, and GALLEON to pay POLIAND jointly and
subsequently sold the vessels to NDC for the same amount. 8 severally the balance of the credit advances/loan
accommodations in the amount of US$2,315,747.32 and
On April 22, 1982, the Board of Directors of GALLEON attorney’s fees of ₱100,000.00 plus 20% of the amount
amended the Articles of Incorporation changing the corporate recovered. By way of an alternative cause of action, POLIAND
name from Galleon Shipping Corporation to National Galleon sought reimbursement from NDC and DBP for the preferred
Shipping Corporation and increasing the number of directors maritime lien of US$1,193,298.56.13
from seven to nine.9
In its Answer with Compulsory Counterclaim and Cross-claim,
Asian Hardwood assigned its rights over the outstanding DBP denied being a party to any of the alleged loan
obligation of GALLEON of US$2,315,747.32 to World Universal transactions. Accordingly, DBP argued that POLIAND’s
Trading and Investment Company, S.A. (World Universal), complaint stated no cause of action against DBP or was barred
by the Statute of Frauds because DBP did not sign any No. 1155, DBP and NDC are liable for those obligations. The
memorandum to act as guarantor for the alleged credit trial court also found NDC liable for GALLEON’s obligations
advances/loan accommodations in favor of POLIAND. DBP also based on the Memorandum of Agreement dated August 1981
denied any liability under LOI No. 1155, which it described as executed between GALLEON and NDC, where it was provided
immoral and unconstitutional, since it was rescinded by LOI No. that NDC shall prioritize repayments of GALLEON’s valid and
1195. By way of its Affirmative Allegations and Defenses, DBP subsisting liabilities subject of a meritorious lawsuit or which
countered that it was unaware of the maritime lien on the five have been arranged and guaranteed by Cuenca. The trial court
vessels mortgaged in its favor and that as far as GALLEON’s was of the opinion that despite the subsequent issuance of LOI
foreign borrowings are concerned, DBP agreed to act as No. 1195, NDC and DBP’s obligation under LOI No. 1155
guarantor thereof only under the conditions laid down under subsisted because "vested rights of the parties have arisen
the Deed of Undertaking. DBP prayed for the award of actual, therefrom." Accordingly, the trial court interpreted LOI No.
moral and exemplary damages and attorney’s fees against 1195’s directive to "limit and protect" to mean that "DBP and
POLIAND as compulsory counterclaim. In the event that it be NDC should not assume or incur additional exposure with
adjudged liable for the payment of the loan accommodations respect to GALLEON."17
and the maritime liens, DBP prayed that its co-defendant
GALLEON be ordered to indemnify DBP for the full amount. 14 The trial court dismissed NDC’s argument that
the Memorandum of Agreement was merely a preliminary
For its part, NDC denied any participation in the execution of the agreement, noting that under paragraph nine thereof, the only
loan accommodations/credit advances and acquisition of condition for the payment of GALLEON’s subsisting loans by
ownership of GALLEON, asserting that it acted only as manager NDC was the determination by the latter that those obligations
of GALLEON. NDC specifically denied having agreed to the were incurred in the ordinary course of GALLEON’s business.
assumption of GALLEON’s liabilities because no purchase and The trial court did not regard the non-execution of the stock
sale agreement was executed and the delivery of the required purchase agreement as fatal to POLIAND’s cause since its non-
shares of stock of GALLEON did not take place.15 happening was solely attributable to NDC. The trial court also
ruled that POLIAND had preference to the maritime lien over the
Upon motion by POLIAND, the trial court dropped GALLEON as proceeds of the extrajudicial foreclosure sale of GALLEON’s
a defendant, despite vigorous oppositions from NDC and DBP. vessels since the loan advances/credit accommodations utilized
At the pre-trial conference on April 29, 1993, the trial court for the payment of expenses on the vessels were obtained prior
issued an Order limiting the issues to the following: (1) whether to the constitution of the mortgage in favor of DBP.
or not GALLEON has an outstanding obligation in the amount of
US$2,315,747.32; (2) whether or not NDC and DBP may be In sum, NDC and DBP were ordered to pay POLIAND as
held solidarily liable therefor; and (3) whether or not there exists follows:
a preferred maritime lien of ₱1,000,000.00 in favor of
POLIAND.16 WHEREFORE, premises above considered, judgment is hereby
rendered for plaintiff as against defendants DBP and NDC, who
After trial on the merits, the court a quo rendered a decision on are hereby ORDERED as follows:
August 9, 1996 in favor of POLIAND. Finding that GALLEON’s
loan advances/credit accommodations were duly established by 1. To jointly and severally PAY plaintiff POLIAND the amount of
the evidence on record, the trial court concluded that under LOI TWO MILLION THREE HUNDRED FIFTEEN THOUSAND
SEVEN HUNDRED FORTY SEVEN AND 21/100 [sic] United The award of attorney’s fees and cost of suit is addressed only
States Dollars (US$2,315,747.32) computed at the official against NDC.
exchange rate at the time of payment, plus interest at the rate of
12% per annum from 25 September 1991 until fully paid; Costs against defendant-appellant NDC.

2. To PAY the amount of ONE MILLION (₱1,000,000.) Pesos, SO ORDERED.19

Philippine Currency, for and as attorney’s fees; and
Not satisfied with the modified judgment, both POLIAND and
3. To PAY the costs of the proceedings. NDC elevated it to this Court via two separate petitions for
review on certiorari. In G.R. No. 143866 filed on August 21,
SO ORDERED.18 2000, petitioner POLIAND raises the following arguments:

Both NDC and DBP appealed the trial court’s decision. RESPONDENT COURT OF APPEALS COMMITTED GRAVE
AND REVERSIBLE ERRORS IN ITS QUESTIONED DECISION
The Court of Appeals rendered a modified judgment, absolving DATED 29 JUNE 2000 AND DECIDED QUESTIONS
DBP of any liability in view of POLIAND’s failure to clearly prove CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF
its action against DBP. The appellate court also discharged THE HONORABLE COURT WHEN IT MODIFIED THE
NDC of any liability arising from the credit advances/loan DECISION DATED 09 AUGUST 1996 RENDERED BY THE
obligations obtained by GALLEON on the ground that NDC did REGIONAL TRIAL COURT (BRANCH 61) CONSIDERING
not acquire ownership of GALLEON but merely assumed control THAT:
over its management and operations. However, NDC was held
liable to POLIAND for the payment of the preferred maritime lien A.
based on LOI No. 1195 which directed NDC to "discharge such
maritime liens as may be necessary to allow the foreclosed CONTRARY TO THE FINDINGS OF RESPONDENT COURT
vessels to engage on the international shipping business," as OF APPEALS, RESPONDENT NDC NOT ONLY TOOK OVER
well as attorney’s fees and costs of suit. The dispositive portion TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON
of the Decision reads: BUT ALSO ASSUMED OWNERSHIP OF GALLEON
PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF
WHEREFORE, the assailed decision is MODIFIED, in AGREEMENT DATED 10 AUGUST 1981; THUS,
accordance with the foregoing findings, as follows: RESPONDENT NDC’S ACQUISITION OF FULL OWNERSHIP
AND CONTROL OF GALLEON CARRIED WITH IT THE
The case against defendant-appellant DBP is hereby ASSUMPTION OF THE LATTER’S LIABILITIES TO THIRD
DISMISSED. PARTIES SUCH AS ASIAN HARDWOOD, PETITIONER
POLIAND’S PREDECESSOR-IN-INTEREST.
Defendant-appellant NDC is hereby ordered to pay plaintiff-
appellee POLIAND the amount of US$1,920,298.56 plus legal B.
interest effective September 12, 1984.
RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE
CONSTITUTION AND THE RULES OF COURT, DISMISSED
THE CASE AGAINST RESPONDENT DBP WITHOUT (B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF
STATING CLEARLY AND DISTINCTLY THE REASONS FOR THE FORECLOSURE SALE OF THE FIVE (5) GALLEON
SUCH A DISMISSAL. VESSELS.

C. (C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON

VESSELS EXTINGUISHES ALL CLAIMS AGAINST THE
CONTRARY TO THE FINDINGS OF RESPONDENT COURT VESSELS.
OF APPEALS, PETITIONER POLIAND WAS ABLE TO
ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY II.
LIABLE, TOGETHER WITH RESPONDENT NDC, WITH
RESPECT TO THE NET TOTAL AMOUNT OWING TO THE COURT OF APPEALS ERRED IN AWARDING
PETITIONER POLIAND. ATTORNEY’S FEES TO RESPONDENT POLIAND.21

D. The two petitions were consolidated considering that both

petitions assail the same Court of Appeals’ Decision, although
RESPONDENT COURT OF APPEALS GRAVELY ERRED on different fronts. In G.R. No. 143866, POLIAND questions the
ALSO IN NOT FINDING THAT RESPONDENT DBP IS appellate court’s finding that neither NDC nor DBP can be held
JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT liable for the loan accommodations to GALLEON. In G.R. No.
NDC FOR THE PAYMENT OF MARITIME LIENS PLUS 143877, NDC asserts that it is not liable to POLIAND for the
INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL preferred maritime lien.
DECREEE 1521.20
ISSUES
On August 25, 2000, NDC filed its petition, docketed as G.R.
No. 143877, imputing the following errors to the Court of The bone of contention revolves around two main issues,
Appeals: namely: (1) Whether NDC or DBP or both are liable to POLIAND
on the loan accommodations and credit advances incurred by
I. GALLEON, and (2) Whether POLIAND has a maritime lien
enforceable against NDC or DBP or both.
THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER NDC IS LIABLE TO PAY GALLEON’S RULING of the COURT
OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN
THE AMOUNT OF US$ 1,920,298.56, TO SATISFY THE I. Liability on loan accommodations
PREFERRED MARITIME LIENS OVER THE PROCEEDS OF
THE FORECLOSURE SALE OF THE FIVE GALLEON and credit advances incurred by GALLEON
VESSELS.
The Court of Appeals reversed the trial court’s conclusion that
(A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN NDC and DBP are both liable to POLIAND for GALLEON’s
AS THE ‘SHIP MORTGAGE DECREE OF 1978 IS NOT
APPLICABLE IN THE CASE AT BAR.
debts on the basis of LOI No. 1155 and the Memorandum of ownership and subsisting loans. Even assuming that conditions
Agreement. It ratiocinated thus: were set, POLIAND opines that the conditions were deemed
fulfilled pursuant to Article 1186 of the Civil Code because of
With respect to appellant NDC, resolution of the matters raised NDC’s apparent intent to prevent the execution of the share
in its assignment of errors hinges on whether or not it acquired purchase agreement.24
the shareholdings of GALLEON as directed by LOI 1155; and if
in the negative, whether or not it is liable to pay GALLEON’s On the other hand, NDC asserts that it could not have acquired
outstanding obligation. GALLEON’s equity and, consequently, its liabilities because LOI
No. 1155 had been rescinded by LOI No. 1195, and therefore,
The Court answers the issue in the negative. The MOA became inoperative and non-existent. Moreover, NDC, relying
executed by GALLEON and NDC following the issuance of LOI on the pronouncements in Philippine Association of Service
1155 called for the execution of a "formal share purchase Exporters, Inc. et al. v. Ruben D. Torres25 and Parong, et al. v.
agreement and the transfer of all the shareholdings of seller to Minister Enrile,26 is of the opinion that LOI No. 1155 does not
Buyer." Since no such execution and consequent transfer of have the force and effect of law and cannot be a valid source of
shareholdings took place, NDC did not acquire ownership of obligation.27 NDC denies POLIAND’s contention that it
GALLEON. It merely assumed "actual control over the deliberately prevented the execution of the share purchase
management and operations" of GALLEON in the exercise of agreement considering that Cuenca remained GALLEON’s
which it, on January 15, 1982, after being satisfied of the president seven months after the signing of the Memorandum of
existence of GALLEON’s obligation to ASIAN HARDWOOD, Agreement.28 NDC contends that the Memorandum of
partially paid the latter One Million ($1,000,000.00) US dollars. 22 Agreement was a mere preliminary agreement between Cuenca
and Ongpin for the intended purchase of GALLEON’s equity,
.... prescribing the manner, terms and conditions of said
purchase.29
With respect to defendant-appellant DBP, POLIAND failed to
clearly prove its cause of action against it. This leaves it NDC, not liable under LOI No. 1155
unnecessary to dwell on DBP’s other assigned errors, including
that bearing on its claim for damages and attorney’s fees which As a general rule, letters of instructions are simply directives of
does not persuade.23 the President of the Philippines, issued in the exercise of his
administrative power of control, to heads of departments and/or
POLIAND’s cause of action against NDC is premised on the officers under the executive branch of the government for
theory that when NDC acquired all the shareholdings of observance by the officials and/or employees thereof. 30 Being
GALLEON, the former also assumed the latter’s liabilities, administrative in nature, they do not have the force and effect of
including the loan advances/credit accommodations obtained by a law and, thus, cannot be a valid source of obligation.
GALLEON from POLIAND’s predecessors-in-interest. In G.R. However, during the period when then President Marcos
No. 143866, POLIAND argues that NDC acquired ownership of exercised extraordinary legislative powers, he issued certain
GALLEON pursuant to paragraphs 1 and 2 of LOI No. 1155, decrees, orders and letters of instruction which the Court has
which was implemented through the execution of declared as having the force and effect of a statute. As pointed
the Memorandum of Agreement. It believes that no conditions out by the Court in Legaspi v. Minister of Finance,31 paramount
were required prior to the assumption by NDC of GALLEON’s considerations compelled the grant of extraordinary legislative
power to the President at that time when the nation was beset or the regular National Assembly fails or is unable to act
with threats to public order and the purpose for which the adequately on any matter for any reason that in his judgment
authority was granted was specific to meet the exigencies of requires immediate action.34
that period, thus:
Only when issued under any of the two circumstances will a
True, without loss of time, President Marcos made it clear that decree, order, or letter be qualified as having the force and
there was no military take-over of the government, and that effect of law. The decree or instruction should have been issued
much less was there being established a revolutionary either when there existed a grave emergency or threat or
government, even as he declared that said martial law was of a imminence or when the Legislature failed or was unable to act
double-barrelled type, unfamiliar to traditional constitutionalists adequately on the matter. The qualification that there exists a
and political scientists—for two basic and transcendental grave emergency or threat or imminence thereof must be
objectives were intended by it: (1) the quelling of nation-wide interpreted to refer to the prevailing peace and order conditions
subversive activities characteristic not only of a rebellion but of a because the particular purpose the President was authorized to
state of war fanned by a foreign power of a different ideology assume legislative powers was to address the deteriorating
from ours, and not excluding the stopping effectively of a peace and order situation during the martial law period.
brewing, if not a strong separatist movement in Mindanao, and
(2) the establishment of a New Society by the institution of There is no doubt that LOI No. 1155 was issued on July 21,
disciplinary measures designed to eradicate the deep-rooted 1981 when then President Marcos was vested with
causes of the rebellion and elevate the standards of living, extraordinary legislative powers. LOI No. 1155 was specifically
education and culture of our people, and most of all the social directed to DBP, NDC and the Maritime Industry Authority to
amelioration of the poor and underprivileged in the farms and in undertake the following tasks:
the barrios, to the end that hopefully insurgency may not rear its
head in this country again.32 LETTER OF INSTRUCTIONS NO. 1155

Thus, before a letter of instruction is declared as having the DEVELOPMENT BANK OF THE PHILIPPINES
force and effect of a statute, a determination of whether or not it
was issued in response to the objectives stated in Legaspi is NATIONAL DEVELOPMENT COMPANY
necessary. Parong, et al. v. Minister Enrile33differentiated
between LOIs in the nature of mere administrative issuances MARITIME INDUSTRY AUTHORITY
and those forming part of the law of the land. The following
conditions must be established before a letter of instruction may DIRECTING A REHABILITATION PLAN FOR GALLEON
be considered a law: SHIPPING CORPORATION

To form part of the law of the land, the decree, order or LOI ....
must be issued by the President in the exercise of his
extraordinary power of legislation as contemplated in Section 6 1. NDC shall acquire 100% of the shareholdings of Galleon
of the 1976 amendments to the Constitution, whenever in his Shipping Corporation from its present owners for the amount of
judgment, there exists a grave emergency or threat or ₱46.7 million which is the amount originally contributed by the
imminence thereof, or whenever the interim Batasan Pambansa
present shareholders, payable after five years with no interest The Court cannot accept POLIAND’s theory that with the
cost. effectivity of LOI No. 1155, NDC ipso facto acquired the
interests in GALLEON without disregarding applicable statutory
2. NDC to immediately infuse ₱30 million into Galleon Shipping requirements governing the acquisition of a corporation.
Corporation in lieu of is previously approved subscription to Ordinarily, in the merger of two or more existing corporations,
Philippine National Lines. In addition, NDC is to provide one of the combining corporations survives and continues the
additional equity to Galleon as may be required. combined business, while the rest are dissolved and all their
rights, properties and liabilities are acquired by the surviving
3. DBP to advance for a period of three years from date hereof corporation.35 The merger, however, does not become effective
both the principal and the interest on Galleon's obligations upon the mere agreement of the constituent corporations. 36
falling due and to convert such advances into 12% preferred
shares in Galleon Shipping Corporation. As specifically provided under Section 7937 of said Code, the
merger shall only be effective upon the issuance of a certificate
4. DBP and NDC to negotiate a restructuring of loans extended of merger by the Securities and Exchange Commission (SEC),
by foreign creditors of Galleon. subject to its prior determination that the merger is not
inconsistent with the Code or existing laws. Where a party to the
5. MARINA to provide assistance to Galleon by mandating a merger is a special corporation governed by its own charter, the
rational liner shipping schedule considering existing freight Code particularly mandates that a favorable recommendation of
volumes and to immediately negotiate a bilateral agreement with the appropriate government agency should first be obtained.
the United States in accordance with UNCTAD resolutions. The issuance of the certificate of merger is crucial because not
only does it bear out SEC’s approval but also marks the moment
.... whereupon the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the
Although LOI No. 1155 was undoubtedly issued at the time absorbed corporation ceases to exist but its rights, and
when the President exercised legislative powers granted under properties as well as liabilities shall be taken and deemed
Amendment No. 6 of the 1973 Constitution, the language and transferred to and vested in the surviving corporation. 38
purpose of LOI No. 1155 precludes this Court from declaring
that said LOI had the force and effect of law in the absence of The records do not show SEC approval of the merger.
any of the conditions set out in Parong. The subject matter of POLIAND cannot assert that no conditions were required prior
LOI No. 1155 is not connected, directly or remotely, to a grave to the assumption by NDC of ownership of GALLEON and its
emergency or threat to the peace and order situation of the subsisting loans. Compliance with the statutory requirements is
nation in particular or to the public interest in general. Nothing in a condition precedent to the effective transfer of the
the language of LOI No. 1155 suggests that it was issued to shareholdings in GALLEON to NDC. In directing NDC to acquire
address the security of the nation. Obviously, LOI No. 1155 was the shareholdings in GALLEON, the President could not have
in the nature of a mere administrative issuance directed to NDC, intended that the parties disregard the requirements of law. In
DBP and MARINA to undertake a policy measure, that is, to the absence of SEC approval, there was no effective transfer of
rehabilitate a private corporation. the shareholdings in GALLEON to NDC. Hence, NDC did not
acquire the rights or interests of GALLEON, including its
NDC, not liable under the Corporation Code liabilities.
DBP, not liable under LOI No. 1155 only pass upon errors assigned. However, this rule is not
without exceptions. In the following instances, the Court ruled
POLIAND argues that paragraph 3 of LOI No. 1155 that an appellate court is accorded a broad discretionary power
unequivocally obliged DBP to advance the obligations of to waive the lack of assignment of errors and consider errors not
GALLEON.39 DBP argues that POLIAND has no cause of action assigned:
against it under LOI No. 1155 which is void and
unconstitutional.40 (a) Grounds not assigned as errors but affecting the jurisdiction
of the court over the subject matter;
The Court affirms the appellate court’s ruling that POLIAND
does not have any cause of action against DBP under LOI No. (b) Matters not assigned as errors on appeal but are evidently
1155. Being a mere administrative issuance, LOI No. 1155 plain or clerical errors within contemplation of law;
cannot be a valid source of obligation because it did not create
any privity of contract between DBP and POLIAND or its (c) Matters not assigned as errors on appeal but consideration
predecessors-in-interest. At best, the directive in LOI No. 1155 of which is necessary in arriving at a just decision and complete
was in the nature of a grant of authority by the President on resolution of the case or to serve the interests of a justice or to
DBP to enter into certain transactions for the satisfaction of avoid dispensing piecemeal justice;
GALLEON’s obligations. There is, however, nothing from the
records of the case to indicate that DBP had acted as surety or (d) Matters not specifically assigned as errors on appeal but
guarantor, or had otherwise accommodated GALLEON’s raised in the trial court and are matters of record having some
obligations to POLIAND or its predecessors-in-interest. bearing on the issue submitted which the parties failed to raise
or which the lower court ignored;
II. Liability on maritime lien
(e) Matters not assigned as errors on appeal but closely related
On the second issue of whether or not NDC is liable to to an error assigned;
POLIAND for the payment of maritime lien, the appellate court
ruled in the affirmative, to wit: (f) Matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent. 43
Non-acquisition of ownership of GALLEON notwithstanding,
NDC is liable to pay ASIAN HARDWOOD’s successor-in- It is noteworthy that the question of NDC and DBP’s liability on
interest POLIAND the equivalent of US$1,930,298.56 the maritime lien had been raised by POLIAND as an alternative
representing the proceeds of the loan from Asian Hardwood cause of action against NDC and DBP and was passed upon by
which were spent by GALLEON for ship modification and the trial court. The Court of Appeals, however, reversed the trial
salaries of crew, to satisfy the preferred maritime liens over the court’s finding that NDC and DBP are liable to POLIAND for the
proceeds of the foreclosure sale of the 5 vessels. 41 payment of the credit advances and loan accommodations and
instead found NDC to be solely liable on the preferred maritime
POLIAND contends that NDC can no longer raise the issue on lien although NDC did not assign it as an error.
the latter’s liability for the payment of the maritime lien
considering that upon appeal to the Court of Appeals, NDC did The records, however, reveal that the issue on the liability on
not assign it as an error.42 Generally, an appellate court may the preferred maritime lien had been properly raised and argued
upon before the Court of Appeals not by NDC but by DBP who P.D. No. 152150 also provides that in the judicial or extrajudicial
was also adjudged liable thereon by the trial court. DBP’s sale of a vessel for the enforcement of a preferred mortgage lien
appellant’s brief44 pointed out POLIAND’s failure to present constituted in accordance with Section 2 of P.D. No. 1521, such
convincing evidence to prove its alternative cause of action, preferred mortgage lien shall have priority over all pre-existing
which POLIAND disputed in its appellee’s brief.45 The issue on claims against the vessel, save for those claims enumerated
the maritime lien is a matter of record having been adequately under Section 17, which have preference over the preferred
ventilated before and passed upon by the trial court and the mortgage lien in the order stated therein. Since P.D. No. 1521 is
appellate court. Thus, by way of exception, NDC is not a subsequent legislation and since said law in Section 17
precluded from again raising the issue before this Court even if thereof confers on the preferred mortgage lien on the vessel
it did not specifically assign the matter as an error before the superiority over all other claims, thereby engendering an
Court of Appeals. Besides, this Court is clothed with ample irreconcilable conflict with the order of preference provided
authority to review matters, even if they are not assigned as under Article 580 of the Code of Commerce, it follows that the
errors in the appeal if it finds that their consideration is Code of Commerce provision is deemed repealed by the
necessary in arriving at a just decision of the case. 46 provision of P.D. No. 1521, as the posterior law. 51

Articles 578 and 580 of the Code P.D. No. 1521 is applicable, not the

of Commerce, not applicable Civil Code provisions on

NDC cites Articles 57847 and 58048 of the Code of Commerce to concurrence/preference of

bolster its argument that the foreclosure of the vessels
extinguished all claims against the vessels including POLIAND’s credits
claim.49 Article 578 of the Code of Commerce is not relevant to
the facts of the instant case because it governs the sale of Whether or not the order of preference under Section 17, P.D.
vessels in a foreign port. Said provision outlines the formal and No. 1521 may be properly applied in the instant case depends
registration requirements in order that a sale of a vessel on on the classification of the mortgage on the GALLEON vessels,
voyage or in a foreign port becomes effective as against third that is, if it falls within the ambit of Section 2, P.D. No. 1521,
persons. On the other hand, the resolution of the instant case defining how a preferred mortgage is constituted.
depends on the determination as to which creditor is entitled to
the proceeds of the foreclosure sale of the vessels. Clearly, NDC and DBP both argue that POLIAND’s claim cannot prevail
Article 578 of the Code of Commerce is inapplicable. over DBP’s mortgage credit over the foreclosed vessels
because the mortgage executed in favor of DBP pursuant to the
Article 580, while providing for the order of payment of creditors October 10, 1979 Deed of Undertakingsigned by GALLEON and
in the event of sale of a vessel, had been repealed by the DBP was an ordinary ship mortgage and not a preferred one,
pertinent provisions of Presidential Decree (P.D.) No. 1521, that is, it was not given in connection with the construction,
otherwise known as the Ship Mortgage Decree of 1978. In acquisition, purchase or initial operation of the vessels, but for
particular, Article 580 provides that in case of the judicial sale of the purpose of guaranteeing GALLEON’s foreign borrowings. 52
a vessel for the payment of creditors, the debts shall be satisfied
in the order specified therein. On the other hand, Section 17 of
Section 2 of P.D. No. 1521 recognizes the constitution of a arising out of tort; and (7) preferred mortgage registered
mortgage on a vessel, to wit: prior in time.

SECTION 2. Who may Constitute a Ship Mortgage. — Any (b) If the proceeds of the sale should not be sufficient to pay all
citizen of the Philippines, or any association or corporation creditors included in one number or grade, the residue shall be
organized under the laws of the Philippines, at least sixty per divided among them pro rata. All credits not paid, whether fully
cent of the capital of which is owned by citizens of the or partially shall subsist as ordinary credits enforceable by
Philippines may, for the purpose of financing the construction, personal action against the debtor. The record of judicial sale or
acquisition, purchase of vessels or initial operation of vessels, sale by public auction shall be recorded in the Record of
freely constitute a mortgage or any other lien or encumbrance Transfers and Encumbrances of Vessels in the port of
on his or its vessels and its equipment with any bank or other documentation. (Emphasis supplied.)
financial institutions, domestic or foreign.
There is no question that the mortgage executed in favor of DBP
If the mortgage on the vessel is constituted for the purpose is covered by P.D. No. 1521. Contrary to NDC’s assertion, the
stated under Section 2, the mortgage obtains a preferred status mortgage constituted on GALLEON’s vessels in favor of DBP
provided the formal requisites enumerated under Section 4 53 are may appropriately be characterized as a preferred mortgage
complied with. Upon enforcement of the preferred mortgage and under Section 2, P.D. No. 1521 because GALLEON constituted
eventual foreclosure of the vessel, the proceeds of the sale shall the same for the purpose of financing the construction,
be first applied to the claim of the mortgage creditor unless there acquisition, purchase of vessels or initial operation of vessels.
are superior or preferential liens, as enumerated under Section While it is correct that GALLEON executed the mortgage in
17, namely: consideration of DBP’s guarantee of the prompt payment of
GALLEON’s obligations to the Japanese lenders, DBP’s
SECTION 17. Preferred Maritime Lien, Priorities, Other Liens. undertaking to pay the Japanese banks was a condition sine
— (a) Upon the sale of any mortgaged vessel in any extra- qua non to the acquisition of funds for the purchase of the
judicial sale or by order of a district court of the Philippines in GALLEON vessels. Without DBP’s guarantee, the Japanese
any suit in rem in admiralty for the enforcement of a preferred lenders would not have provided the funds utilized in the
mortgage lien thereon, all pre-existing claims in the vessel, purchase of the GALLEON vessels. The mortgage in favor of
including any possessory common-law lien of which a lienor is DBP was therefore constituted to facilitate the acquisition of
deprived under the provisions of Section 16 of this Decree, shall funds necessary for the purchase of the vessels.
be held terminated and shall thereafter attach in like amount and
in accordance with the priorities established herein to the NDC adds that being an ordinary ship mortgage, the Civil Code
proceeds of the sale. The preferred mortgage lien shall have provisions on concurrence and preference of credits and not
priority over all claims against the vessel, except the following P.D. No. 1521 should govern. NDC contends that under Article
claims in the order stated: (1) expenses and fees allowed and 2246, in relation to Article 2241 of the Civil Code, the credits
costs taxed by the court and taxes due to the Government; guaranteed by a chattel mortgage upon the thing mortgaged
(2) crew's wages; (3) general average; (4) salvage including shall enjoy preference (with respect to the thing mortgaged), to
contract salvage; (5) maritime liens arising prior in time to the exclusion of all others to the extent of the value of the
the recording of the preferred mortgage; (6) damages personal property to which the preference exists. 54 Following
NDC’s theory, DBP’s mortgage credit, which is fourth in the
order of preference under Article 2241, is superior to by suit in rem, and it shall be necessary to allege or prove that
POLIAND’s claim, which enjoys no preference. credit was given to the vessel.

NDC’s argument does not persuade the Court. Under the aforequoted provision, the expense must be incurred
upon the order of the owner of the vessel or its authorized
The provision of P.D. No. 1521 on the order of preference in the person and prior to the recording of the ship mortgage. Under
satisfaction of the claims against the vessel is the more the law, it must be established that the credit was extended to
applicable statute to the instant case compared to the Civil Code the vessel itself.57
provisions on the concurrence and preference of credit. General
legislation must give way to special legislation on the same The trial court found that GALLEON’s advances obtained from
subject, and generally be so interpreted as to embrace only Asian Hardwood were used to cover for the payment of bunker
cases in which the special provisions are not applicable. 55 oil/fuel, unused stores and oil, bonded stores, provisions, and
repair and docking of the GALLEON vessels.58 These expenses
POLIAND’s alternative cause of action for the payment of clearly fall under Section 21, P.D. No. 1521.
maritime liens is based on Sections 17 and 21 of P.D. No. 1521.
POLIAND also contends that by virtue of the directive in LOI No. The trial court also found that the advances from Asian
1195 on NDC to discharge maritime liens to allow the vessels to Hardwood were spent for ship modification cost and the crew’s
engage in international business, NDC is liable therefor. 56 salary and wages. DBP contends that a ship modification cost is
omitted under Section 17, P.D. No. 1521, hence, it does not
POLIAND’s maritime lien is superior have a status superior to DBP’s preferred mortgage lien.

to DBP’s 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
Before POLIAND’s claim may be classified as superior to the modification cost may properly be classified under this broad
mortgage constituted on the vessel, it must be shown to be one category because it was a necessary expenses for the vessel’s
of the enumerated claims which Section 17, P.D. No. 1521 navigation. As long as an expense on the vessel is
declares as having preferential status in the event of the sale of indispensable to the maintenance and navigation of the vessel,
the vessel. One of such claims enumerated under Section 17, it may properly be treated as a maritime lien for necessaries
P.D. No. 1521 which is considered to be superior to the under Section 21, P.D. No. 1521.
preferred mortgage lien is a maritime lien arising prior in time to
the recording of the preferred mortgage. Such maritime lien is With respect to the claim for salary and wages of the crew, there
described under Section 21, P.D. No. 1521, which reads: is no doubt that it is also one of the enumerated claims under
Section 17, P.D. No. 1521, second only to judicial costs and
SECTION 21. Maritime Lien for Necessaries; persons entitled to taxes due the government in preference and, thus, having a
such lien. — Any person furnishing repairs, supplies, towage, status superior to DBP’s mortgage lien.
use of dry dock or marine railway, or other necessaries to any
vessel, whether foreign or domestic, upon the order of the All told, the determination of the existence and the amount of
owner of such vessel, or of a person authorized by the owner, POLIAND’s claim for maritime lien is a finding of fact which is
shall have a maritime lien on the vessel, which may be enforced within the province of the courts below. Findings of fact of lower
courts are deemed conclusive and binding upon the Supreme The first argument is absurd. Although POLIAND or its
Court except when the findings are grounded on speculation, predecessors-in-interest are not sailors entitled to wages, they
surmises or conjectures; when the inference made is manifestly can still make a claim for the advances spent for the salary and
mistaken, absurd or impossible; when there is grave abuse of wages of the crew under the principle of legal subrogation. As
discretion in the appreciation of facts; when the factual findings explained in Philippine National Bank v. Court of Appeals,63 a
of the trial and appellate courts are conflicting; when the Court third person who satisfies the obligation to an original maritime
of Appeals, in making its findings, has gone beyond the issues lienor may claim from the debtor because the third person is
of the case and such findings are contrary to the admissions of subrogated to the rights of the maritime lienor over the vessel.
both appellant and appellee; when the judgment of the appellate The Court explained as follows:
court is premised on a misapprehension of facts or when it has
failed to notice certain relevant facts which, if properly From the foregoing, it is clear that the amount used for the
considered, will justify a different conclusion; when the findings repair of the vessel M/V "Asean Liberty" was advanced by
of fact are conclusions without citation of specific evidence upon Citibank and was utilized for the purpose of paying off the
which they are based; and when findings of fact of the Court of original maritime lienor, Hong Kong United Dockyards, Ltd. As a
Appeals are premised on the absence of evidence but are person not interested in the fulfillment of the obligation between
contradicted by the evidence on record.59 The Court finds no PISC and Hong Kong United Dockyards, Ltd., Citibank was
sufficient justification to reverse the findings of the trial court and subrogated to the rights of Hong Kong United Dockyards, Ltd.
the appellate court in respect to the existence and amount of as a maritime lienor over the vessel, by virtue of Article 1302,
maritime lien. par. 2 of the New Civil Code. By definition, subrogation is the
transfer of all the rights of the creditor to a third person, who
Only NDC is liable on the maritime lien substitutes him in all his rights. Considering that Citibank paid
off the debt of PISC to Hong Kong United Dockyards, Ltd. it
POLIAND maintains that DBP is also solidarily liable for the became the transferee of all the rights of Hong Kong Dockyards,
payment of the preferred maritime lien over the proceeds of the Ltd. as against PISC, including the maritime lien over the vessel
foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims M/V "Asian Liberty."64
that since the lien was incurred prior to the constitution of the
mortgage on January 25, 1982, the preferred maritime lien DBP’s reliance on the Statute of Frauds is misplaced. Article
attaches to the proceeds of the sale of the vessels and has 1403 (2) of the Civil Code, which enumerates the contracts
priority over all claims against the vessels in accordance with covered by the Statue of Frauds, is inapplicable. To begin with,
Section 17, P.D. No. 1521.60 there is no privity of contract between POLIAND or its
predecessors-in-interest, on one hand, and DBP, on the other.
In its defense, DBP reiterates the following arguments: (1) The POLIAND hinges its claim on the maritime lien based on LOI
salary and crew’s wages cannot be claimed by POLIAND or its No. 1195 and P.D. No. 1521, and not on any contract or
predecessors-in-interest because none of them is a sailor or agreement.
mariner;61 (2) Even if conceded, POLIAND’s preferred maritime
lien is unenforceable pursuant to Article 1403 of the Civil Code; Neither can DBP invoke prescription or laches against
and (3) POLIAND’s claim is barred by prescription and laches. 62 POLIAND. Under Article 1144 of the Civil Code, an action upon
an obligation created by law must be brought within ten years
from the time the right of action accrues. The right of action
arose after January 15, 1982, when NDC partially paid off had earlier or superior rights over the foreclosed vessels, could
GALLEON’s obligations to POLIAND’s predecessor-in-interest, not have participated as they were unaware and were not made
Asian Hardwood. At that time, the prescriptive period for the parties to the case.
enforcement by action of the balance of GALLEON’s
outstanding obligations had commenced. Prescription could not On this note, the Court believes and so holds that the institution
have set in because the prescriptive period was tolled when of the extrajudicial foreclosure proceedings was tainted with bad
POLIAND made a written demand for the satisfaction of the faith. It took place when NDC had already assumed the
obligation on September 24, 1991, or before the lapse of the management and operations of GALLEON. NDC could not have
ten-year prescriptive period. Laches also do not lie because pleaded ignorance over the existence of a prior or preferential
there was no unreasonable delay on the part of POLIAND in lien on the vessels subject of foreclosure. As aptly held by the
asserting its rights. Indeed, it instituted the instant suit Court of Appeals:
seasonably.
NDC’s claim that even if maritime liens existed over the
All things considered, however, the Court finds that only NDC is proceeds of the foreclosure sale of the vessels which it
liable for the payment of the maritime lien. A maritime lien is subsequently purchased from DBP, it is not liable as it was a
akin to a mortgage lien in that in spite of the transfer of purchaser in good faith fails, given the fact that in its "actual
ownership, the lien is not extinguished. The maritime lien is control over the management and operations" of GALLEON, it
inseparable from the vessel and until discharged, it follows the was put on notice of the various obligations of GALLEON
vessel. Hence, the enforcement of a maritime lien is in the including those secured from ASIAN HARDWOOD as in fact it
nature and character of a proceeding quasi in rem.65 The even paid ASIAN HARDWOOD US$1,000,000.00 in partial
expression "action in rem" is, in its narrow application, used only settlement of GALLEON’s obligations, before it (NDC)
with reference to certain proceedings in courts of admiralty mortgaged the 5 vessels to DBP on January 25, 1982.
wherein the property alone is treated as responsible for the
claim or obligation upon which the proceedings are Parenthetically, LOI 1195 directed NDC to "discharge such
based.66 Considering that DBP subsequently transferred maritime liens as may be necessary to allow the foreclosed
ownership of the vessels to NDC, the Court holds the latter vessels to engage on the international shipping business."
liable on the maritime lien. Notwithstanding the subsequent
transfer of the vessels to NDC, the maritime lien subsists. In fine, it is with respect to POLIAND’s claim for payment of
US$1,930,298.56 representing part of the proceeds of
This is a unique situation where the extrajudicial foreclosure of GALLEON’s loan which was spent by GALLEON "for ship
the GALLEON vessels took place without the intervention of modification and salaries of crew" that NDC is liable. 67
GALLEON’s other creditors including POLIAND’s predecessors-
in-interest who were apparently left in the dark about the Thus, NDC cannot claim that it was a subsequent purchaser in
foreclosure proceedings. At that time, GALLEON was already a good faith because it had knowledge that the vessels were
failing corporation having borrowed large sums of money from subject to various liens. At the very least, to evince good faith,
banks and financial institutions. When GALLEON defaulted in NDC could have inquired as to the existence of other claims
the payment of its obligations to DBP, the latter foreclosed on its against the vessels apart from DBP’s mortgage lien.
mortgage over the GALLEON ships. The other creditors, Considering that NDC was also in a position to know or discover
including POLIAND’s predecessors-in-interest who apparently the financial condition of GALLEON when it took over its
management, the lack of notice to GALLEON’s creditors interest72 despite a finding that NDC’s liability to POLIAND
suggests that the extrajudicial foreclosure was effected to represents the maritime lien73 which according to the
prejudice the rights of GALLEON’s other creditors. complaint74 is the alternative cause of action of POLIAND in the
smaller amount of US$1,193,298.56, as prayed for by POLIAND
NDC also cannot rely on Administrative Order No. 64,68 which in its complaint.
directed the transfer of the vessels to the APT, on its hypothesis
that such transfer extinguished the lien. APT is a mere conduit The general rule is that where there is conflict between the
through which the assets acquired by the National Government dispositive portion or the fallo and the body of the decision,
are provisionally held and managed until their eventual disposal the fallo controls. This rule rests on the theory that the fallo is
or privatization. Administrative Order No. 64 did not divest NDC the final order while the opinion in the body is merely a
of its ownership over the GALLEON vessels because APT statement ordering nothing. However, where the inevitable
merely holds the vessels in trust for NDC until the same are conclusion from the body of the decision is so clear as to show
disposed. Even if ownership was transferred to APT, that would that there was a mistake in the dispositive portion, the body of
not be sufficient to discharge the maritime lien and deprive the decision will prevail.75 In the instant case, it is clear from the
POLIAND of its recourse based on the lien. Such denouement trial court records and the Court of Appeals’ Rollo that the bigger
would smack of denial of due process and taking of property amount awarded in the dispositive portion of the Court of
without just compensation. Appeals’ Decision was a typographical mistake. Considering
that the appellate court’s Decision merely affirmed the trial
NDC’s liability for attorney’s fees court’s finding with respect to the amount of maritime lien, the
bigger amount stated in the dispositive portion of the Court of
The lower court awarded attorney’s fees to POLIAND in the Appeals’ Decision must have been awarded through
amount of ₱1,000,000.00 on account of the amount involved in indavertence.
the case and the protracted character of the litigation. 69 The
award was affirmed by the Court of Appeals as against NDC WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No.
only.70 143877 are DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 53257 is MODIFIED to the extent that National
This Court finds no reversible error with the award as upheld by Development Company is liable to Poliand Industrial Limited for
the appellate court. Under Article 220871 of the Civil Code, the amount of One Million One Hundred Ninety Three Thousand
attorney’s fees may be awarded inter alia when the defendant’s Two Hundred Ninety Eight US Dollars and Fifty-Six US Cents
act or omission has compelled the plaintiff to incur expenses to (US$ 1,193,298.56), plus interest of 12% per annum computed
protect his interest or in any other case where the court deems it from 25 September 1991 until fully paid. In other respects,
just and equitable that attorney’s fees and expenses of litigation said Decision is AFFIRMED. No pronouncement as to costs.
be recovered.
SO ORDERED.
One final note. There is a discrepancy between the dispositive
portion of the Court of Appeals’ Decision and the body thereof
with respect to the amount of the maritime lien in favor of
POLIAND. The dispositive portion ordered NDC to pay
POLIAND "the amount of US$1,920,298.56" plus