Charter Party.docx

G.R. No. 91228. March 22, 1993. PUROMINES, INC., petitioner, vs. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC, INC., respondents. SYLLABUS 1. CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING FROM CARRIAGE AND DELIVERY. — We agree with the court a quo that the sales contract is comprehensive enough to include claims for damages arising from carriage and delivery of the goods. As a general rule, the seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to deliver the same. 2. COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME COMMERCE; CHARTER PARTIES, CONSTRUED. — American jurisprudence defines charter party as a contract by which an entire ship or some principal part thereof is let by the owner to another person for a specified time or use. Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of affreightment. 3. ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED. — Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise the owner of a vessel must completely and exclusively relinquish possession, anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.

escape from his obligation under the arbitration clause as stated therein. Arbitration has been held valid and constitutional. Even before the enactment of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. The rule now is that unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. As pointed out in the case of Mindanao Portland Cement Corp. v. McDough Construction Company of Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the Court said: "Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a quo rightly ordered the parties to proceed to their arbitration in accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. And although it has been ruled that a privolous or patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact that a defense exist against a claim does not make it frivolous or baseless." 7. REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; COMPLAINT; ANNEXES ATTACHED THEREOF, PART OF THE RECORD. — Petitioner contend that the arbitration provision in the bills of lading should not have been discussed as an issue in the decision of the Court of Appeals since it was not raised as a special or affirmative defense. The three bills of lading were attached to the complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as evidence although not introduced as such. Hence, it was then proper for the court a quo to discuss the contents of the bills of lading, having been made part of the record. DECISION

4. ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT, CONSTRUED. — A contract of affreightment is in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for a special service to be rendered by the owner of the vessel and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of the charter hire. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the owner and the charterer is usually free from liability to third persons in respect of the ship. 5. ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS SHIPPED ON BOARD A VESSEL. — Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession and employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or by the master with third persons, and is answerable for loss, damage or non-delivery of goods received for transportation. An owner who retains possession of the ship, though the hold is the property of the charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading or unloading of the cargo. 6. ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION THEREOF, CONSIDERED AND RESPECTED. — Whether the liability of respondent should be based on the same contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot

NOCON, J p: This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and dismissing petitioner's compliant in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime Factors, Inc. and Philipp Brothers Oceanic, Inc. Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private respondents Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract No. S151.8.01018 provided, among others an arbitration clause which states, thus: "9. Arbitration "Any disputes arising under this contract shall be settled by arbitration in London in accordance with the Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to appoint an Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by them to be final. The Arbitrators and Umpire are all to be commercial men and resident in London. This submission may be made a rule of the High Court of Justice in England by either party." 2

On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the shipagent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. dated May 12, 1988 covering 10,000 metric tons for discharge Manila; Bill of Lading No. 2 of even date covering 4,000 metric tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering 1,500 metric tons likewise for discharged in Manila

"An examination of the sales contract No. S151.8.01018 shows that it is broad enough to include the claim for damages arising from the carriage and delivery of the goods subject-matter thereof.

The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were discharged in Manila in bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt. Damages were valued at P683, 056. 29 including additional discharging expenses.

Considering that the private respondent was one of the signatories to the sales contract . . . all parties are obliged o respect the terms and conditions of the said sales contract, including the provision thereof on 'arbitration.' "

Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage against Maritime Factors Inc. (which was not included as respondent in this petition) as ship-agent in the Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent, Philipp Brothers Oceanic Inc., was impleaded as charterer of the said vessel and proper party to accord petitioner complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint, while private respondent filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint states no cause of action; that it was prematurely filed; and that petitioner should comply with the arbitration clause in the sales contract. 6 The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration clause inasmuch as the cause of action did not arise from a violation of the terms of the sales contract but rather for claims of cargo damages where there is no arbitration agreement. On April 26, 1989, the trial court denied respondent's motion to dismiss in this wise: "The sales contract in question states in part: 'Any disputes arising under this contract shall be settled by arbitration . . .(emphasis supplied) "A perusal of the facts alleged in the complaint upon which the question of sufficiency of the cause of action of the complaint arose from a breach of contract of carriage by the vessel chartered by the defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause cannot apply to the dispute in the present action which concerns plaintiff's claim for cargo loss/damage arising from breach of contract of carriage. "That the defendant is not the ship owner or common carrier and therefore plaintiff does not have legal right against it since every action must be brought against the real party in interest has no merit either for by the allegations in the complaint the defendant herein has been impleaded as charterer of the vessel, hence, a proper party." 7 Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate court found that the arbitration provision in the sales contract and/or the bills of lading is applicable in the present case. Said the court:

"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the complaint state, in part, 'any dispute arising under this Bill of Lading shall be referred to arbitration of the Maritime Arbitration Commission at the USSR Chamber of Commerce and Industry, 6 Kuibyshevskaia Str., Moscow, USSR, in accordance with the rules of procedure of said commission.'

Hence, this petition The issue raised is: Whether the phrase "any dispute arising under this contract" in the arbitration clause of the sales contract covers a cargo claim against the vessel (owner and/or charterers) for breach of contract of carriage. Petitioner states in its complainants that Philipp Brothers "was the charterer of the vessel MV 'Liliana Dimitrova' which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged that the caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged portions of the shipment were due to the improper ventilation and inadequate storage facilities of the vessel; that the wetting of the cargo was attributable to the failure of the crew to close the hatches before and when it rained while the shipment was being unloaded in the Port of Manila; and that as a direct and natural consequence of the unseaworthiness and negligence of the vessel (sic), petitioner suffered damages in the total amount of P683, 056.29 Philippine currency." 8 (Emphasis supplied) Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the complaint arose from breach of contract of carriage by the vessel that was chartered by defendant Philipp Brothers." 9 In the present petition, petitioner argues that the sales contract does not include the contract of carriage which is a different contract entered into by the carrier with the cargo owners. That it was an error for the respondent court to touch upon the arbitration provision of the bills lading in its decision inasmuch as the same was not raised as an issue by private respondent who was not a party in the bills of lading (emphasis Ours). Petitioner contradicts itself. We agree with the court a quo that the sales contract is comprehensive enough to include claims for damages arising from carriage and delivery of the goods. As a general rule, the seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to deliver the same. Art. 1523 of the Civil Code provides: "Art. 1523. Where in pursuance of a contract of sale, the seller in authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appear. "Unless otherwise authorized by the buyer, the seller must take such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of

the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself,, or may hold the seller responsible in damages." xxx xxx xxx The disputed sales contact provides for conditions relative to the delivery of goods, such as date of shipment, demurrage, weight as determined by the bill of lading at load port and more particularly the following provisions: "3. Intention is to ship in one bottom, approximately 5,000 metrics tons to Puromines and approximately 15,000 metric tons to Makati Agro. However, Sellers to have right to ship material as partial shipment or co-shipment in addition to above. In the event of co-shipment to a third party within Philippines same to be discussed with and acceptable to both Puromines and Makati Agro. "4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at first discharge port and final survey at last discharge port. Surveyors results to be binding and final. In the event draft survey results show a quantity less than the combined Bills of Lading quantity for both Puromines and Makati Agro, Sellers to refund the difference. In the event that draft survey results show a quantity in excess of combined Bills of Lading of quantity of both Puromines and Makati Agro then Buyers to refund the difference. "5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any liability to separate cargo or to deliver cargo separately or to deliver minimum/maximum quantities stated on individual Bills of Lading. At each port vessel is to discharge in accordance with Buyers local requirements and it is Buyer's responsibility to separate individual quantities required by each of them at each port during or after discharged." As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from the bill of lading which is the contract of affreightment together with the sales contract. Consequently, the (petitioner) is bound by the provisions and terms of said bill of lading and of the arbitration clause incorporated in the sales contract." Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on the contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore, be material to show what kind of charter party the respondent had with the shipowner to determine respondent's liability.

short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all. On the other hand, a contract of affreightment is in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for a special service to be rendered by the owner of the vessel 12 and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of the charter hire. 13 If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the owner and the charterer is usually free from liability to third persons in respect of the ship. 14 Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession and employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or by the master with third persons, and is answerable for loss, damage or non-delivery of goods received for transportation. An owner who retains possession of the ship, though the hold is the property of the charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading or unloading of the cargo. 15 Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the other hand, if the contract between respondent and the owner of the vessel MV "Liliana Dimitrova" was merely that of affreightment, then it cannot be held liable for the damages caused by the breach of contract of carriage, the evidence of which is the bills of lading In any case, whether the liability of respondent should be based on the same contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein. Neither can petitioner contend that the arbitration provision in the bills of lading should not have been discussed as an issue in the decision of the Court of Appeals since it was not raised as a special or affirmative defense. The three bills of lading were attached to the complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as evidence although not introduced as such. 16 Hence, it was then proper for the court a quo to discuss the contents of the bills of lading, having been made part of the record.

American jurisprudence defines charter party as a contract by which an entire ship or some principal part thereof is let by the owner to another person for a specified time or use. 10 Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of affreightment.

Going back to the main subject of this case, arbitration has been held valid and constitutional. Even before the enactment of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. The rule now is that unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 17

Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. 11 To create a demise the owner of a vessel must completely and exclusively relinquish possession, anything

As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction Company of Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the Court said:

"Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a quo rightly ordered the parties to proceed to their arbitration in accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. And although it has been ruled that a frivolous or patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact that a defense exist against a claim does not make it frivolous or baseless." 19 In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties to submit their disputes to arbitration and We held as follows: "The trial court sensibly said that 'all the causes of action alleged in the plaintiffs amended complaint are based upon the supposed violations committed by the defendants of the 'Contract of Construction of a Building' and that 'the provisions of paragraph 15 hereof leave a very little room for doubt that the said causes of action are embraced within the phrase 'any and all questions, disputes or differences between the parties hereto relative to the construction of the building,' which must be determined by arbitration of two persons and such determination by the arbitrators shall be 'final, conclusive and binding upon both parties unless they to court, in which the case the determination by arbitration is a condition precedent 'for taking any court action." xxx xxx xxx "We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes between them should first be arbitrated before court action can be taken by the aggrieved party." 21 Premises considered, We uphold the validity and applicability of the arbitration clause as stated in Sales Contract No. S151.8.01018 to the present dispute. WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is AFFIRMED. SO ORDERED.

G.R. No. 95900 July 23, 1992 JULIUS C. OUANO, petitioner, vs. COURT OF APPEALS, MARKET DEVELOPERS, INC., JULIAN O. CHUA, SUPREME MERCHANT CONSTRUCTION SUPPLY, INC., JOHNNY ANG, alias Chua Pek Giok, and FLORENTINO RAFOLS, JR., respondent.

REGALADO, J.: This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 12693, promulgated on August 30, 1990, reversing the decision of the Regional Trial Court of Cebu, Branch XI, in Civil Case No. R-20037 wherein judgment had been rendered for petitioner, as well as the resolution of said respondent court, dated October 15, 1990, denying petitioner's motion for reconsideration. 1 As found by respondent court, petitioner is the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On October 8, 1980, petitioner leased the said vessel to respondent Rafols under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the balance of P30,000.00 to be paid within twenty (20) days after actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and should not sublet or sub-charter to the same without the knowledge and written consent of the owner. On October 11, 1980, Rafols contracted with respondent Market Developers, Inc. (hereafter, MADE) through its group manager, respondent Julian O. Chua, under an agreement denominated as a "Fixture Note" to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to respondent Supreme Merchant Construction Supply, Inc. (SMCSI, for brevity) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of petitioner. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On October 13, 1980, petitioner wrote a letter to MADE through its aforesaid manager, Chua, "to strongly request, if not demand to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes goods his commitment" to petitioner. On October 20, 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the last installment of the freightage for the aforestated cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee, herein respondent SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre cargo of Rafols, or even of petitioner himself who was then in General Santos City

Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand made on any of the respondents for a bond to secure payment of the freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCI to its customers in October and November, 1980. On January 6, 1981, petitioner filed a complaint in the Regional Trial Court of Cebu against MADE, as shipper; SMC, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney's fees and expenses of litigation. On March 10, 1981, MADE filed its answer, while Ang and Chua filed theirs on February 10 and May 31, 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of summons. On account of the subsequent dropping and impleading of parties defendant, the complaint underwent several amendments until the case was eventually tried on the third amended complaint, which alleged three causes of action against the aforenamed respondents as answering defendants therein. On May 25, 1985, the trial court rendered a decision in favor of petitioner, with the following disposition: WHEREFORE, premises considered, this Court render(s) judgment 1) under plaintiff's first cause of action, ordering defendant MADE (Market Developers, Inc.), Julian O. Chua, Supreme Merchant Construction Supply, Inc., Johnny Ang otherwise known as Chua Pek Giok and defaulted defendant Florentino Rafols, Jr., jointly and severally, to pay to plaintiff Julius C. Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on plaintiff's vessel "M/V Don Julio Ouano" included as part of the purchase price paid by defendant SMCSI to defendant MADE, plus legal interest from January 6, 1981 date of filing of the original complaint; 2) under the second cause of action, sentencing MADE (Market Developers), Julian O. Chua and Florentino Rafols, Jr., jointly and solidarily, to pay plaintiff P50,000.00 in concept of moral and exemplary damages, and P5,000.00 attorney's fees; and 3) under the third cause of action, sentencing defendant Supreme Merchant Construction Supply, Inc. and Johnny Ang alias Chua Pek Giok, jointly and severally, to pay plaintiff P200,000.00 attorney's fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by plaintiff for travel to General Santos City to coordinate with the plaintiff (sic) in serving an alias summons per sheriff's return of service (Exhibit 'S'), with costs against all the defendants. 2 On appeal, respondent Court of Appeals reversed the aforesaid decision, holding as follows: In the light of the foregoing, appellee Ouano has no cause of action against appellants MADE and SMCSI, but only against defendant Rafols. Their principals not being liable to appellee for the payment of the freightage in question, the agents, appellants Julian O. Chua and Johnny Ang alias Chua Pek Giok who had acted within the scope of their authority, would accordingly not be liable to appellee.

For the same reason that the defendants-appellants are not liable to pay the appellee the freightage in question, the award of moral and exemplary damages, attorney 's fees and expenses of litigation in favor of appellee has no factual and legal basis. WHEREFORE, premises considered, the decision appealed from is reversed and set aside with respect to the defendants-appellants who are hereby absolved from the complaint. The decision is affirmed with respect to defendant Florentino Rafols. 3 Petitioner filed a motion for reconsideration which, as already stated, was denied by the Court of Appeals, 4 hence the present petition with the following assignment of errors: 1. The Honorable Court of Appeals erred in not holding respondents MADE and Chua liable for damages to petitioner for quasi-delict under Art. 2176, New Civil Code, let alone for inducement to violate contract under Art. 1314 thereof. 2. The Court of Appeals erred in not holding respondents MADE and Chua liable for all damages which are the natural and probable consequences of their act or omission, the term "all damages" being broad enough to embrace the P150,000.00 moral and exemplary damages claimed by petitioner, as well as P10,000.00 attorney's fees likewise claimed by him (Art. 2202, N.C.C.). 3. The Court of Appeals erred in not holding respondents MADE and Chua liable jointly and solidarily (Art. 2194, N.C.C.) for the foregoing damages and attorney's fee, as well as actual damages of P23,075.00 representing unpaid freight on petitioner's vessel. 4. The Court of Appeals erred in not holding that in contracts and quasi-delicts the defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, more so if attended with fraud, bad faith, malice or wanton attitude (Arts. 2201 and 2202, N.C.C.). 5. The Court of Appeals erred in not holding, in accord with the settled doctrine in Overseas Factors, Inc. vs. South Sea Shipping, 4 SCRA 401, that where freight is included in the purchase price, the carrier's lien exists if freight was not paid, hence, the continued liability of respondents MADE and Chua and respondents Supreme Merchant Construction Supply, Inc. and Chua Pek Giok. 5 We find no merit in this petition. Preliminarily, the thesis of petitioner that the aforestated fixture note executed by Rafols and MADE was in derogation of the prohibition against the subletting or sub-chartering of the vessel has been duly confuted by respondent court. It pointed out that Rafols did not, by entering into said contract of transportation of the cement cargo, thereby sublease the vessel. The possession, operation, and management of the vessel was not transferred to MADE but remained with Rafols as the lessee or charterer. Rafols, as such lessee, was the one who bound himself to transport, as he did transport, the cargo of cement for a fixed price. 6 On the other hand, even indulging petitioner in his argument that there was a sublease or sub-charter by reason of that one particular cargo of MADE, still no right of recovery exists in his favor against any of the private respondents, except respondent Rafols, as we shall hereunder demonstrate.

It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. 7 It is undisputed that the charter contract was entered into only by and between petitioner and respondent Rafols, and the other private respondents were neither parties thereto nor were they aware of the provisions thereof. The aforesaid allegations of petitioner that Rafols violated the prohibition in the contract against the sublease or sub-charter of the vessel without his knowledge and written consent, even if true, does not give rise to a cause of action against the supposed sublease or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the contract, but the owner's right of recourse is against the original charterer, either for rescission or fulfillment, with the payment of damages in either case. 8 The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of assent by such person is necessary. 9 We likewise reject the contention of petitioner that MADE and Chua should be held liable for damages for a quasi-delict under Article 2176 of the Civil Code for having failed to obtain his consent before entering into an agreement with Rafols, and under Article 1314 of the same Code for inducing Rafols to violate the charter party. The obligation to obtain the written consent of petitioner before subleasing or sub-chartering the vessel was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith. Moreover, we cannot conceive of how MADE and Chua could be guilty of inducing Rafols to violate the original charter party. Firstly, there is no evidence on record to show that said respondents had knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel. Secondly, at the time the fixture note was entered into between Rafols and MADE, a written authorization signed by the wife of petitioner in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments, 10 was shown by the former to the latter. Although the said authorization may have been made by the wife, the same, however, can evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. Thirdly, as stated in the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the latter using either the "M/V Don Julio Ouano or substitute vessel at his discretion." 11 Hence, the decision to use the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols. Also, herein petitioner is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols when he demanded the payment of the second freight installment as provided in the agreement and, later, received the same by virtue of the decision of the Court of First Instance of Cebu in Civil Case No. R-19845, an interpleader case filed by MADE. 12 Contrary to petitioner's contestation, the act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice. Article 1240 of the Civil Code provides that "(p)ayment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols.

Now, even on petitioner's theory that there was a sublease, it must be stressed that in a sublease arrangement, the basic principles of which are applicable in the present case, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-avis the lessor are not passed on to nor acquired by the sublessee. The lessor is, in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lesseesublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due and payable to the lessee-sublessor. 13 MADE was, therefore, under no obligation to pay petitioner since the freightage was payable to Rafols. Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. However, in the case at bar, petitioner made no demand for payment from MADE. His letter dated October 13, 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio Ouano until respondent Rafols had made good his obligations to him. In the absence of any positive action on the part of petitioner, MADE could not withhold the payment of the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before October 9, 1980, 14 hence on that date the first freight installment was already due and demandable. To further withhold the payment of said installment would constitute a breach of MADE's obligation under the foregoing contract. In addition, it is also worth noting that, as alleged in paragraph 6 of petitioner's basic complaint filed in the court below, payments were actually made after October 13, 1980 by Rafols to petitioner, to wit: (a) two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for P32,000.00 issued on November 9, 1980. 15 The fact that the said checks bounced for insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which petitioner seeks to impute to respondents MADE, SMCSI and their agents. Anent the issue on maritime lien on the cargo, it is the theory of petitioner that the first freight installment having remained unpaid to him as owner of M/V Don Julio Ouano, the maritime lien on the cargo subsists. The said contention is specious and untenable. Herein petitioner, as owner of the vessel, has no lien on the cargo. A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the owner and becomes the owner for the voyage. 16 This second type is also known as a bareboat charter or otherwise referred to as a demise of the vessel. 17 In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed; the charterer is substituted in

his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the charterer. 18 Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on the cargo for the hire of the vessel, in the absence of an express provision therefor 19 as in the case at bar. Moreover, even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or constitutes a waiver of, the lien. 20 The lien of a carrier for the payment of freight charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession and dependent upon it. 21 The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an unconditional delivery of the goods to the consignee. 22 Furthermore, under Article 667 of the Code of Commerce, the period during which the lien shall subsist is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for thirty (30) days thereafter. During this period, the sale of the goods may be requested, even though there are other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien for unpaid freight. Petitioner's invocation of Overseas Factors, Inc., et al. v. South Sea Shipping Co., et al., 23 therefore, is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the cargo had already been unconditionally delivered to the consignee SMCI without protest. WHEREFORE, the petition is DENIED and the assailed judgment of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED.

[G.R. No. 112287. December 12, 1997]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS or shipment for the general public. Its services are available only to specific persons who enter into a SHIPPING, INC., respondents. special contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage charter hire with National Steel Corporation. [G.R. No. 112350. December 12, 1997]

The facts as found by Respondent Court of Appeals are as follows:

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL (1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons CORPORATION, respondents. Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products DECISION at Iligan City and discharge them at North Harbor, Manila, under the following terms and conditions, viz: PANGANIBAN, J.: 1. x x x x x x. The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners responsibility for damage to the cargo and its liability for demurrage and attorneys fees. The Court also reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals, 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option. are binding on this Court. 3. x x x x x x The Case

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading within fifteen (15) days.

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of 5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974. Appeals. [1] The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows: 6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours, Sundays and Holidays Included). WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim 7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. as follows: 1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;

8. x x x x x x

2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for losses/damages except on proven willful negligence of the officers of the vessel.

3. Cost of suit. SO ORDERED. [2]

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter Party Agreement shall form part of this Contract.

On the other hand, the Court of Appeals ruled: xxxxxxxxx WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as to costs. SO ORDERED. [3]

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI Charter Party which stands for Freight In and Out including Stevedoring and Trading, which means that the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk and expenses to owners. x x x (Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to make the vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx; perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due diligence; any other cause arising without the actual fault or privity of Owners or without the fault of the agents or servants of owners. Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or default of the master and crew. (2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974. (3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day, August 13, 1974, when the vessels three (3) hatches containing the shipment were opened by plaintiffs agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading operations. (Exhibit E) (4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a report of its ocular inspection conducted on the cargo, both while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that container/metal casings of the skids were rusting all over. MASCO ventured the opinion that rusting of the tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit F). It was also reported that MASCOs surveyors drew at random samples of bad order packing materials of the tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The analysis of bad order samples of packing materials xxx shows that wetting was caused by contact with SEA WATER. (5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but

defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal. (6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result of the act, neglect and default of the master and crew in the management of the vessel as well as the want of due diligence on the part of the defendant to make the vessel seaworthy and to make the holds and all other parts of the vessel in which the cargo was carried, fit and safe for its reception, carriage and preservation -- all in violation of defendants undertaking under their Contract of Voyage Charter Hire. (7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was not a common carrier inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS I encountered very rough seas, strong winds and adverse weather condition, causing strong winds and big waves to continuously pound against the vessel and seawater to overflow on its deck and hatch covers; that under the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on proven willful negligence of the officers of the vessel, that the officers of said MV VLASONS I exercised due diligence and proper seamanship and were not willfully negligent; that furthermore the Voyage Charter Party provides that loading and discharging of the cargo was on FIOST terms which means that the vessel was free of risk and expense in connection with the loading and discharging of the cargo; that the damage, if any, was due to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of the cargo not discoverable by due diligence or to any other cause arising without the actual fault or privity of defendant and without the fault of the agents or servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo in Manila were negligent and did not exercise due care in the discharge of the cargo; and that the cargo was exposed to rain and seawater spray while on the pier or in transit from the pier to plaintiffs warehouse after discharge from the vessel; and that plaintiffs claim was highly speculative and grossly exaggerated and that the small stain marks or sweat marks on the edges of the tinplates were magnified and considered total loss of the cargo. Finally, defendant claimed that it had complied with all its duties and obligations under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim: (a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by defendant; (b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00. (c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant attorneys fees and all expenses of litigation in the amount of not less than P100,000.00. (8) From the evidence presented by both parties, the trial court came out with the following findings which were set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is available for hire only under special contracts of charter party as in this particular case. (b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV VLASONS I was covered by the required seaworthiness certificates including the Certification of Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of Transportation (Exh. 5); International Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a higher degree of seaworthiness and safety. (c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the vessels first voyage after the drydocking. The evidence shows that the MV VLASONS I was seaworthy and properly manned, equipped and supplied when it undertook the voyage. It had all the required certificates of seaworthiness. (d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards were steel beams to give support. (e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a presumption of negligence in case of loss or damage to the cargo are not applicable. As to the damage to the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that tinplates sweat by themselves when packed even without being in contract (sic) with water from outside especially when the weather is bad or raining. The rust caused by sweat or moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for loss or damage arising from the character of the goods x x x. All the 1,769 skids of the tinplates could not have been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected by water from outside.

(g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan City to Manila causing sea water to splash on the ships deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a force majeure that would exempt the defendant from liability. (h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire contract that it was to insure the cargo because it did not. Had plaintiff complied with the requirement, then it could have recovered its loss or damage from the insurer. Plaintiff also violated the charter party contract when it loaded not only steel products, i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate. (I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00 despite demands. The evidence also showed that the plaintiff was required and bound under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to pay defendant for demurrage in the amount of P88,000.00. Appealing the RTC decision to the Court of Appeals, NSC alleged six errors: I The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and supplied, and that there is no proof of willful negligence of the vessels officers. II The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or character of the goods and not due to contact with seawater. III The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs shipment. IV The trial court erred in exempting VSI from liability on the ground of force majeure.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the hatch openings of the MV VLASONS I when rains occurred during the discharging of the cargo thus allowing rainwater to enter the hatches. It was proven that the stevedores merely set up temporary tents to cover the hatch openings in case of rain so that it would be easy for them to resume work when the rains stopped by just removing the tent or canvas.Because of this improper covering of the hatches by the stevedores during the discharging and unloading operations which were interrupted by rains, rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant carrier has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.

V The trial court erred in finding that NSC violated the contract of voyage charter hire. VI The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4] As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and VSI filed separate motions for reconsideration.In a Resolution[5] dated October 20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective petitions for

review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation of II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the these petitions.[6] Nanyozai Charter, are valid and binding on both contracting parties. The foregoing issues raised by the parties will be discussed under the following headings: The Issues In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:

1. Questions of Fact 2. Effect of NSCs Failure to Insure the Cargo 3. Admissibility of Certificates Proving Seaworthiness 4. Demurrage and Attorneys Fees.

Questions of Law 1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by weather interruption; 2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12) were admissible in evidence and constituted evidence of the vessels seaworthiness at the beginning of the voyages; and 3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability for cargo damage.

Questions of Fact 1. Whether or not the vessel was seaworthy and cargo-worthy; 2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs cargo; 3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and (4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs tinplates.

The Courts Ruling The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier? At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier. The resolution of this preliminary question determines the law, standard of diligence and burden of proof applicable to the present case. Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a fee. [11] A carrier which does not qualify under the above test is deemed a private carrier. Generally, private carriage is undertaken by special agreement and the carrier does not hold himself out to carry goods for the general public. The most typical, although not the only form of private carriage, is the charter party, a maritime contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages. [12]

In the instant case, it is undisputed that VSI did not offer its services to the general public. As found In its separate petition, [9] VSI submits for the consideration of this Court the following alleged errors by the Regional Trial Court, it carried passengers or goods only for those it chose under a special contract of the CA: of charter party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons I was not a common but a private carrier. [14] Consequently, the rights and obligations of VSI and NSC, including their respective liability for damage to the cargo, are determined primarily by stipulations in their contract of A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage private carriage or charter party. [15] Recently, in Valenzuela Hardwood and Industrial Supply, from P88,000.00 to P44,000.00. Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, [16] the Court ruled: B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorneys fees and expenses of litigation. Amplifying the foregoing, VSI raises the following issues in its memorandum: [10] I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there exist[s] a presumption of negligence against the common carrier in case of loss or damage to the cargo are applicable to a private carrier.

x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common carriers.[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be responsible for losses except on proven willful negligence of the officers of the vessel. The NANYOZAI Charter Party, which was incorporated in the parties contract of transportation, further provided that the shipowner shall not be liable for loss of or damage to the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the same was properly manned, equipped and supplied, and to make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its reception, carriage and preservation. [18] The NANYOZAI Charter Party also provided that [o]wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or default of the master or crew.[19]

burden of proving proper care and diligence on its part or that the loss occurred from an excepted cause in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee, and since the carrier is in a better position to know the cause of the loss and that it was not one involving its liability, the law requires that it come forward with the information available to it, and its failure to do so warrants an inference or presumption of its liability. However, such inferences and presumptions, while they may affect the burden of coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and, where the carrier comes forward with evidence explaining the loss or damage, the burden of going forward with the evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the goods were lost or damaged while in the carriers possession does not cast on it the burden of proving seaworthiness. x x x Where the contract of carriage exempts the carrier from liability for unseaworthiness Burden of Proof not discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due In view of the aforementioned contractual stipulations, NSC must prove that the damage to its diligence to make the vessel seaworthy. [20] shipment was caused by VSIs willful negligence or failure to exercise due diligence in making MV Vlasons In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause placed on NSC by the parties agreement. 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation This view finds further support in the Code of Commerce which pertinently provides: of Clause 12 is not even correct), it argues that a careful examination of the evidence will show that VSI miserably failed to comply with any of these obligations as if defendant-appellee [VSI] had the burden of proof.[21] Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly stipulated. Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper. The burden of proof of these accidents is on the carrier. Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding article if proofs against him show that they occurred on account of his negligence or his omission to take the precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of lading, making him to believe that the goods were of a class or quality different from what they really were.

First Issue: Questions of Fact Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the charter party; (2) whether the damage to the cargo should be attributed to the willful negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own sweat or by contact with seawater.

These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to hear the parties conflicting claims and to carefully weigh their respective evidence. The findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and the Court of Appeals coincide, the same are binding on this Court. [22] We stress that, subject to some exceptional instances, [23] only questions of law -- not questions of fact -- may be Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the raised before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places review of the case at bar, we find no reason to disturb the lower courts factual findings, as indeed NSC has the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that: not successfully proven the application of any of the aforecited exceptions. In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carriers custody does not put the burden of proof on the carrier.

Was MV Vlasons I Seaworthy?

Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of the goods committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carriers possession does not cast on it the

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the contract of voyage charter hire. [24] The vessels voyage from Iligan to Manila was the vessels first

voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted andequipped; it met all requirements for trading as cargo vessel. [25] The Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the trial and the appellate courts.

Who Were Negligent: Seamen or Stevedores? As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden. Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for failing to consider such claim as an uncontroverted fact [26] and denies that MV Vlasons I was equipped with new canvas covers in tandem with the old ones as indicated in the Marine Protest xxx. [27] We disagree.

A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a stopper so that the canvas could not be removed. ATTY DEL ROSARIO Q: And will you tell us the size of the hatch opening? The length and the width of the hatch opening. A: Forty-five feet by thirty-five feet, sir. xxxxxxxxx Q: How was the canvas supported in the middle of the hatch opening? A: There is a hatch board. ATTY DEL ROSARIO Q: What is the hatch board made of?

The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition to the new one used primarily to make the ships hatches watertight. The foregoing are clear from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships boatswain, Jose Pascua. The salient portions of said marine protest read:

A: It is made of wood, with a handle.

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about August 9, 1974, while in the vicinity of the western part of Negros and Panay, we encountered very rough seas and strong winds and Manila office was advised by telegram of the adverse weather conditions encountered; that in the morning of August 10, 1974, the weather condition changed to worse and strong winds and big waves continued pounding the vessel at her port side causing sea water to overflow on deck andhatch (sic) covers and which caused the first layer of the canvass covering to give way while the new canvass covering still holding on;

Q: What is this beam made of?

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we resecured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same canvass to give way and leaving the new canvass holding on;

ATTY DEL ROSARIO

Q: And aside from the hatch board, is there any other material there to cover the hatch? A: There is a beam supporting the hatch board.

A: It is made of steel, sir. Q: Is the beam that was placed in the hatch opening covering the whole hatch opening? A: No, sir. Q: How many hatch beams were there placed across the opening? A: There are five beams in one hatch opening.

Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put on top? A: Plenty, sir, because there are several pieces on top of the hatch beam.

xxx xxx xxx [28]

Q: And is there a space between the hatch boards?

And the relevant portions of Jose Pascuas deposition are as follows:

A: There is none, sir.

Q: What is the purpose of the canvas cover?

Q: They are tight together?

A: So that the cargo would not be soaked with water.

A: Yes, sir.

A: And will you describe how the canvas cover was secured on the hatch opening?

Q: How tight?

WITNESS

A: Very tight, sir.

Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas covers? A: Two, sir. [29]

Q: What was used in order to protect the cargo from the weather? A: A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of the hatches.

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give way and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals, xxx we find no reason not to sustain the conclusion of the lower court based on overwhelming evidence, that the MV VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]

Q: You also stated that the hatches were already opened and that there were tents constructed at the opening of the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the tents constructed.

Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading the cargo from the ship.

Q: Now, is this procedure adopted by the stevedores of covering tents proper?

The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus: ATTY ZAMORA: Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel upon notice from the National Steel Corporation in order to conduct the inspection of the cargo. During the course of the investigation, did you chance to see the discharging operation? WITNESS: A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but majority of the tinplates were inside the hall, all the hatches were opened. Q: In connection with these cargoes which were unloaded, where is the place. A: At the Pier. Q: What was used to protect the same from weather? ATTY LOPEZ: We object, your Honor, this question was already asked. This particular matter . . . the transcript of stenographic notes shows the same was covered in the direct examination. ATTY ZAMORA:

A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle with the whole side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle because of those weather and this can be used only to temporarily protect the cargo from getting wet by rains.

A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent was not good enough to hold all of it to prevent the water soaking through the canvas and enter the cargo. Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the canvas and tinplates. A: Yes, sir, the second time I went there, I saw it. Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by its stevedores in discharging the cargo particularly in this tent covering of the hatches? A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind at all, so, I called the attention of the representative of the National Steel but nothing was done, just the same. Finally, I wrote a letter to them. [31] NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about the stevedores negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only seven days later. [32] The Court is not persuaded. Angliongtos candid answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he first called the attention of the stevedores, then the NSCs representative, about the negligent and defective procedure adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with common sense and ordinary human experience. Vicente Angliongto could not be blamed for calling the stevedores attention first and then the NSCs representative on location before formally informing NSC of the negligence he had observed, because he was not responsible for the stevedores or the unloading operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the stevedores it had hired and the performance of their task to unload the cargo. We see no reason to reverse the trial and the appellate courts findings and conclusions on this point, viz:

Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony. COURT: All right, witness may answer. ATTY LOPEZ:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs shipment. We do not think so. Such negligence according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred during the discharging of the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores

merely set up temporary tents or canvas to cover the hatch openings when it rained during the unloading operations so that it would be easier for them to resume work after the rains stopped by just removing said tents or canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on rainy days and the improper closing of the hatches which allowed continuous heavy rain water to leak through and drip to the tinplates covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos rains with strong winds that the hatches be totally closed down and covered with canvas and the hatch tents lowered. (Exh 13). This letter was received by [NSC] on 22 August 1974 while discharging operations were still going on (Exhibit 13-A). [33] The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may seek indemnification, subject to the laws on prescription, from the stevedoring company at fault in the discharge operations. A stevedore company engaged in discharging cargo xxx has the duty to load the cargo xxx in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its negligence xxx and where the officers and members and crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores xxx the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the stevedores xxx [34] as in the instant case.

3. International Load Line Certificate from the Philippine Coast Guard 4. Coastwise License from the Board of Transportation 5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36] NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified true copies as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37] After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by private parties, but they have not been proven by one who saw the writing executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been demonstrated.

We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made in the performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated. [38] Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on board for Do Tinplates Sweat? inspection x x x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by VLASONS I, a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for themselves when packed even without being in contact with water from outside especially when the trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, weather is bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding. 1974. (sic) NSCs claim, therefore, is obviously misleading and erroneous. A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not damage to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation which the stevedores negligently allowed to seep in during the unloading. of a common carrier to show that it was seaworthy.Indeed, NSC glaringly failed to discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy. Second Issue: Effect of NSCs Failure to Insure the Cargo The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as owner and real party in interest, to file an action against VSI for damages caused by the latters willful negligence. We do not find anything in the charter party that would make the liability of VSI for damage to the cargo contingent on or affected in any manner by NSCs obtaining an insurance over the cargo.

Fourth Issue: Demurrage and Attorneys Fees The contract of voyage charter hire provides inter alia: xxx xxx xxx 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

Third Issue: Admissibility of Certificates Proving Seaworthiness

xxx xxx xxx

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of 6. Loading/Discharging Rate : 750 tons per WWDSHINC. the certificates of seaworthiness offered in evidence by VSI. The said certificates include the following: 7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39] 1. Certificate of Inspection of the Philippine Coast Guard at Cebu 2. Certificate of Inspection from the Philippine Coast Guard

The Court defined demurrage in its strict sense as the compensation provided for in the contract of affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for loading and unloading of cargo. [40] It is given to compensate the shipowner for the nonuse of the vessel. On the other hand, the following is well-settled:

transport price which is determined not only by the actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss or damage to the cargo. In recognition of such factors, the parties even stipulated that the shipper should insure the cargo to protect itself from the risks it undertook under the charter party. That NSC failed or neglected to protect itself with such insurance should not adversely affect VSI, which had nothing to do with such failure or neglect.

Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in running days, this means days when the ship would be run continuously, and holidays are not excepted. A qualification of weather permitting excepts only those days when bad weather reasonably prevents the work contemplated. [41]

WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is deleted. No pronouncement as to costs.

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as WWDSHINC or weather working days Sundays and holidays included. [42] The running of laytime was thus made subject to the weather, and would cease to run in the event unfavorable weather interfered with the unloading of cargo. [43] Consequently, NSC may not be held liable for demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court of Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable weather or rain which was August 22, 1974. Based on our previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.

Attorneys Fees VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an award of attorneys fees under Article 2208 of the Civil Code when x x x no sufficient showing of bad faith would be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause x x x. [44] Moreover, attorneys fees may not be awarded to a party for the reason alone that the judgment rendered was favorable to the latter, as this is tantamount to imposing a premium on ones right to litigate or seek judicial redress of legitimate grievances. [45]

Epilogue At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage was brought about during the unloading process when rain and seawater seeped through the cargo due to the fault or negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement between the parties -- the Contract of Voyage Charter Hire -- placed the burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties entered into a contract of private charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a party from the effects of a private contract freely entered into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial contract and its stipulations are agreed upon in consideration of many factors, not the least of which is the

SO ORDERED.

The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its COURT OF APPEALS and FELMAN SHIPPING LINES, respondents. implied warranty on the vessels seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give DECISION PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee. BELLOSILLO, J.: On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe respondent appellate court rendered judgment finding MV Asilda unseaworthy for being top- heavy as the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the subrogated to the rights of the insured upon payment of the insurance claim. structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate court On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned denied the claim of PHILAMGEN on the ground that the assureds implied warranty of seaworthiness was and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca- not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of Cola softdrink bottles to be transported from Zamboanga Cityto Cebu City for consignee Coca- the shipper. Furthermore, respondent court held that the filing of notice of abandonment had absolved the Cola Bottlers Philippines, Inc., Cebu.[1] The shipment was insured with petitioner Philippine American shipowner/agent from liability under the limited liability rule. General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG. The issues for resolution in this petition are: (a) whether MV Asilda was seaworthy when it left the MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter shipper had against FELMAN, the shipowner. Coca-Cola softdrink bottles. MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with well as the chief mate of the vessel confirmed that the weather was fine when they left the port of respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, that sank with MV Asilda. Respondent denied the claim thus prompting the consignee to file an insurance 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh claim with PHILAMGEN which paid its claim of P755,250.00. eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck.[4] The ship captain stated that around four oclock in the morning of 7 July 1983 he was awakened by the officer on Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the shipowner for sum of money and damages. vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel was due to the vessels unseaworthiness as she was put to sea in an unstable condition. It further alleged balanced. At about seven oclock in the morning, the master of the vessel stopped the engine because the that the vessel was improperly manned and that its officers were grossly negligent in failing to take vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed. appropriate measures to proceed to a nearby port or beach after the vessel started to list. On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests and ownership over MV Asilda together with her freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce.[2]

At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move, some of the cargo on deck were thrown overboard and seawater entered the engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, MV Asilda capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessels collision with a partially submerged log. [5]

The Elite Adjusters, Inc., submitted a report regarding the sinking of MV Asilda. The report, which On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and remanded the case to the lower court for trial on the was adopted by the Court of Appeals, reads merits. FELMAN filed a petition for certiorari with this Court but it was subsequently denied on 13 February 1989. We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was topOn 28 February 1992 the trial court rendered judgment in favor of FELMAN. [3] It ruled that MV heavy which is to say that while the vessel may not have been overloaded, yet the distribution or stowage Asilda was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the of the cargo on board was done in such a manner that the vessel was in top-heavy condition at the time of Philippine Coast Guard and the shipowners surveyor attesting to its seaworthiness. Thus the loss of the her departure and which condition rendered her unstable and unseaworthy for that particular voyage. vessel and its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.

In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel x x x x and it was not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we believe strongly that had her cargo been confined to those that could have been accommodated under deck, her stability would not have been affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions at that time of sinking. But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessels metacentric height as to cause it to become unstable. Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable and unseaworthy x x x x

miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce. Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them,according to all the circumstances of each case x x x x" In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption. In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a voluntary payment and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.

It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy.[12] Thus Sec. 113 of the Insurance Code provides that (i)n every marine insurance We believe, therefore, and so hold that the proximate cause of the sinking of the M/V Asilda was her upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty condition of unseaworthiness arising from her having been top-heavy when she departed from the Port of is implied that the ship is seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to perform Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the category of an inevitable occurrence (underscoring supplied).[6] policy. Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate the selection of the common carrier that will transport his goods. He also has full discretion in the choice cause of the sinking of MV Asilda was its being top-heavy. Contrary to the ship captains allegations, of assurer that will underwrite a particular venture. evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after MV Asilda sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly of the sinking. Considering that the ships hatches were properly secured, the empty Coca-Cola cases pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law recovered could have come only from the vessels deck cargo. It is settled that carrying a deck cargo raises will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the in the clearest language.[13] And where the policy stipulates that the seaworthiness of the vessel as between proper management of the ship. However, in this case it was established that MV Asilda was not designed the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease without showing concealment or misrepresentation by the assured. [14] of the vessels metacentric height[7] thus making it unstable. The strong winds and waves encountered by The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy unstable and unseaworthy condition. No. 100367-PAG reads (t)he liberties as per Contract of Affreightment the presence of the Negligence On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.[8] Simply Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of put, the ship agent is liable for the negligent acts of the captain in the care of Affreightment as between the Assured and the Company shall not prejudice the insurance. The goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted.[15] equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury [9] (t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x"[16] was due to the fault of the shipowner and the captain. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases where The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two the injury or average was occasioned by the shipowners own fault. [10] It must be stressed at this point that things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where unseaworthiness is assumed by the insurance company.[17] The insertion of such waiver clauses in cargo the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus provisions of the Civil Code on common carrier.[11] it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness It was already established at the outset that the sinking of MV Asilda was due to its unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable. even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that payment by the assurer to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third party whose negligence orwrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.[19] Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable. WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.[20] SO ORDERED.

G.R. No. L-30805 December 26, 1984

period of prescription for quasi-delicts prescribed in article 1146 (2) of the Civil Code or ten years for violation of a written contract as provided for in article 1144 (1) of the same Code.

DOMINGO ANG, plaintiff-appellant, vs. COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L. DIOKNO, defendants-appellees.

As Ang filed the action less than three years from the date of the alleged misdelivery of the cargo, it has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in interest with a cause of action for damages.

AQUINO, J.:

WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the trial court for further proceedings. Costs against the defendants.

This case involves the recovery of damages by the consignee from the carrier in case of misdelivery of the cargo which action was dismissed by the trial court on the grounds of lack of cause of action and prescription. It should be noted that that legal point is already res judicata. In 1967 it was decided in favor of plaintiffappellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125 Phil. 543 and 125 Phil. 1040, three cases. As observed by Ang's counsel, the facts of those cases and the instant case are the same mutatis mutandis. It was held that Ang has a cause of action against the carrier which has not prescribed In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the Philippines and C.L. Diokno. He prayed that the defendants be ordered to pay him solidarily the sum of US$130,539.68 with interest from February 9, 1963 plus attorney's fees and damages. Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by the defendants, to be transported to Manila and consigned "to order" of the shipper, Tokyo Boeki, Ltd., which indorsed the bill of lading issued by Compania Maritima to the order of Yau Yue Commercial Bank. Ang further alleged that the defendants, by means of a permit to deliver imported articles, authorized the delivery of the cargo to Teves who obtained delivery from the Bureau of Customs without the surrender of the bill of lading and in violation of the terms thereof. Teves dishonored the draft drawn by Yau Yue against him. The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft's dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang. The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of action. Ang opposed the motion. As already stated, the trial court on May 22, 1964 dismissed the complaint on the grounds of lack of cause of action and prescription since the action was filed beyond the one-year period provided in the Carriage of Goods by Sea Act. In the American Steamship Agencies cases, it was held that the action of Ang is based on misdelivery of the cargo which should be distinguished from loss thereof. The one-year period provided for in section 3 (6) of the Carriage of Goods by Sea Act refers to loss of the cargo. What is applicable is the four-year

SO ORDERED.

G.R. No. L-27798 June 15, 1977 UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon Philippines, Inc.), plaintiffappellant, vs. MANILA RAILROAD CO., substituted by the PHILIPPINE NATIONAL RAILWAYS, MANILA PORT SERVICE and AMERICAN STEAMSHIP AGENCIES, INC., defendants- appellees. Solicitor General Antonio P. Barredo and Solicitor Buenaventura J. Guerrero for appellants. Salcedo, Del Rosario, Bito & Misa for appellee.

AQUINO, J.: This is an admiralty and arrastre case. On December 18, 1961 the vessel Daishin Maru arrived in Manila with a cargo of 1,000 bags of synthetic resin consigned to General Base Metals, Inc. which later sold the cargo to Union Carbide Philippines, Inc. On the following day, December 19, that cargo was delivered to the Manila Port Service in good order and condition except for twenty- five bags which were in bad order (Par. IV and Annexes C to C-25 of Stipulation of Facts). On January 20 and February 6 and 8, 1962 eight hundred ninety-eight (898) bags of resin (out of the 1,000 bags) were delivered by the customs broker to the consignee. One hundred two bags were missing. The contents of twenty-five bags were damaged or pilfered while they were in the custody of the arrastre operator (Par. XII and Annexes D and H of Stipulation of Facts All in all fifty bags out of the 898 bags were damaged (Annex D-5). The 152 bags of resin (102 missing and 50 damaged) were valued at $12.65 a bag or a total value of $1,992.80, which amount at the prevailing rate of exchange of P3.85 to the American dollar, is equivalent to P7,402.78 (Annex I of Stipulation of Facts). The consignee, through the customs broker, filed on January 3, 1962 with the Manila Port Service, as arrastre operator, and the American Steamship Agencies, Inc., as agent of the carrier, a provisional claim advising them that the shipment in question was "shorthanded, short delivered and/or landed in bad order" (Annexes E and F of Stipulation of Facts). Formal claims dated June 11, 1962 were made by the consignee with the arrastre operator and the agent of the carrier (Annexes I and I-1 of Stipulation of Facts The claims were reiterated by the consignee's lawyer in his letters dated September 26, 1962 which were received by the carrier's agent and the arrastre operator on October 4, 1962 (Annexes J and J-1 of Stipulation of Facts). As the claims were not paid, Union Carbide Philippines, Inc. filed a complaint on December 21, 1962 in the Court of First Instance of Manila against the Manila Railroad Company, the Manila Port Service and the American Steamship Agencies, Inc. for the recovery of damages amounting to P7,402.78 as the value

of the undelivered 102 bags of resin and the damaged 50 bags plus legal rate of interest from the filing of the complaint and P1,000 as attorney's fees. Union Carbide's complaint was a double-barrelled action or a joinder of two causes of action. One was an action in admiralty under the Carriage of Goods by Sea Act against the carrier's agent for the recovery of P1,217.56 as the value of twenty-five bags of resin which were damaged before they were landed (Annex C-25). The other was an action under the management contract between the Bureau of Customs and the Manila Port Service, a subsidiary of the Manila Railroad Company, for the recovery of P6,185.22 as the value of the undelivered 102 bags of resin and twenty-five bags, the contents of which were damaged or pilfered while in the custody of the arrastre operator. The case was submitted for decision on the basis of a stipulation of facts. The trial court in its decision of January 15, 1964 dismissed the case as to the carrier's agent on the ground that the action had already prescribed because it was not "brought within one year after delivery of the goods", as contemplated in section 3(6) of the Carriage of Goods by Sea Act. The one-year period was counted from December 19, 1961 when the cargo was delivered to the arrastre operator. As above stated, the action was brought on December 21, 196'2 or two days late, according to the trial court's reckoning (Civil Case No. 52562). With respect to the consignee's claim against the arrastre operator, the trial court found that the provisional claim was filed within the fifteen-day period fixed in paragraph 15 of the arrastre contract. Yet, in spite of that finding, the trial court dismissed the action against the arrastre operator (p. 65, Record on Appeal). Union Carbide appealed to the Court of Appeals on questions of fact and of law, That Appellate Court elevated the case to this Court because in its opinion the appeal raises only the legal issue of prescription (Resolution of May 10, 1967 in CA-G. R. No. 33743-R). Union Carbide contends that the trial court erred (1) in finding that its action was barred by the statute of limitations and (2) in not holding that the carrier and the arrastre operator were liable for the value of the undelivered and damaged cargo. Claim against the carrier's agent.-There is no question that, as shown in the twenty-five tally sheets, 975 bags of resin were delivered by the carrier in good order to the arrastre operator and that only twenty-five (25) bags were damaged while in the carrier's custody (Annexes C to C-25 and K-1 of Stipulation of Facts). The one-year period within which the consignee should sue the carrier is computed from "the delivery of the goods or the date when the goods should have been delivered". The Carriage of Goods by Sea Act provides: RESPONSIBILITIES AND LIABILITIES SEC. 3. xxx xxx xxx

(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or hi agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. (Commonwealth Act No. 65, adopting U.S. Public Act No. 521 of April 16,1936). What is the meaning of "delivery" in section 3(6) of the Carriage of Goods by Sea Act The trial court construed delivery as referring to the discharge or landing of the cargo. Union Carbide contends that "delivery" does not mean the discharge of goods or the delivery thereof to the arrastre operator but the actual delivery of the goods to the consignee by the customs broker. The carrier contends that delivery means discharge from the vessel into the custody of the customs arrastre operator because under sections 1201 and 1206 of the Tariff and Customs Code merchandise cannot be directly delivered by the carrier to the consignee but should first pass through the customhouse at a port of entry for the collection of customs duties. The carrier cites the following provisions of the bill of lading to support its contention: 9. Delivery. The Carrier retains the option of delivery at all times from ship's side or from craft, hulk, custom house, warehouse, wharf or quay at the risk of the shippers, consignees or owners of the goods, and all expenses incurred by delivery otherwise than from ship's side shall be borne by the shippers, consignee or owners of the goods.

11. Discharge of Goods. The goods may be discharge without notice, as soon as the ship is ready to unload, continuously day and night, Sundays and holidays included, on to wharf or quay or into warehouse, or into hulk, lazaretto or craft or on any other place and be stored there at the risk and expense of the shippers, consignees or owners of the goods, any custom of the port to the contrary notwithstanding. In any case, the Carrier's liability is to cease as soon as the goods are lifted from ship's deck or leave the ship's tackle, any custom of the port to the contrary notwithstanding. Consignees to pay charges for sorting and stocking the goods on wharf or in shed. If the consignees fail to take delivery of their goods immediately the ship is ready to discharge them, the Carrier shall be at liberty to land and warehouse or discharge the said goods into hulk or craft, or at any other place at the risk and expense of the shippers, consignees or owners of the goods without notice. 15. Notice of Claim. Any claim for loss of or damage to the goods must be preferred in writing to the Carrier's Agents at the place of delivery within 3 days after the ship's discharge thereof, and before the goods are removed from the quay or ship's " or place of discharge, and in the event of such claim not being preferred as above specified, the claim shall be deemed as waived, and the Carrier shall be discharged therefrom. Suit for the recovery of loss or damage shall not in any event be maintainable against the Carrier or the ship unless instituted within one year after the delivery of the written notice above specified. The amount of claim shall be restricted to the Cash Value of the goods at the place and time of original shipment plus all charges actually paid thereon, and all claims for either partial or total loss or damage shall be entertained and adjusted upon this basis of value. (Annex B). In this connection, it is pertinent to state that the Tarifff and Customs Code allows the delivery of imported merchandise to the arrastre operator: SEC. 1213. Receiving Handling Custody and Delivery of Articles. — The Bureau of Customs shall have "elusive supervision and control over the receiving, handling, custody and delivery of articles on the wharves and piers at all ports of entry and in the exercise of its functions it is hereby authorized to acquire, take over, operate and superintend such plants and facilities as may be necessary for the receiving, handling, custody and delivery of articles, and the convenience and comfort of passengers and the handling of baggage, as well as to acquire fire protection equipment for use in the piers: Provided, That whenever in his judgment the receiving, handling, custody and delivery of articles can be carried on by private parties with greater efficiency, the Commissioner may, after public bidding and subject to the approval of the department head, contract with any private party for the service of receiving, handling, custody and delivery of articles, and in such event, the contract may include the sale or lease of government-owned equipment and facilities used in such service.

The sensible and practical interpretation is that delivery within the meaning of section 3(6) of the Carriage of Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced by tally sheets which show whether the goods were landed in good order or in bad order, a fact which the consignee or shipper can easily ascertain through the customs broker.

Under the foregoing contractual provisions, the action against the arrastre operator to enforce liability for loss of the cargo or damage thereto should be filed within one year from the date of the discharge of the goods or from the date when the claim for the value of such goods has been rejected or denied by the arrastre operator.

To use as basis for computing the one-year period the delivery to the consignee would be unrealistic and might generate confusion between the loss or damage sustained by the goods while in the carrier's custody and the loss or damage caused to the goods while in the arrastre operator's possession.

However, before such action can be filed a condition precedent should be complied with and that is, that a claim (provisional or final) shall have been previously filed with the arrastre operator within fifteen days from the date of the discharge of the last package from the carrying vessel (Continental Insurance Company vs. Manila Port Service, L-22208, March 30,1966,16 SCRA 425).

Apparently, section 3(6) adheres to the common-law rule that the duty imposed water carriers was merely to transport from wharf to wharf and that the carrier was not bound to deliver the goods at the warehouse of the consignee (Tan Hi vs. United States, 94 Fed. Supp. 432,435). In the Tan Hi case, it was held that a requirement of Philippine law that all cargo unloaded at Manila be delivered to the consignee through the arrastre operator acting as customs' agent was not unreasonable. The common-law requirements as to the proper delivery of goods by water carrier apply only when customs regulations at the port of destination do not otherwise provide. The delivery must be in accordance with the usages of the port in order that such delivery would discharge the carrier of responsibility. (Notes 50 and 51, 80 C.J.S. 922; 58 C. J. 372 note 24. See 70 Am. Jur 2nd 613, note 19). Under the facts of this case, we held that the one-year period was correctly reckoned by the trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was barred by the statute of limitations. Defendant American Steamship Agencies, Inc., as agent of the carrier, has no more liability to the consignee's assignee, Union Carbide Philippines, Inc., in connection with the damaged twenty-five bags of resin. Prescription was duly pleaded by the said defendant in its answer and motion to dismiss. That defense was correctly entertained by trial court. Claim against the arrastre operator. — The liability of the arrastre contractor has a factual and legal basis different from that of the carrier's. The management contract between the Manila Port Service and the Bureau of Customs provides: 15. ... ; in any event the CONTRACTOR hall be relieved and released of any and all responsibility or liability for loss, damage, misdelivery, and/or non-delivery of goods, unless suit in the court of proper jurisdiction is brought within a period of one (1) year from the date of the discharge of the goods, or from the date when the claim for the value of such goods have been rejected or denied by the CONTRACTOR, provided that such claim shall have been filed with the CONTRACTOR within fifteen (15) days from the date of discharge of the last package from the carrying vessel. ... (Annex A of Stipulation of Facts

In this case, the consignee's customs broker filed with the Manila Port Service as provisional claim advising the latter that the cargo was "short, short delivered and/or landed in bad order". That claim was filed on January 3, 1962 or on the fifteenth day following December 19, 1961, the date of the discharge of the last package from the carrying vessel. That claim was never formally rejected or denied by the Manila Port Service. Having complied with the condition precedent for the filing of a claim within the fifteen- day period, Union Carbide could file the court action within one year, either from December 19, 1961 or from December 19, 1962. This second date is regarded as the expiration of the period within which the Manila Port Service should have acted on the claim (Philippine Education Co., Inc. vs. Manila Port Service, L-24091, 21 SCRA, 174, 178). In other words, the claimant or consignee has a two-year prescriptive period, counted from the date of the discharge of the goods, within which to file the action in the event that the arrastre contractor, as in this case, has not rejected nor admitted liability (Continental Insurance Company vs. Manila Port Service, supra. Philippine Education Company vs. Manila Port Service, L-23444, October 29, 1971, 42 SCRA 31). Since the action in this case against the arrastre operator was filed on December 21, 1962, or within the two-year period expiring on December 19, 1963, that action was filed on time. The trial court erred in dismissing the action against the Manila Port Service and its principal, the Manila Railroad Company. As shown in the statement of facts, the arrastre operator is responsible for the value of 102 bags of resin which were not delivered, and twenty-five bags, which were damaged, or a total of one hundred twentyseven bags valued at P6,185.22. The arrastre operator should pay attorney's fees to the plaintiff for not having satisfied its plainly valid, just and demandable claim (Art. 2208, Civil Code). We fix the attorney's fees and the litigation expenses in the sum of one thousand pesos. WHEREFORE, the trial court's judgment is affirmed insofar as it dismissed plaintiff-appellant's claim against defendant American Steamship Agencies, Inc. on the ground of prescription. The trial court's decision is reversed insofar as it dismissed plaintiff's claim against the Manila Railroad Company, as arrastre operator. The Philippine National Railways, as the successor of the Manila Railroad Company (See. 22, Republic Act No. 4156), is hereby ordered to pay plaintiff Union Carbide Philippines, Inc. the sum of P6,185.22, as the value of the 127 bags of resin (102 bags missing and 25

bags damaged), with legal rate of interest from the filing of the complaint on December 21, 1962 up to the date of payment, Plus P1,000 as attorney's fees and litigation expenses, and the costs. SO ORDERED.

G.R. No. 88092

April 25, 1990

CITADEL LINES, INC., petitioner, vs. COURT OF APPEALS* and MANILA WINE MERCHANTS, INC., respondents. Del Rosario & Del Rosario Law Offices for petitioner. Limqueco and Macaraeg Law Office for private respondent.

REGALADO, J.: Through this petition, we are asked to review the decision of the Court of Appeals dated December 20, 1988, in CA-G.R. No. CV-10070, 1 which affirmed the August 30, 1985 decision of the Regional Trial Court of Manila, Branch 27, in Civil Case No. 126415, entitled Manila Wine Merchants, Inc. vs. Citadel Lines, Inc. and E. Razon, Inc., with a modification by deleting the award of attorney's fees and costs of suit. The following recital of the factual background of this case is culled from the findings in the decision of the court a quo and adopted by respondent court based on the evidence of record. Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent of the vessel "Cardigan Bay/Strait Enterprise," while respondent Manila Wine Merchants, Inc. (hereafter, the CONSIGNEE) is the importer of the subject shipment of Dunhill cigarettes from England. On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board at Southampton, England, for carriage to Manila, 180 Filbrite cartons of mixed British manufactured cigarettes called "Dunhill International Filter" and "Dunhill International Menthol," as evidenced by Bill of Lading No. 70621374 2 and Bill of Lading No. 70608680 3 of the Ben Line Containers Ltd. The shipment arrived at the Port of Manila Pier 13, on April 18, 1979 in container van No. BENU 204850-9. The said container was received by E. Razon, Inc. (later known as Metro Port Service, Inc. and referred to herein as the ARRASTRE) under Cargo Receipt No. 71923 dated April 18, 1979. 4 On April 30, 1979, the container van, which contained two shipments was stripped. One shipment was delivered and the other shipment consisting of the imported British manufactured cigarettes was palletized. Due to lack of space at the Special Cargo Coral, the aforesaid cigarettes were placed in two containers with two pallets in container No. BENU 204850-9, the original container, and four pallets in container No. BENU 201009-9, with both containers duly padlocked and sealed by the representative of the CARRIER. In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van No. BENU 201009-9 had a different padlock and the seal was tampered with. The matter was reported to Jose G. Sibucao, Pier Superintendent, Pier 13, and upon verification, it was found that 90 cases of imported British manufactured cigarettes were missing. This was confirmed in the report of said Superintendent Sibucao to Ricardo Cosme, Assistant Operations Manager, dated May 1, 1979 5 and the Official Report/Notice of Claim of Citadel Lines, Inc. to E. Razon, Inc. dated May 8, 1979. 6 Per investigation

conducted by the ARRASTRE, it was revealed that the cargo in question was not formally turned over to it by the CARRIER but was kept inside container van No. BENU 201009-9 which was padlocked and sealed by the representatives of the CARRIER without any participation of the ARRASTRE. When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated May 21, 1979, 7 with the CARRIER, demanding the payment of P315,000.00 representing the market value of the missing cargoes. The CARRIER, in its reply letter dated May 23, 1979, 8 admitted the loss but alleged that the same occurred at Pier 13, an area absolutely under the control of the ARRASTRE. In view thereof, the CONSIGNEE filed a formal claim, dated June 4, 1979, 9 with the ARRASTRE, demanding payment of the value of the goods but said claim was denied. After trial, the lower court rendered a decision on August 30, 1985, exonerating the ARRASTRE of any liability on the ground that the subject container van was not formally turned over to its custody, and adjudging the CARRIER liable for the principal amount of P312,480.00 representing the market value of the lost shipment, and the sum of P30,000.00 as and for attorney's fees and the costs of suit. As earlier stated, the court of Appeals affirmed the decision of the court a quo but deleted the award of attorney's fees and costs of suit. The two main issues for resolution are: 1. Whether the loss occurred while the cargo in question was in the custody of E. Razon, Inc. or of Citadel Lines, Inc; and 2. Whether the stipulation limiting the liability of the carrier contained in the bill of lading is binding on the consignee. The first issue is factual in nature. The Court of Appeals declared in no uncertain terms that, on the basis of the evidence presented, the subject cargo which was placed in a container van, padlocked and sealed by the representative of the CARRIER was still in its possession and control when the loss occurred, there having been no formal turnover of the cargo to the ARRASTRE. Besides, there is the categorical admission made by two witnesses, namely, Atty. Lope M. Velasco and Ruben Ignacio, Claims Manager and Head Checker, respectively, of the CARRIER, 10 that for lack of space the containers were not turned over to and as the responsibility of E. Razon Inc. The CARRIER is now estopped from claiming otherwise. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. 11 If the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extra ordinary diligence as required in Article 1733 of the Civil Code. 12 The duty of the consignee is to prove merely that the goods were lost. Thereafter, the burden is shifted to the carrier to prove that it has exercised the extraordinary diligence required by law. And, its extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee or to the person who has the right to receive them. 13

Considering, therefore, that the subject shipment was lost while it was still in the custody of herein petitioner CARRIER, and considering further that it failed to prove that the loss was occasioned by an excepted cause, the inescapable conclusion is that the CARRIER was negligent and should be held liable therefor. The cases cited by petitioner in support of its allegations to the contrary do not find proper application in the case at bar simply because those cases involve a situation wherein the shipment was turned over to the custody and possession of the arrastre operator. We, however, find the award of damages in the amount of P312,800.00 for the value of the goods lost, based on the alleged market value thereof, to be erroneous. It is clearly and expressly provided under Clause 6 of the aforementioned bills of lading issued by the CARRIER that its liability is limited to $2.00 per kilo. Basic is the rule, long since enshrined as a statutory provision, that a stipulation limiting the liability of the carrier to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. 14 Further, a contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon. 15 The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does not appear in the bills of lading. 16 Hence, the stipulation on the carrier's limited liability applies. There is no question that the stipulation is just and reasonable under the circumstances and have been fairly and freely agreed upon. In Sea-land Service, Inc.vs. Intermediate Appellate Court, et al. 17 we there explained what is a just and reasonable, and a fair and free, stipulation, in this wise: . . . That said stipulation is just and reasonable arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the justice and fairness of that law itself, and this the private respondent does not pretend to do. But over and above that consideration the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. And since the shipper here has not been heard to complain of having been "rushed," imposed upon or deceived in any significant way into agreeing to ship the cargo under a bill of lading carrying such a stipulation — in fact, it does not appear, that said party has been heard from at all insofar as this dispute is concerned — there is simply no ground for assuming that its agreement thereto was not as the law would require, freely and fairly sought and well. The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since 90 cartons were lost and the weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the CARRIER's liability amounts to only US$4,467.60. WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel Lines, Inc. is ordered to pay private respondent Manila Wine Merchants, Inc. the sum of US$4,465.60. or its equivalent in Philippine currency at the exchange rate obtaining at the time of payment thereof. In all other respects, said judgment of respondent Court is AFFIRMED. SO ORDERED.

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent.

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and brokerforwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally: 1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and

3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. SO ORDERED. (p. 207, Record). Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 8789, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when — I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive

in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co., Inc., vs. Manila Port Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point. But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied) The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.) On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus — By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of

interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) — should have, instead, been applied. This Court6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. xxx xxx xxx Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads — Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid. In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees)

occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied) A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest. It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.) The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.) The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said: . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court15 declared: . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply. Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance16of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum,17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts18 is breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20 II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 116923 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court24 at the rate of 6% per annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is

established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED.

FIRST DIVISION

petitioner Carrier for the recovery of the amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

G.R. No. L-69044 May 29, 1987 EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents. No. 71478 May 29, 1987 EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO., LTD., respondents.

MELENCIO-HERRERA, J.: These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo. The basic facts are not in controversy: In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation. In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00. Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated unto the rights of the latter as the insured. G.R. NO. 69044 On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit against

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it is not liable under the law. On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed. Petitioner Carrier is now before us on a Petition for Review on Certiorari. G.R. NO. 71478 On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and nonobservance of extraordinary diligence by petitioner Carrier. Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper. On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA. Hence, this Petition for Review on certiorari by Petitioner Carrier. Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their respective Memoranda, which they have done. On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lowernumbered case, which was then pending resolution with the First Division. The same was granted; the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition: There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are represented by various counsel representing various consignees or insurance companies. The common defendant in these cases is petitioner herein, being the operator of said vessel. ... 1 Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received in evidence against the pleader or his successor-in-interest on the trial of another action to which he is a party, in favor of a party to the latter action. 3 The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier? On the Law Applicable The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7 On the Burden of Proof

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law. In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact: The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort were not enough to control the fire. Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of the Civil Code. 15

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 8Common carriers are responsible for the loss, destruction, or deterioration of Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo. the goods unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity; xxx xxx xxx 9 Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13 Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy towards agriculture. 14

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily. Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that: Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from (b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage." The foregoing suffices to show that the circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier. On the US $500 Per Package Limitation: Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the COGSA, which reads:

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of damage actually sustained." The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld. With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount not shipped in packages, per customary freight unit, or the equivalent of that sum in awarded to DOWA which was already reduced to $1,000 by the Appellate Court following the statutory other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in bill of lading. This declaration if embodied in $500 liability per package, is in order. the bill of lading shall be prima facie evidence, but all be conclusive on the carrier. In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed By agreement between the carrier, master or agent of the carrier, and the shipper the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 another maximum amount than that mentioned in this paragraph may be fixed: to arrive at the figure of $64,000, and explained that "since this amount is more than the insured value of Provided, That such maximum shall not be less than the figure above named. In no the goods, that is $46,583, the Trial Court was correct in awarding said amount only for the 128 cartons, event shall the carrier be Liable for more than the amount of damage actually which amount is less than the maximum limitation of the carrier's liability." sustained. xxx xxx xxx Article 1749 of the New Civil Code also allows the limitations of liability in this wise: Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as much a part thereof as though placed therein by agreement of the parties. 16

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit. In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering, which had been shipped in vessel — supplied containers. The U.S. District Court for the Southern District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division, modified and affirmed holding that: When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5). Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished containers whose contents are disclosed should be treated

as packages, the interest in securing international uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5). ... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package is inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted): Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It gives needed recognition to the responsibility of the courts to construe and apply the statute as enacted, however great might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers from internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements, whether or not forseeable by the COGSA promulgators, do not warrant a distortion or artificial construction of the statutory term "package." A ruling that these large reusable metal pieces of transport equipment qualify as COGSA packages — at least where, as here, they were carrier owned and supplied — would amount to just such a distortion. Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the ship. They simply serve to divide the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers' packages are quite literally "stowed" in the containers utilizing stevedoring practices and materials analogous to those employed in traditional on board stowage. In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional economics test. Judge Kellam held that when rolls of polyester goods are packed into cardboard cartons which are then placed in containers, the cartons and not the containers are the packages. xxx xxx xxx The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test: Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then placed by the shipper into a carrier- furnished container. The

number of cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of lading failed to disclose the number of cartons or units within the container, or if the parties indicated, in clear and unambiguous language, an agreement to treat the container as the package. (Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied) In this case, the Bill of Lading (Exhibit "A") disclosed the following data: 2 Containers (128) Cartons) Men's Garments Fabrics and Accessories Freight Prepaid Say: Two (2) Containers Only. Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of liability. True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print: 11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry them in any type of container(s). The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

2) In G.R.No.71478,the judgment is hereby affirmed.

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in Japan by written interrogatories.

SO ORDERED.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this point, the Trial Court found: xxx xxx xxx Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was conducted for the last time, the defendant had more than nine months to prepare its evidence. Its belated notice to take deposition on written interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was its undertaking on July 11 the that the deposition of the witnesses would be dispensed with if by next time it had not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for which reason it deserves no sympathy from the Court in that regard. The defendant has told the Court since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant itself is to blame for its failure to adduce evidence in support of its defenses. xxx xxx xxx 22 Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24 On the Award of Attorney's Fees: Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478. Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed. WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the twentyeight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

EASTERN AND AUSTRALIAN STEAMSHIP CO., LTD. AND F. E. ZUELLIG, INC., petitioners, vs. GREAT AMERICAN INSURANCE CO. and COURT OF FIRST INSTANCE OF MANILA, BRANCH XIII, respondents.

The Court a quo found that under Section 4 (5) of the Carriage of Goods by Sea Act, the carrier and the shipper may, in the absence of a declaration in the Bill of Lading of the value of the goods shipped, fix a maximum liability of the shipper for the cargo lost or damages, but such maximum shall not be less than $500.00 per package. Consequently, the agreement for a maximum liability of only L100 Sterling contained in Clause 17 of the Bill of Lading was declared void for being contrary to law and as adverted to above, petitioners were held liable.

DE CASTRO, * J.:

From the decision of the lower court the present petition for review was instituted by petitioners assigning the following errors:

G.R. No. L-37604 October 23, 1981

This is a petition for review on certiorari of the decision of the Court of First Instance of Manila, Branch XIII, dated July 25, 1973, in Civil Case No. 88985, entitled "Great American Insurance Co., plaintiff, vs. Eastern & Australian Steamship Co., Ltd. and/or F.E. Zuellig, Inc., defendants," the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered, finding the defendants liable to the plaintiff in the amount of $500.00, or its peso equivalent of P 3,217.50, with legal interest thereon from November 20, 1972; and to further pay to the plaintiff an amount equivalent to twenty-five per centum (25%) thereof by way of damages as and for attorney's fees.

I THAT RESPONDENT CFI ERRED IN DECIDING THAT THE LIMIT OF LIABILITY IN THE SUM OF L100 STERLING OR ITS PESO EQUIVALENT OF THE VESSEL/CARRIER, PER PACKAGE, AS STIPULATED IN CLAUSE 17 OF THE BILL OF LADING, IS CONTRARY TO LAW, AND, THEREFORE, VOID, and II THAT RESPONDENT COURT ERRED IN AWARDING ATTORNEY'S FEES AND COSTS IN FAVOR OF PRIVATE RESPONDENT AND AGAINST THE HEREIN PETITIONERS.

The facts of the case are as follows: On December 10, 1971, the Jackson and Spring (Sydney) Pty. Ltd. shipped from Sydney, Australia, one (1) case of impellers for warman pump on board the SS "Chitral," a vessel owned and operated in the Philippines by Eastern & Australian Steamship Co., Ltd., thru its agent F.E. Zuellig, Inc. under Bill of Lading No. 31, for delivery to Manila, Philippines in favor of consignee Benguet Consolidated, Inc. The shipment was insured with Great American Insurance, Co. for P 35,921.81 against all risks. On December 22, 1971 the SS "Chitral" arrived in Manila but failed to discharge the shipment or any part thereof. Demand was made on herein petitioners for the delivery of said shipment, but having failed to make delivery, a claim was presented against them for the value of the shipment. Petitioners, likewise, failed to make good the claim. As a consequence of the loss of the shipment, private respondent Great American Insurance Co. was compelled to pay the consignee P 35,921,81. As subrogee, said private respondent filed a complaint dated Nov. 20, 1972 against herein petitioners for recovery of the said amount with legal interest and attorney's fees. In the answer dated Nov. 27, 1972 petitioners alleged that their liability for the loss of the shipment is only limited to L100 Sterling or its peso equivalent of P1,544.40 as per stipulation in the Bill of Lading and that even before the filing of the complaint, petitioners have signified their willingness to pay the claim up to their limit of liability as stipulated in the Bill of Lading. During the pre-trial on may 28, 1973, the loss of the subject shipment was admitted, and the parties submitted the case for decision on one issue: whether petitioner's liability is limited to L100 Sterling or its peso equivalent of P1,544.40 as stipulated in Clause 17 of the Bill of Lading 1 or whether petitioner's liability should be $500 or its peso equivalent in the sum of P3,217.50 pursuant to Sec. 4 (5) of the Carriage of Goods by Sea Act. 2

Petitioners contend that the first paragraphs of Section 4(5) of the Carriage of Goods by Sea Act prescribes a maximum liability of the vessel/carrier in the amount of $500.00 per package; that said maximum liability, however, is not applicable in a shipment wherein the nature and a higher valuation of the goods are indicated in the Bill of Lading; that the second paragraph refers to an agreement of the shipper and the carrier which provides for another maximum necessarily higher than $500.00 and that said proviso should not be read in connection with stipulations in Bills of Lading limiting the vessel's liability to less than $500.00 per package, otherwise, the very intent of the law setting the sum of $500.00 as the maximum liability of the carrier, per package, in the absence of a higher valuation of the goods as indicated in the Bill of Lading would be nullified, for it would thereby become not the maximum, but the minimum liability of the carrier. Petitioners also contend that the New Civil Code, particularly Articles 1749 3 and 1750, 4 expressly allow the limitation of the carrier's liability, provided it is just and reasonable. Hence, the limitation of petitioners' liability to L100 Sterling or its peso equivalent as stipulated in the Bill of Lading is perfectly legal and binding to the parties. Private respondent alleges that Article 1749 imposes certain conditions for the validity of a stipulation limiting the carrier's liability. These conditions are: (1) it must be in writing, signed by the shipper or owner; (2) it must be supported by a valuable consideration other than the service rendered by the carrier and (3) it must be reasonable, just and not contrary to public policy. Respondent believes that an agreement limiting the carrier's liability does not per se give validity thereto but it must be shown, among others, that the amount agreed upon is just and reasonable under the circumstances.

There is no inconsistency between Section 4 (5) of the Carriage of Goods by Sea Act and Clause 17 of the Bill of Lading. The first part of the provision of Section 4 (5) of the Carriage of Goods by Sea Act limits the melee, amount that may be recovered by the shipper in the absence of an agreement as to the nature and value of goods shipped. Said provision does not prescribe the minimum and hence, it could be any amount which is below $500.00. Clause 17 of the questioned Bill of Lading also provides the melee, for which the carrier is liable. It prescribes that the carrier may only be held liable for an amount not more than L100 Sterling which is below the melee, limit required in the Carriage of Goods by Sea Act. It should be noted that both the Carriage of Goods by Sea Act and Clause 17 of the Bill of Lading allow the payment beyond the respective melee, limit imposed therein, provided that the value of the goods have been declared in the Bin of Lading. The second paragraph of Section 4 (5) of the Carriage of Goods by Sea Act prescribing the melee, amount shall not be less than $500.00 refers to a situation where there is an agreement other than set forth in the Bill of Lading providing for a melee, higher than $500.00 per package. In the case at bar, it is apparent that there had been no agreement between the parties, and hence, Clause 17 of the Bin of Lading shall prevail. Petitioners' stand that the condition imposed in Clause 17 of the Bill of Lading should not be read in the light of second paragraph of Section 4 (5) of the Carriage of Goods by Sea Act, is well taken. Indeed, it would be to render ineffective the very intent of the law setting the sum of $500.00 as the melee, liability of the vessel/carrier, per package, in the, absence of a higher valuation of the goods as indicated in the Bail of Lading By providing that $500.00 is the maximum liability, the law does not disallow an agreement for liability at a lesser amount. Significantly, Article 1749 of the New Civil Code expressly allow the limitation of the carrier's liability. Art. 1749 A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Thus, in the case of Northern Motors, Inc. Prince Line, 5 We said: This Court has held as valid and binding a similar provision in a bill of lading limiting the carrier's liability to a specific amount unless the shipper expressly declares a higher valuation and pays the corresponding rate thereon. Again, in Phoenix Assurance Company vs. Macondray & Co., Inc. 6, We are reiterating the validity of a stipulation limiting the carrier's liability. The right of the carrier to limit its liability has been recognized not only in Our jurisdiction but also in American jurisprudence: A stipulation in a contract of carriage that the carrier will not be liable beyond a specified amount unless the shipper declares the goods to have a greater value is generally deemed to be valid and will operate to limit the carrier's liability, even if the loss or damage results from the carrier's negligence. Pursuant to such provision,

where the shipper is silent as to the value of his goods, the carrier's liability for loss or damage thereto is limited to the amount specified in the contract of carriage and where the shipper states the value of his goods, the carrier's liability for loss or damage thereto is limited to that amount. Under a stipulation such as this, it is the duty of the shipper to disclose, rather than the carrier's to demand the true value of the goods and silence on the part of the shipper will be sufficient to limit recovery in case of loss to the amount stated in the contract of carriage. 7 In view of the above findings, it is no longer necessary to discuss the second assignment of error. WHEREFORE, the decision of the court a quo is hereby reversed and another one is entered finding petitioners liable to private respondent in the amount of L100 Sterling or its peso equivalent of P1,544.40. Without pronouncement as to costs. SO ORDERED.

G.R. No. L-36481-2 October 23, 1982 AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees, vs. PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.

the afternoon of the same day, said warehouse was razed by a fire of unknown origin, destroying appellees' cargoes. Before the fire, however, appellee Uy Bico was able to take delivery of 907 cavans of rice 2 Appellees' claims for the value of said goods were rejected by the appellant. On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which reads as follows:

Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando. WHEREFORE, judgment is rendered as follows: Benedicto, Sumbingco & Associate for appellee Clara Uy Bico. Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.

ESCOLIN, J.: This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court of First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant Philippine Steam Navigation liable for damages for the loss of the appellees' cargoes as a result of a fire which gutted the Bureau of Customs' warehouse in Pulupandan, Negros Occidental. The Court of Appeals certified the case to Us because only pure questions of law are raised therein. The facts culled from the pleadings and the stipulations submitted by the parties are as follows: On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to wit: Clara Uy Bico — 1,528 cavans of rice valued at P40,907.50; Amparo Servando — 44 cartons of colored paper, toys and general merchandise valued at P1,070.50; as evidenced by the corresponding bills of lading issued by the appellant. 1 Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in

1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C. Servando the aggregate sum of P1,070.50 with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay the costs. 2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the aggregate sum of P16,625.00 with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay the costs. Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary diligence from the moment the goods are unconditionally placed in their possession "until the same are delivered, actually or constructively, by the carrier to the consignee or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. " The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of Customs is not the delivery contemplated by Article 1736; and since the burning of the warehouse occurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable against the appellant. It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to the shipment by inserting therein the following stipulation: Clause 14. Carrier shall not be responsible for loss or damage to shipments billed 'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall carrier be responsible for loss or damage caused by force majeure, dangers or accidents of the sea or other waters; war; public enemies; . . . fire . ... We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or public policy. Appellees would contend that the above stipulation does not bind them because it was printed in fine letters on the back-of the bills of lading; and that they did not sign the same. This argument overlooks the pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29, 1979, 3 where the same issue was resolved in this wise: While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is nevertheless bound by the provisions thereof. 'Such provisions have been held to be a

part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation'. It is what is known as a contract of 'adhesion', in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent." (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49). Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic principle of law written in Article 1 1 7 4 of the Civil Code: Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent of Article 1174 of the Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could not have been foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck, violence of robbers.' In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In a legal sense and, consequently, also in relation to contracts, a 'caso fortuito' presents the following essential characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the 'caso fortuito', or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor." In the case at bar, the burning of the customs warehouse was an extraordinary event which happened independently of the will of the appellant. The latter could not have foreseen the event. There is nothing in the record to show that appellant carrier ,incurred in delay in the performance of its obligation. It appears that appellant had not only notified appellees of the arrival of their shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the burning of the warehouse. Nor can the appellant or its employees be charged with negligence. The storage of the goods in the Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with their knowledge and consent. Since the warehouse belonged to and was maintained by the government, it would be unfair to impute negligence to the appellant, the latter having no control whatsoever over the same. The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where this Court held the defendant liable for damages arising from a fire caused by the negligence of the defendant's employees while loading cases of gasoline and petroleon products. But unlike in the said case, there is not a shred of proof in the present case that the cause of the fire that broke out in the

Custom's warehouse was in any way attributable to the negligence of the appellant or its employees. Under the circumstances, the appellant is plainly not responsible. WHEREFORE, the judgment appealed from is hereby set aside. No costs. SO ORDERED.

G.R. No. L-57582 August 24, 1984 METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), petitioner-appellant, vs. COURT OF APPEALS and CHARTER INSURANCE CO., INC., respondents-appellees. Silverio B. De Leon for petitioner-appellant. Manuel L. Villamayor, Ramirez, Villamayor & Associates for respondent Charter Insurance Co., Inc.

MELENCIO-HERRERA, J.: Petitioner seeks a review of the Decision, and Resolution denying reconsideration, of the then Court of Appeals in CA-G.R. No. 63087-R entitled "The Charter Insurance Co., Inc. vs. Universal Shipping Lines, Inc. and E. Razon, Inc.". The following are the established facts: Sometime in April 1973, Union Sales Marketing Corporation (UNION) ordered from Union Carbide of Antwerp Belgium, 99,540 kilograms of Low Density Polyethylene, valued at US $.245 per kilogram or a total purchase price of US $24,417.30 (Exhibits "D" & "F"), at the conversion rate of P6.848 to a US Dollar (Exhibit "E ").

Defendant E. Razon, Inc., is ordered to pay plaintiff the amount of P9,763.94 plus 12% interest per annum from July 1, 1974 until full payment thereof. Both defendants are ordered to pay the costs. Both defendants also are jointly and severally liable to pay plaintiff P2,000.00 as attorney's fees. 2 On appeal by the CARRIER and ARRASTRE, the then Court of Appeals, on March 23,1981, absolved the CARRIER of any and all liability and held the ARRASTRE solely liable. IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is hereby MODIFIED as follows: 1. Defendant E. Razon, Inc., is hereby directed to pay to plaintiff, the total sum of P22,049.88, plus interest of 12% interest per annum from July 1, 1974 until the sum is fully paid; 2. Dismissing the complaint as against defendant Universal Shipping Lines, Inc.; 3. Defendant E. Razon, Inc., to pay costs under the complaint of plaintiff;

The shipment was packed in 4,000 bags of 25 net kilograms, more or less, for each bag, and was loaded at Antwerp Belgium, in good order condition on board the S/S Dingalan Bay", owned and operated by Universal Shipping Lines, Inc. (CARRIER) and consigned to UNION in Manila. The shipment was covered by a Marine Risk Note (Exhibit "B ") issued by Charter Insurance Co. (INSURER) for P212,738.17 against all risks. The CARRIER arrived in Manila on June 22, 1073 and arrastre services were handled by E. Razon, Inc. (ARRASTRE), now called Metro Port Service, Inc.

4. Plaintiff to pay costs by reason of its complaint against defendant Universal Shipping Lines, Inc.

It is not disputed that out of the 4,000 bags, 1,050 bags were received by the consignee UNION in bad order condition (Exhibits "I" to "I-5"; Exhibits "22" to "27"). 1 As a consequence of the damage and loss, the INSURER paid UNION the sum of P35,709.11 in full settlement of the claim, and the INSURER became the subrogee of all of UNION's rights to recover from the parties concerned.

Appellee to pay costs of this appeal to appellant Universal Shipping Lines, Inc. 3

On July 1, 1974, the INSURER sued for damages with the then Court of First Instance of Manila against the CARRIER and the ARRASTRE in the amount of P35,709.1 1, in addition to exemplary damages and attorney's fees. Both defendants disclaimed liability, each one attributing the loss to the other. In its Decision, the Trial Court allocated payment of liabilities as follows: WHEREFORE, defendant Universal Shipping Lines, Inc., is ordered to pay plaintiff the amount of P12,285.94 plus 12% interest per annum from July 1, 1974 until full payment thereof.

Appellant E. Razon to pay costs of this appeal on its appeal against plaintiffappellant;

Reconsideration filed by the ARRASTRE was denied by the Appellate Court. 4 Before us now, the ARRASTRE assails the appealed judgment in that 1) it did not give credence and belief to the ARRASTRE's Bad Order Certificates (Exhibits "22" to "27" Razon), and 2) it erred in holding the ARRASTRE liable. 5 Ordinarily, in a Petition for Review on Certiorari, only questions of law may be raised. 6 And, this Court has held in a number of cases that findings of fact by the Court of Appeals are, in general, conclusive on the Supreme Court when supported by the evidence on record. 7 The rule is not absolute, however, and allows of exceptions, which we find present in the case at bar in that respondent Court's findings of facts are contrary to those of the Trial Court and are contradicted by the evidence on record. 8 In absolving the CARRIER, respondent Court stated:

When the shipment was discharged from the carrying vessel, there were 443 bags of shipment which were broken at the ends. in other words, only the end-portions of the 443 bags were torn or broken, without any showing that any portion of the contents of these 443 bags was spilled or spoiled. ... and no loss or spoilage of the shipment having been proved or shown to have occurred when the shipment was under the care and custody of the vessel, then the vessel can and should not be held liable to answer for the loss of any part of it that was found upon the discharge of the shipment from the Arrastre Operator's care and custody into the consignee's Broker. ...The trial court found the value of the losses at P22,049.88. Now, since the losses are shown to have occurred after the Arrastre Operator had received the entire shipment of 4,000 bags from the vessel, then it can be safely assumed that the losses occurred while the shipment was in the care and custody of the Arrastre Operator. The appellant E. Razon, Inc., should, therefore, be liable to pay for the whole claim. 9 The foregoing completely disregards the evidence of the CARRIER and the ARRASTRE that 619 bags were discharged by the CARRIER to the ARRASTRE in bad order condition, as evidenced by the original and duplicate copies of the Cargo Receipts issued by the CARRIER to the ARRASTRE and signed by their respective representatives (Exhibits 1-DDDD to 1-HHHH Exhibits "2" to "2-D"Razon). 10 The condition of the 619 bags before the turnover to the ARRASTRE from the CARRIER was loss or spoilage of up to 50%, as reflected in the Survey of Bad Order Cargoes, signed by the CARRIER and ARRASTRE representatives (Exhibits "1" to "I-D" Razon; Exhibits "2" to "2Universal). 11 Accordingly, the Trial Court held the CARRIER liable only for the value of a total of 443 bags, as this is the "evidence of the plaintiff (INSURER), at 16.8209 kilograms per bag, 12 less than the actual weight of 25 kilograms net per bag (Exhibit "D"; Exhibits "I" to "I-C"-Razon) due to some recovery of spillage, or a total liability of P12,285.94. Since 619 bags were discharged from the CARRIER already in bad order condition, it follows that the remaining 431 bags were damaged while in the ARRASTRE's custody for which it should be held liable. However, since the Trial Court computed the liability of the ARRASTRE at 351 bags, notwithstanding the ARRASTRE's admission that "80 bags were not included in the bad order cargo certificate, 13 and the INSURER did not appeal said award by the Trial Court in its desire to have the case terminated soonest, 14 the INSURER may not, in this appeal, have the judgment modified. 15 The liability of the ARRASTRE for P9,763.94 fixed by the Trial Court is thus in order. WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and that of the Court of First Instance of Manila, Branch XI, is hereby reinstated. No costs. SO ORDERED.

G.R. No. L-42926 September 13, 1985 PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO VASQUEZ and MAXIMINA CAINAY, petitioners, vs. THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents. Emilio D. Castellanes for petitioners. Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.: This litigation involves a claim for damages for the loss at sea of petitioners' respective children after the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966. The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and which we find supported by the record, read as follows: When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez, among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and struck a reef on the southern part of Malapascua Island, located somewhere north of the island of Cebu and subsequently sunk. The aforementioned passengers were unheard from since then. Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child, Mario Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage. At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV "Pioneer Cebu". The issues of the case were limited to the defenses alleged by the defendant that the sinking of the vessel was caused by force majeure, and that the defendant's liability had been extinguished by the total loss of the vessel. The evidence on record as to the circumstances of the last voyage of the MV "Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV "Pioneer Cebu" was owned and operated by the defendant and used in the transportation of goods and passengers in the inter-island shipping. Scheduled to leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322) including the crew. It undertook the said voyage on a special

permit issued by the Collector of Customs inasmuch as, upon inspection, it was found to be without an emergency electrical power system. The special permit authorized the vessel to carry only two hundred sixty (260) passengers due to the said deficiency and for lack of safety devices for 322 passengers (Exh. 2). A headcount was made of the passengers on board, resulting on the tallying of 168 adults and 20 minors, although the passengers manifest only listed 106 passengers. It has been admitted, however, that the headcount is not reliable inasmuch as it was only done by one man on board the vessel. When the vessel left Manila, its officers were already aware of the typhoon Klaring building up somewhere in Mindanao. There being no typhoon signals on the route from Manila to Cebu, and the vessel having been cleared by the Customs authorities, the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon. When it reached Romblon Island, it was decided not to seek shelter thereat, inasmuch as the weather condition was still good. After passing Romblon and while near Jintotolo island, the barometer still indicated the existence of good weather condition continued until the vessel approached Tanguingui island. Upon passing the latter island, however, the weather suddenly changed and heavy rains felt Fearing that due to zero visibility, the vessel might hit Chocolate island group, the captain ordered a reversal of the course so that the vessel could 'weather out' the typhoon by facing the winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966, the vessel struck a reef near Malapascua island, sustained leaks and eventually sunk, bringing with her Captain Floro Yap who was in command of the vessel. Due to the loss of their children, petitioners sued for damages before the Court of First Instance of Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the extinction of its liability by the actual total loss of the vessel. After proper proceedings, the trial Court awarded damages, thus: WHEREFORE, judgment is hereby rendered ordering the defendant to pay: (a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and P10,000.00 for moral damages; (b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral damages; and (c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of moral damages by reason of the death of Mario Marlon Vasquez. On appeal, respondent Court reversed the aforementioned judgment and absolved private respondent from any and all liability.

Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private respondent for the presumptive death of petitioners' children. The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus: ... It is an admitted fact that even before the vessel left on its last voyage, its officers and crew were already aware of the typhoon brewing somewhere in the same general direction to which the vessel was going. The crew of the vessel took a calculated risk when it proceeded despite the typhoon advisory. This is quite evident from the fact that the officers of the vessel had to conduct conferences amongst themselves to decide whether or not to proceed. The crew assumed a greater risk when, instead of seeking shelter in Romblon and other islands the vessel passed en route, they decided to take a change on the expected continuation of the good weather the vessel was encountering, and the possibility that the typhoon would veer to some other directions. The eagerness of the crew of the vessel to proceed on its voyage and to arrive at its destination is readily understandable. It is undeniably lamentable, however, that they did so at the risk of the lives of the passengers on board. Contrariwise, respondent Appellate Court believed that the calamity was caused solely and proximately by fortuitous event which not even extraordinary diligence of the highest degree could have guarded against; and that there was no negligence on the part of the common carrier in the discharge of its duties. Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor." 1 In the language of the law, the event must have been impossible to foresee, or if it could be foreseen, must have been impossible to avoid. 2 There must be an entire exclusion of human agency from the cause of injury or loss. 3 Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed all the cargo in the hold before sailing in anticipation of strong winds and rough waters.4 They proceeded on their way, as did other vessels that day. Upon reaching Romblon, they received the weather report that the typhoon was 154 kms. east southeast of Tacloban and was moving west northwest. 5 Since they were still not within the radius of the typhoon and the weather was clear, they deliberated and decided to proceed with the course. At Jintotolo Island, the typhoon was already reported to be reaching the mainland of Samar. 6 They still decided to proceed noting that the weather was still "good" although, according to the Chief Forecaster of the Weather Bureau, they were already within the typhoon zone. 7 At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the typhoon was in an area quite close to Catbalogan, placing Tanguingui also within the typhoon zone. Despite knowledge of that fact, they again decided to proceed relying on the forecast that the typhoon would weaken upon crossing the mainland of Samar. 8 After about half an hour of navigation towards Chocolate Island, there was a sudden fall of the barometer accompanied by heavy downpour, big waves, and zero visibility. The Captain of the vessel decided to reverse course and face the waves in the open sea but because the visibility did not improve they were in total darkness and, as a consequence, the vessel ran aground a reef and sank on May 16, 1966 around 12:45 P.M. near Malapascua Island somewhere north of the island of Cebu.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and crew were well aware of the risk they were taking as they hopped from island to island from Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of very cautious persons, 9 they decided to take a calculated risk. In so doing, they failed to observe that extraordinary diligence required of them explicitly by law for the safety of the passengers transported by them with due regard for an circumstances 10 and unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or negligence that arises in cases of death or injuries to passengers. 11 While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any negligence, it was because it had considered the question of negligence as "moot and academic," the captain having "lived up to the true tradition of the profession." While we are bound by the Board's factual findings, we disagree with its conclusion since it obviously had not taken into account the legal responsibility of a common carrier towards the safety of the passengers involved. With respect to private respondent's submission that the total loss of the vessel extinguished its liability pursuant to Article 587 of the Code of Commerce12 as construed in Yangco vs. Laserna, 73 Phil. 330 [1941], suffice it to state that even in the cited case, it was held that the liability of a shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held liable for by reason of the death of its passengers. WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of First Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs. SO ORDERED.

G.R. No. 98243 July 1, 1992 ALEJANDRO ARADA, doing business under the name and style "SOUTH NEGROS ENTERPRISES", petitioner, vs. HONORABLE COURT OF APPEALS, respondents.

PARAS, J.: This is a petition for review on certiorari which seeks to annul and set aside the decision * of the Court of Appeals dated April 8, 1991 in CA-G.R. CV No. 20597 entitled "San Miguel Corporation v. Alejandro Arada, doing business under the name and style "South Negros Enterprises", reversing the decision of the RTC, Seventh Judicial Region, Branch XII, Cebu City, ordering petitioner to pay the private respondent tho amount of P172,284.80 representing the value of the cargo lost on board the illfated, M/L Maya with interest thereon at the legal rate from the date of the filing of the complaint on March 25, 1983 until fully paid, and the costs. The undisputed facts of the case are as follows: Alejandro Arada, herein petitioner, is the proprietor and operator of the firm South Negros Enterprises which has been organized and established for more than ten (10) years. It is engaged in the business of small scale shipping as a common carrier, servicing the hauling of cargoes of different corporations and companies with the five (5) vessels it was operating (Rollo, p. 121). On March 24, 1982. petitioner entered into a contract with private respondent to safely transport as a common carrier, cargoes of the latter from San Carlos City, Negros Occidental to Mandaue City using one of petitioner's vessels, M/L Maya. The cargoes of private respondent consisted of 9,824 cases of beer empties valued at P176,824.80, were itemized as follows: NO. OF CASES

CARGO

7,515 CS

PPW STENIE MTS

P136.773.00

1,542 CS

PLW GRANDE MTS

23,438.40

58 CS

G.E. PLASTIC MTS

1,276.00

24 CS

PLP MTS

456.00

37 CS

CS WOODEN MTS

673.40

8 CS

LAGERLITE PLASTIC MTS

128.00

640 CS

STENEI PLASTIC MTS

14,080.00

9,824 CS

P176,824.80

On March 24, 1982, petitioner thru its crew master, Mr. Vivencio Babao, applied for a clearance with the Philippine Coast Guard for M/L Maya to leave the port of San Carlos City, but due to a typhoon, it was denied clearance by SNI Antonio Prestado PN who was then assigned at San Carlos City Coast Guard Detachment (Rollo, p. 122). On March 25, 1982 M/L Maya was given clearance as there was no storm and the sea was calm. Hence, said vessel left for Mandaue City. While it was navigating towards Cebu, a typhoon developed and said vessel was buffeted on all its sides by big waves. Its rudder was destroyed and it drifted for sixteen (16) hours although its engine was running. On March 27, 1982 at about 4:00 a.m., the vessel sank with whatever was left of its cargoes. The crew was rescued by a passing pump boat and was brought to Calanggaman Island. Later in the afternoon, they were brought to Palompon, Leyte, where Vivencio Babao filed a marine protest (Rollo, p. 10).

VALUE On the basis of such marine protest, the Board of Marine Inquiry conducted a hearing of the sinking of M/L Maya wherein private respondent was duly represented. Said Board made its findings and recommendation dated November 7, 1983, the dispositive portion of which reads as: WHEREFORE, premises considered, this Board recommends as it is hereby recommended that the owner/operator, officers and crew of M/L Maya be exonerated or absolved from any administrative liability on account of this incident (Exh. 1). The Board's report containing its findings and recommendation was then forwarded to the headquarters of the Philippine Coast Guard for appropriate action. On the basis of such report, the Commandant of the Philippine Coast Guard rendered a decision dated December 21, 1984 in SBMI Adm. Case No. 88-82 exonerating the owner/operator officers and crew of the ill-fated M/L Maya from any administrative liability on account of said incident (Exh. 2). On March 25, 1983, Private respondent filed a complaint in the Regional Trial Court its first cause of action being for the recovery of the value of the cargoes anchored on breach of contract of carriage. After due hearing, said court rendered a decision dated July 18, 1988, the dispositive portion of which reads

WHEREFORE, judgment is hereby rendered as follows:

On November 20, 1991, this Court gave due course to the petition. The pivotal issue to be resolved is whether or not petitioner is liable for the value of the lost cargoes.

(1) With respect to the first cause of action, claim of plaintiff is hereby dismissed; (2) Under the second cause of action, defendant must pay plaintiff the sum of P2,000.00; (3) In the third cause of action, the defendant must pay plaintiff the sum of P2,849.20; (4) Since the plaintiff has withheld the payment of P12,997.47 due the defendynt, the plaintiff should deduct the amount of P4,849.20 from the P12,997.47 and the balance of P8,148.27 must be paid to the defendant; and (5) Defendant's counterclaim not having been substantiated by evidence is likewise dismissed. NO COSTS. (Orig. Record, pp. 193-195). Thereafter, private respondent appealed said decision to the Court of Appeals claiming that the trial court erred in — (1) holding that nothing was shown that the defendant, or any of his employees who manned the M/L Maya was negligent in any way nor did they fail to observe extraordinary diligence over the cargoes of the plaintiff; and

Petitioner contends that it was not in the exercise of its function as a common carrier when it entered into a contract with private respondent,but was then acting as a private carrier not bound by the requirement of extraordinary diligence (Rollo, p. 15) and that the factual findings of the Board of Marine Inquiry and the Special Board of Marine Inquiry are binding and conclusive on the Court (Rollo, pp. 16-17). Private respondent counters that M/L Maya was in the exercise of its function as a common carrier and its failure to observe the extraordinary diligence required of it in the vigilance over their cargoes makes Petitioner liable for the value of said cargoes. The petition is devoid of merit. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation offering their services to the public (Art. 1732 of the New Civil Code). In the case at bar, there is no doubt that petitioner was exercising its function as a common carrier when it entered into a contract with private respondent to carry and transport the latter's cargoes. This fact is best supported by the admission of petitioner's son, Mr. Eric Arada, who testified as the officer-in-charge for operations of South Negros Enterprises in Cebu City. In substance his testimony on January 14, 1985 is as follows: Q. How many vessels are you operating?

(2) holding that the sinking of said vessel was caused by the storm, consequently, dismissing the claim of plaintiff in its first cause of action for breach of contract of carriage of goods (Rollo, pp. 33-34; Decision, pp. 3-4).

A. There were all in all around five (5). Q. And you were entering to service hauling of cargoes to different companies, is that correct?

In its decision Promulgated on April 8, 1991, the Court of Appeals reversed the decision of the court a quo, the dispositive portion and the dispositive part of its decision reads as:

A. Yes, sir.

WHEREFORE, that part of the Judgment appeal6d from is REVERSED and the appellee Aleiandro Arada, doing business by the name and style, "South Negros Enterprises", ordered (sic) to pay unto the appellant San Miguel Corporation the amount of P176,824.80 representing the value of the cargo lost on board the ill-fated vessel, M/L Maya, with interest thereon at the legal rate from date of the filing of the complaint on March 25, 1983, until fully paid, and the costs. (Rollo, p. 37)

Q. In one word, the South Negros Enterprises is engaged in the business of common carriers, is that correct? A. Yes, sir,

The Court of Appeals ruled that "in view of his failure to observe extraordinary diligence over the cargo in question and his negligence previous to the sinking of the carrying vessel, as above shown, the appellee is liable to the appellant for the value of the lost cargo.

Q. And in fact, at the time of the hauling of the San Miguel Beer, it was also in the same category as a common carrier? A. Yes, sir,

Hence the present recourse. (TSN. pp. 3-4, Jan. 29, 1985)

A common carrier, both from the nature of its business and for insistent reasons of public policy is burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers, but in caring for the goods transported by it. The loss or destruction or deterioration of goods turned over to the common carrier for the conveyance to a designated destination raises instantly a SPEED presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or damage arises from extreme circumstances such as a natural disaster or calamity ... (Benedicto v. IAC, G.R. No. 70876, July 19, 1990, 187 SCRA 547) (Emphasis supplied). KNOTS In order that the common carrier may be exempted from responsibility, the natural disaster mustMarch have been the proximate and only cause of the loss. However, the common carrier must exercise due 25 diligence to prevent or minimize the loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the destruction or 8 AM deterioration of the goods (Article 1739, New Civil Code). In the instant case, the appellate court was correct in finding that petitioner failed to observe the extraordinary diligence over the cargo in question and he or the master in his employ was negligent previous to the sinking of the carrying vessel. In substance, the decision reads: 2 PM

prevailed in the vicinity of Catmon, Cebu during the period March 25-27, 1982, the sea conditions on March 25, 1982 were slight to rough and the weather conditions then prevailing during those times were cloudy skies with rainshowers and the small waves grew larger and larger, to wit: WAVE HT.

SEA

(METERS)

CONDITIONS

15

1-2

slight

20-25

2.0-3.0

moderate

... VIVENCIO BABAO, the master of the carrying vessel, knew that there was a typboon coming before his departure but did not check where it was.

WEATHER

to rough

xxx xxx xxx 8 PM If only for the fact that he was first denied clearance to depart on March 24, 1982, obviously because of a typhoon coming, Babao, as master of the vessel, should have verified first where the typhoon was before departing on March 25, 1982. True, the sea was calm at departure time. But that might be the calm before the storm. Prudence dictates that he should have ascertained first where the storm was before departing as it might be on his path. (Rollo, pp. 35-36)

30

3.7

rough

30

3.7

rough

Respondent court's conclusion as to the negligence of petitioner is supported by evidence. It will be noted that Vivencio Babao knew of the impending typhoon on March 24, 1982 when the Philippine Coast Guard denied M/L Maya the issuance of a clearance to sail. Less than 24 hours elapsed since the time of the denial of said clearance and the time a clearance to sail was finally issued on March 25, 1982. Records will show that Babao did not ascertain where the typhoon was headed by the use of his vessel's barometer and radio (Rorlo, p. 142). Neither did the captain of the vessel monitor and record the weather conditions everyday as required by Art, 612 of the Code of Commerce (Rollo, pp. 142-143). Had he done so while navigating for 31 hours, he could have anticipated the strong winds and big waves and taken shelter (Rollo, pp- 36; 145). His testimony on May 4, 1982 is as follows: Q. Did you not check on your own where the typhoon was? A. No. sir. (TSN, May 4, 1982, pp. 58-59) 2 AM Noteworthy is the fact that as Per official records of the Climatological Division of the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA for brevity) issued by its Chief of Climatological Division, Primitivo G. Ballan, Jr. as to the weather and sea conditions that

The Philippine Merchant Marine Rules and Regulations particularly Chapter XVI thereof entitled white foam "Marine Investigation and Suspension and Revocation Proceedings" prescribes the Rules governing from maritime casualties or accidents, the rules and Procedures in administrative investigation of all maritime cases within the jurisdiction or cognizance of the Philippine Coast Guard and the grounds for suspension breaking and revocation of licenses/certificates of marine officers and seamen (1601 — SCOPE); clearly, limiting waves the jurisdiction of the Board of Marine Inquiry and Special Board of Marine Inquiry to the administrative aspect of marine casualties in so far as it involves the shipowners and officers. begin to be blown PREMISES CONSIDERED, the appealed decision is AFFIRMED. in streaks SO ORDERED. along the direction of the wind; Spindrift begins (Exh. 3) A common carrier is obliged to observe extraordinary diligence and the failure of Babao to ascertain the direction of the storm and the weather condition of the path they would be traversing, constitute lack of foresight and minimum vigilance over its cargoes taking into account the surrounding circumstances of the case. While the goods are in the possession of the carrier, it is but fair that it exercises extraordinary diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was due to the carrier's fault or negligence; that is necessary to protect the interest of the shipper which is at the mercy of the carrier (Art. 1756, Civil Code, Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, Aug. 6, 1990, 188 SCRA 387). Furthermore, the records show that the crew of M/L Maya did not have the required qualifications provided for in P.D. No. 97 or the Philippine Merchant Marine Officers Law, all of whom were unlicensed. While it is true that they were given special permit to man the vessel, such permit was issued at the risk and responsibility of the owner (Rollo, p. 36). Finally, petitioner claims that the factual findings of the Special Board of Marine Inquiry exonerating the owner/operator, crew officers of the ill-fated vessel M/L Maya from any administrative liability is binding on the court. In rejecting petitioner's claim, respondent court was correct in ruling that "such exoneration was but with respect to the administrative liability of the owner/operator, officers and crew of the ill-fated" vessel. It could not have meant exoneration of appellee from liability as a common carrier for his failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of his employees. Such is the function of the Court, not the Special Board of Marine Inquiry." (Rollo, P. 37, Annex A, p. 7)

G.R. No. 80936 October 17, 1990 EASTERN SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS, HONGKONG & SHANGHAI BANKING CORPORATION, AND CONSOLIDATED MINES, INC., respondents. Quisumbing, Torres & Evangelista for petitioner.

We refer to the above mentioned cargo and would advise that we hold title to the goods and have in our possession the full set of original bills of lading a copy of which is enclosed for your perusal. We are unable to locate the cargo and it would appear that it has been released by you to Consolidated Mines Inc. We shall be grateful therefore if you will look into the matter and advise us. (Emphasis supplied.)

Belo, Abiera & Associates for respondent HSBC.

GUTIERREZ, JR., J.: Assailed herein is the decision of respondent Court of Appeals in C.A.-G.R. CV-08707 Hongkong & Shanghai Banking Corporation (HSBC) v. Eastern Shipping Lines, Inc. (ESLI) dated June 30, 1987 as well as its Order dated November 24, 1987 denying herein petitioner's Motion for Reconsideration and Supplemental Motion for Reconsideration, which in effect affirmed the decision of the trial court holding the petitioner liable for the value of the goods it allegedly misdelivered as well as for damages and attorney's fees.

Considering that there was no reply from the petitioner, HSBC wrote another demand letter through counsel dated October 29, 1980 (Annex C of Complaint, p. 7, Original Records) in contemplation of a legal action against ESLI should it not make good HSBC's claim. On December 23, 1980 CMI wrote a letter (Annex C of Third Party Complaint, p. 33, Original Records) to HSBC admitting that they received the shipment in question due to a guarantee executed by them, and requested HSBC that legal action be held off for at least thirty (30) days, promising to settle its account with HSBC from the funds it was expecting from Benguet Corporation. On January 14, 1981 the petitioner-carrier wrote a reply to HSBC (Annex D of Complaint, p. 10, Original Records) as follows:

The basic facts are as follows: On February 24, 1980, the Nanyo Corporation of Kobe, Japan shipped a cargo consisting of five (5) packages of supplies and materials for "1200 W x 2500 LMM Apron Feeder and 200 W x 5850 LMM Apron Feeder," (p. 22, Rollo), covered by a bill of lading. The cargo was loaded on board the S/S Eastern Adventure destined for Manila. The vessel is operated by herein petitioner-carrier. The bill of lading was consigned to "Shipper's Order", with "Address Arrival Notice to Consolidated Mines Inc. 6799 Ayala Avenue, Makati, Metro Manila, Philippines" (p. 22, Rollo). Consolidated Mines Inc. (CMI) is one of the private respondents herein. The cargo arrived in Manila on March 4, 1980. A few days later, on the basis of an Undertaking for Delivery of Cargo but without the surrender of the original bill of lading presented by CMI, petitioner-carrier released the shipment in question to CMI. In said guaranty, CMI undertook to indemnify petitioner carrier "harmless from all demands, claiming liabilities, actions and expenses" (p. 5, Rollo). About five (5) and a half months later, or specifically on August 19, 1980, the petitioner received from Hongkong and Shanghai Bank (HSBC) co-respondent of CMI in the case at bar, a letter (Annex B of complaint, p. 8, Original Records) stating thus:

In this connection, we deeply regret releasing the cargo without the consent of your client. However, we are constrained to release the same in view of the consigee's strong representation and guarantee that they will settle their obligation with the bank. You must be aware of the fact that said consignee directly communicated with your client bank requesting for an extension of thirty (30) days within which to settle their account, to which we hope you will accommodate. Should consignee fail to comply with their commitments, please advise us immediately. (Emphasis supplied.) CMI having failed to fulfill its promise, HSBC filed a complaint before the then Court of First Instance of Rizal against herein petitioner praying for actual and compensatory damages in the amount of $168,521.16 representing the value of the goods covered by the Bill of Lading, exemplary damage in the amount deemed just by the court and P50,000 attorney's fees plus expenses of litigation and judicial costs. After two motions for extensions, the petitioner-carrier filed its answer with counterclaim alleging inter alia that: xxx xxx xxx That it ADMITS paragraph 7 insofar as it alleges that defendant is duly bound not only to transport the goods entrusted to it safely but to deliver them to the person indicated in the Bill of Lading, which obligation was religiously and faithfully complied with by defendant, but DENIES the allegation that goods will be released only as soon as the original Bill of Lading is presented; The truth being that it is not mandatory for defendant to require the consignee to present the original Bill of

Lading for as long as the consignee has proof that it is the owner and besides in this particular case, the consignee, Consolidated Mines, Inc. not only proved that it is the owner of the cargo but it has executed a Letter of Guaranty signed by its President, JOSE MARINO OLONDRIZ, which is hereto attached and marked as Annex "I" and made an integral part of this answer, which not only proved ownership over the cargo but further warrants that defendant herein is free from whatever liability; That it ADMIT paragraph 8 insofar as it alleges that the Bill of Lading covering the shipment of goods in question is made to "TO SHIPPER'S ORDER" the rest of the allegation is DENIED for lack of knowledge or information sufficient to form a belief as to the truth or falsity of the allegation therein contained and for further reasons stated in the Special and Affirmative Defenses; That it DENIES paragraph 9, the truth of the matter being there was no misdelivery, as the goods was received by the consignee and for further reasons stated in the Special and Affirmative Defenses; xxx xxx xxx SPECIAL AND AFFIRMATIVE DEFENSES BY WAY of Special and Affirmative Defenses, defendant respect fully states:— That plaintiff has no cause of action against defendant; That herein defendant is not aware that plaintiff is the consignee bank as the bill of lading only bears to "SHIPPER'S ORDER" and when the shipment arrived Manila on March 4, 1980 or even before its arrival, plaintiff did not notify defendant that they have a lien over the shipment; That answering defendant only became aware of that fact that plaintiff is the consignee bank sometime on August 19, 1980 thru their letter dated August 11, 1980, to which such notice was received by the defendant several months after the shipment in question was released to the consignee Consolidated Mines, Inc.; That answering defendant released the shipment in question to Consolidated Mines, Inc. pursuant to the provision of the last paragraph of Article 353 of the Code of Commerce which provide as follows: In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier because of its loss or any other cause, he must give the latter a receipt for the goods delivered, this receipt producing the same effects as the return of the bill of lading. (Emphasis supplied.)

That the consignee (Consolidated Mines, Inc.) in compliance with the above-cited provision, executed a Letter of Undertaking for Delivery of cargo without surrendering the Bills of Lading signed by its President, MR. JOSE MARINO OLONDRIZ and the original Bill of lading will be surrendered by them later on ; That the consignee (Consolidated Mines, Inc.) acknowledges the receipt of the goods and likewise its obligation with the plainntiff by virtue of their letter dated December 23, 1980 signed by its President; That plaintiff prior to the filing of this instant case is already fully aware of the fact that herein answering defendant is not hable to them but still insisted in suing defendant carrier without even impleading Consolidated Mines, Inc. who accepted their obligation; That speaking of negligence and bad faith, answering defendant maintains that plaintiff is the one that is negligent and in bad faith for the following reasons: — That at the earliest time possible when plaintiff became in possession of the original bill of lading, they did not at once notify the defendant carrier that they are the consignee bank and that they have lien over the goods for failure of Consolidated Mines, Inc. to pay the value of said goods. They only notify (sic) the defendant carrier after five (5) months from the arrival of the goods in Manila; Plaintiff is in bad faith in suing the carrier alone knowing fully well that it is Consolidated Mines, Inc. who has the obligation with them and same was acknowledged by its President per letter dated December 23, 1980 addressed to plaintiff. xxx xxx xxx WHEREFORE, it is most respectfully prayed of this Honorable Court that after proper proceedings judgment be rendered herein a) Dismissing the complaint; b) Ordering the plaintiff to pay defendant moral damages in the amount of P200,000.00; c) Sentencing plaintiff to pay defendant the sum of P50,000.00 as compensatory damages, litigation expenses and attorney's fees and granting unto the defendant such other reliefs which are just and equitable in the premises. (pp. 20-24, Original Records.) On August 15, 1981, the petitioner-carrier filed a third party complaint against CMI seeking reimbursement from the latter of whatever pecuniary obligations the petitioner may be liable to HSBC, as well as moral damages.

During trial, CMI filed a Motion to Stay Action in view of the pendency of involuntary insolvency proceedings commenced against it in the meantime by its creditors which included HSBC. This motion was denied by the trial court.

Although irrelevant to the application of the principle or doctrine here involved, the Court of Appeals was unduly prejudiced by petitioner carrier's polite "apologetic admission". (p. 16, Rollo)

On the basis of the evidence presented by HSBC and the petitioner, as CMI failed to present its evidence, the court on January 15, 1985 rendered judgment as follows:

The resolution of the dispute in the case at bar pivots upon the determination of who the consignee is in the bin of lading in question.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Eastern Shipping Lines, Inc., ordering the latter to pay the sum of $168,521.16 or its equivalent in Philippine Currency representing the value of the goods covered by the Bill of Lading plus interest thereon from the filing of the complaint, until fully paid; P20,000.00 as and for attorney's fees and to pay the costs.

At the outset, the Bill of Lading which was issued by the carrier but contained articles furnished by the Shipper, shows on its face that the Shipment is consigned "TO SHIPPER'S ORDER" with "ADDRESS ARRIVAL NOTICE TO CONSOLIDATED MINES INC. 6799 AYALA AVE. MAKATI, METRO MANILA PHILIPPINES" (Annex A of Complaint, p. 7, Original Records). Nowhere did the Bill of Lading refer to respondent HSBC as the consignee or the one to be notified.

With respect to the Third Party Complaint, judgment is hereby rendered in favor of the Third Party Plaintiff, Eastern Shipping Lines, Inc., and against the Third Party Defendant, Consolidated Mines, Inc., ordering the latter to pay all the liabilities of the former in favor of the plaintiff consisting of the value of the goods covered by the Bill of Lading in the sum of $168,521.16 or its equivalent in Philippine Currency plus interest from the filing of the Third Party Complaint until fully paid; attorney's fees of P20,000.00 and to pay the costs. (p. 27, Rollo)

The foregoing information, without more, in effect makes respondent CMI for all practical intents and purposes the party named and ordered to receive the goods. The petitioner-carrier, not being privy to any transaction between HSBC and CMI, cannot be expected to look beyond what is contained on the face of the bill of lading in question and guess which of the many banks in Metro Manila or some other unrevealed corporation could possibly be the consignee. To consider otherwise would not be sound business practice as petitioner would be forced to wait for the real owner of the goods to show up, perhaps in vain. In Macondray and Company Inc. v. Acting Commissioner of Customs (62 SCRA 427 [1975]), it was held that a bill of lading is ordinarily merely a convenient commercial instrument designed to protect the importer or consignee. And in Phoenix Assurance Co., Ltd. v. United States Lines(22 SCRA 674 [1968]), it was held that as a receipt, a bill of lading recites the place and date of shipment, describes the goods as to quantity, weight, dimensions, Identification marks, condition, quality and value.

Its motion for reconsideration having been denied, the petitioner appealed to herein public respondent Court of Appeals. On January 30, 1987, the Court of Appeals rendered the decision now assailed, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED in toto. Costs against appellant. SO ORDERED. (p. 40, Rollo)

It should likewise be noted that the shipment consisted of machinery materials and supplies for a mining company named in the bill of lading. In the absence of contrary instructions or at least knowledge of other facts, the carrier is not ordinarily expected to deliver mining equipment to an unnamed or unknown party lurking for several months. Other pieces of evidence found in the records indicate that the parties knew that respondent CMI was indeed the owner of the goods in question, to wit:

Hence, this petition for review on the following grounds: I The Court of appeals erred in refusing to apply the principle that "Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences"-on the finding that petitioner carrier "committed gross error and negligence when it released the cargo to CMI" and without considering the fault, gross error and negligence of respondent Hongkong Shanghai Banking Corporation." (p. 7, Rollo) II

Firstly, even respondent HSBC expressly admitted in its complaint that "pursuant to the BILL OF LADING (Annex "A" hereof) the shipment was issued 'To Shipper's Order.'" (p. 2, Original Records) It never alleged therein that it was the consignee of the shipment in question. Similarly, by respondent HSBC's own documentary evidence, respondent CMI is the buyer-owner of the shipment, to wit: "SOLD BY ORDER AND FOR ACCOUNT AND RISK OF MESSRS. CONSOLIDATED MINES INC. 6799 AYALA AVE. MAKATI, METRO MANILA PHILIPPINES" (Exh. A-3, NANYO CORPORATION PACKING LIST; Exh. A-4 NANYO CORPORATION INVOICE; Exh. A-8, NANYO CORPORATION INVOICE. (pp. 68, 71-77, Original Records)

Secondly, the Buyer referred to in the Certificate (Exh. A-5) issued by the shipper NANYO CORPORATION should perforce refer to CMI to wit: We hereby certify that Original Consular Invoice had been air-mailed directly to Buyer. We also certify that advance copies of Commercial Invoice Packing List and Bill of Lading were airmailed directly to Buyer. (p. 73, Original Records) Thirdly, respondent HSBC has established by its own documentary evidence, more particularly, the CONSULAR INVOICE (Exh. A-6 dated February 25, 1980, issued in Tokyo, Japan by the Foreign Service of the Republic of the Philippines, that the consignee of the shipment in question is respondent CONSOLIDATED MINES, INC. as shown therein thus: Consignee CONSOLIDATED MINES, INC. Address 6799 AYALA AVENUE MAKATI METRO MANILA PHILIPPINES (p. 74, Original Records) Hence, in view of the admissions of the respondent, exceptional circumstances allow a deviation from the general rule regarding the surrender of the bill of lading. The rule cannot always be absolute. On the other hand, petitioner-carrier Eastern Shipping Lines, Inc., averred in its answer as one of its special and affirmative defenses that respondent CMI is the consignee of the shipment in question and offered in its formal offer of evidence before the Trial Court the subject Bill of Lading as its "Exhibit 1". (p. 146, Original Records) The Rules of Court provide that: Admissibility of evidence. — Evidence is admissible when it is relevant to the issue and is not excluded by these rules. (Sec. 3, Rule 128, Rules of Court) Judicial admissions. — Admissions made by the parties in the pleadings, or in the course of the trial or other proceedings do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistakes. (Sec. 2, Rule 129, Rules of Court) But assuming that CMI may not be considered consignee, the petitioner cannot be faulted for releasing the goods to CMI under the circumstances, due to its lack of knowledge as to who was the real consignee in view of CMI's strong representations and letter of undertaking wherein it stated that the bill of lading would be presented later. This is precisely the situation covered by the last paragraph of Art. 353 of the Corporation Code to wit:

If in case of loss or for any other reason whatsoever, the consignee cannot return upon receiving the merchandise the bin of lading subscribed by the carrier, he shall give said carrier receipt of the goods delivered this receipt producing the same effects as the return of the bill of lading. In State Bonding and Ins. Co. Inc. v. Manila Port Service, (11 SCRA 400 [1964]), it was held that the arrival of shipment is deemed admitted by an allegation of delivery to the consignee. Under the special circumstances of this case, equity favors the petitioner which proved that it was in good faith while both respondents cannot claim the same. While the goods in question were released on March 4, 1980 the records show that HSBC received the original bill of lading, as per testimony of its witness Ederlina Crisostomo (TSN, p. 29, July 13, 1982), only on April 1980 or long after the goods had been released. This circumstance goes against the claims of HSBC. Thus HSBC in its original demand letter stated, "We are unable to locate the cargo and it would appear that it has been released by you to Consolidated Mines, Inc." (Annex B of Complaint, p. 8, Original Records). This proves that it had foreknowledge of the prior release to CMI. And to make things worse, HSBC, despite CMI's admission that it received the goods, sued only the petitioner-carrier while at the same time claiming for the value of the goods in the involuntary insolvency proceedings of CMI which the Bank itself, together with others, initiated. Only later developments led to this case. Notwithstanding that respondent HSBC admits even in its memorandum filed with the trial court that Consolidated Mines, Inc. is the consignee (p. 168, Original Records), yet HSBC pinpoints liability to the petitioner carrier by relying on the provisions of Article 1736 of the Civil Code of the Philippines which provides that: The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. Respondent HSBC wittingly or unwittingly overlooked the fact that the same article uses the conjunction "or" in reference to whom the goods may be delivered, that is, to the consignee, or to the person who has a right to receive them. That respondent HSBC is the more negligent party as against the petitioner-carrier becomes more evident when aside from having allowed respondent Consolidated Mines, Inc. to be designed in the bills of lading (Exhibits A, A-1 and A-2, pp. 65-67, Original Records), as the party to be notified, it allowed the latter to be designated as the consignee in the Consular Invoice (Exhibit A-6, p. 74, Original Records), the original of which was directly furnished to respondent Consolidated Mines, Inc. by and as certified to by the shipper Nanyo Corporation (Exhibit A-5, p. 73, Original Records). With such vast powers, akin to an agent of respondent HSBC, respondent Consolidated Mines, Inc. acted within its authority, and even

if it acted on its own; consequently, respondent HSBC may not hold the petitioner came liable because Art. 1883 of the Civil Code provides that: If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent. For almost six months from the arrival of the goods HSBC did not do anything to claim the cargo. It could not possibly be left around lying Idle when on the face of the bill of lading, there was a named owner to be notified. On the other hand, CMI secured the release of the goods through misrepresentation before the petitionercarrier without settling its account with HSBC and thereafter did not bother to present evidence before the trial court, leaving the petitioner holding an empty bag as it were. These circumstances also prove bad faith on the part of CMI. Under the exceptional circumstances and applying especially strong considerations of equity, the petitioner did not commit any fault sufficient to render it liable to HSBC. On the contrary, it was HSBC and CMI who were obviously in bad faith in dealing with the petitioner-carrier. WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of Appeals dated June 30, 1987 is SET ASIDE as well as its orders dated November 24, 1987 denying the petitioners's motion for reconsideration. The complaint before the trial court is dismissed for lack of merit but without prejudice to Hongkong & Shanghai Banking Corporation pursuing its claims herein against Consolidated Mines, Inc. in the proper proceedings. SO ORDERED.

G.R. No. L-49407 August 19, 1988 NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees. No. L-49469 August 19, 1988 MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents- appellees. Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.: These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee. On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant Maritime Company of the Philippines the total amount that the Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case. With costs against the defendant Maritime Company of the Philippines. (pp. 34-35, Rollo, GR No. L-49469) The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement entered into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38) On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6). Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 1424). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC. NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31,

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered DISMISSING THE COMPLAINT. a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of II P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC. THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set aside the decision was denied by the trial court in its order dated February 13,1970. On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court. Hence these appeals by certiorari. NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136). In its brief, NDC cited the following assignments of error: I THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES. II THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for PetitionerAppellant National Development Company; p. 96, Rollo).

ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED. III THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI IV THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU. V THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

On its part, MCP assigned the following alleged errors: VI I THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY

CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo) The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided thereunder. The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the consignee as earlier stated. This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil Code. In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan. Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by law.

after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes. Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]). There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application. On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16). The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering the shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43). MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in excess of its authority.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred

It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case

of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]). As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in determining their liability. MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce). MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility. Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act. PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent Appellate Court is AFFIRMED. SO ORDERED.

G.R. No. L-56294

May 20, 1991

SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE INSURANCE CO., INC.,petitioners, vs. THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents. Bito, Misa & Lozada for petitioners. Rodriguez, Relova & Associates for private respondent.

FELICIANO, J.: In the early morning of 3 May 1970—at exactly 0350 hours, on the approaches to the port of Manila near Caballo Island, a collision took place between the M/V "Don Carlos," an inter-island vessel owned and operated by private respondent Carlos A. Go Thong and Company ("Go Thong"), and the M/S "Yotai Maru," a merchant vessel of Japanese registry. The "Don Carlos" was then sailing south bound leaving the port of Manila for Cebu, while the "Yotai Maru" was approaching the port of Manila, coming in from Kobe, Japan. The bow of the "Don Carlos" rammed the portside (left side) of the "Yotai Maru" inflicting a three (3) cm. gaping hole on her portside near Hatch No. 3, through which seawater rushed in and flooded that hatch and her bottom tanks, damaging all the cargo stowed therein. The consignees of the damaged cargo got paid by their insurance companies. The insurance companies in turn, having been subrogated to the interests of the consignees of the damaged cargo, commenced actions against private respondent Go Thong for damages sustained by the various shipments in the then Court of First Instance of Manila. Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case No. 82567, was commenced on 13 March 1971 by petitioner Smith Bell and Company (Philippines), Inc. and Sumitomo Marine and Fire Insurance Company Ltd., against private respondent Go Thong, in Branch 3, which was presided over by Judge Bernardo P. Fernandez. The second case, Civil Case No. 82556, was filed on 15 March 1971 by petitioners Smith Bell and Company (Philippines), Inc. and Tokyo Marine and Fire Insurance Company, Inc. against private respondent Go Thong in Branch 4, which was presided over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas.

The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go Thong to the Court of Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-R. The decision of Judge Cuevas in Civil Case No. 82556 was also appealed by Go Thong to the Court of Appeals, the appeal being docketed as C.A.-G.R. No. 61206-R. Substantially identical assignments of errors were made by Go Thong in the two (2) appealed cases before the Court of Appeals. In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8 August 1978 affirming the Decision of Judge Fernandez. Private respondent Go Thong moved for reconsideration, without success. Go Thong then went to the Supreme Court on Petition for Review, the Petition being docketed as G.R. No. L-48839 ("Carlos A. Go Thong and Company v. Smith Bell and Company [Philippines], Inc., et al."). In its Resolution dated 6 December 1978, this Court, having considered "the allegations, issues and arguments adduced in the Petition for Review on Certiorari, of the Decision of the Court of Appeals as well as respondent's comment", denied the Petition for lack of merit. Go Thong filed a Motion for Reconsideration; the Motion was denied by this Court on 24 January 1979. In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November 1980 (or almost two [2] years after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed by the Supreme Court on Petition for Review) through Sison, P.V., J., reversed the Cuevas Decision and held the officers of the "Yotai Maru" at fault in the collision with the "Don Carlos," and dismissed the insurance companies' complaint. Herein petitioners asked for reconsideration, to no avail. The insurance companies are now before us on Petition for Review on Certiorari, assailing the Decision of Sison, P.V., J., in C.A.-G.R. No. 61206-R. Petitioners' principal contentions are: a. that the Sison Decision had disregarded the rule of res judicata; b. that Sison P.V., J., was in serious and reversible error in accepting Go Thong's defense that the question of fault on the part of the "Yotai Maru" had been settled by the compromise agreement between the owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos;" and c. that Sison, P. V. J., was in serious and reversible error in holding that the "Yotai Maru" had been negligent and at fault in the collision with the "Don Carlos." I

Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and evidence relating to the collision between the "Don Carlos" and the "Yotai Maru" the parties in both cases having agreed that the evidence on the collision presented in one case would be simply adopted in the other. In both cases, the Manila Court of First Instance held that the officers and crew of the "Don Carlos" had been negligent that such negligence was the proximate cause of the collision and accordingly held respondent Go Thong liable for damages to the plaintiff insurance companies. Judge Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney's fees; while Judge Cuevas awarded the plaintiff insurance companies on two (2) claims US $ 68,640.00 or its equivalent in Philippine currency plus attorney's fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney's fees, respectively.

The first contention of petitioners is that Sison, P. V. J. in rendering his questioned Decision, failed to apply the rule of res judicata. Petitioners maintain that the Resolution of the Supreme Court dated 6 December 1978 in G.R. No. 48839 which dismissed Go Thong's Petition for Review of the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had effectively settled the question of liability on the part of the "Don Carlos." Under the doctrine of res judicata, petitioners contend, Sison, P. V. J. should have followed the Reyes, L.B., J. Decision since the latter had been affirmed by the Supreme Court and had become final and executory long before the Sison Decision was rendered. Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in rendering its minute Resolution in G.R. No. L- 48839, had merely dismissed Go Thong's Petition for Review of the

Reyes, L.B., J. Decision for lack of merit but had not affirmed in toto that Decision. Private respondent, in other words, purports to distinguish between denial of a Petition for Review for lack of merit and affirmance of the Court of Appeals' Decision. Thus, Go Thong concludes, this Court did not hold that the "Don Carlos" had been negligent in the collision. Private respondent's argument must be rejected. That this Court denied Go Thong's Petition for Review in a minute Resolution did not in any way diminish the legal significance of the denial so decreed by this Court. The Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment shall be framed.1 It has long been settled that this Court has discretion to decide whether a "minute resolution" should be used in lieu of a full-blown decision in any particular case and that a minute Resolution of dismissal of a Petition for Review on certiorariconstitutes an adjudication on the merits of the controversy or subject matter of the Petition.2 It has been stressed by the Court that the grant of due course to a Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is no need to fully explain the Court's denial. For one thing, the facts and law are already mentioned in the Court of Appeals' opinion."3 A minute Resolution denying a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees with or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed and set aside is correct.4 Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in the instant case whether in respect of the Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme Court in G.R. No. L-48839, for the reason that there was no identity of parties and no identity of cause of action between C.A.-G.R. No. 61206-R and C.A.-G.R. No. 61320-R. The parties in C.A.-G.R. No. 61320-R Where the decision of Judge Fernandez was affirmed, involved Smith Bell and Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the petitioners in the instant case (plaintiffs below) are Smith Bell and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other words, there was a common petitioner in the two (2) cases, although the co-petitioner in one was an insurance company different from the insurance company copetitioner in the other case. It should be noted, moreover, that the co-petitioner in both cases was an insurance company arid that both petitioners in the two (2) cases represented the same interest, i.e., the cargo owner's interest as against the hull interest or the interest of the shipowner. More importantly, both cases had been brought against the same defendant, private respondent Go Thong, the owner of the vessel "Don Carlos." In sum, C.A.-G.R. No. 61320R and C.A-G.R. No. 61206-R exhibited substantial identity of parties. It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense that the cargo which had been damaged in the one case and for which indemnity was sought, was not the very same cargo which had been damaged in the other case indemnity for which was also sought. The cause of action was, however, the same in the two (2) cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been violated by the same casualty, the ramming of the "Yotai Maru" by the "Don Carlos." The judgments in both cases were final judgments on the merits rendered by the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which has not been questioned. Under the circumstances, we believe that the absence of identity of subject matter, there being substantial identity of parties and identity of cause of action, will not preclude the application of res judicata.5

In Tingson v. Court of Appeals,6 the Court distinguished one from the other the two (2) concepts embraced in the principle of res judicata, i.e., "bar by former judgment" and "conclusiveness of judgment:" There is no question that where as between the first case Where the judgment is rendered and the second case where such judgment is invoked, there is identity of parties, subject-matter and cause of action, the judgment on the merits in the first case constitutes an absolute bar to the subsequent action not only as to every matter which was offered and received to sustain or defeat the claim or demand, but also as to any other admissible matter which might have been offered for that purpose and to all matters that could have been adjudged in that case. This is designated as "bar by former judgment." But where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In fine, the previous judgment is conclusive in the second case, only as those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the rule on 'conclusiveness of judgment' embodied in subdivision (c) of Section 49 of Rule 39 of the Revised Rules of' Court.7 (Citations omitted) (Emphases supplied) In Lopez v. Reyes,8 the Court elaborated further the distinction between bar by former judgment which bars the prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness of judgment which bars the relitigation of particular facts or issues in another litigation between the same parties on a different claim or cause of action: The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand or cause of action. The second aspect is that it precludes the relitigation of a particular fact or issues in another action between the same parties on a different claim or cause of action. The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are commonly applied to all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions "necessarily involved in an issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no specific finding may have been made in reference thereto, and although such matters were directly referred to in the pleadings and were not actually or formally presented. Under this rule, if the record of the former trial shows that the judgment could not have been rendered without deciding the particular matter it will be considered as having settled that matter as to all future actions between the parties, and if a judgment necessarily presupposes certain premises, they are as conclusive as the judgment itself. Reasons for the rule are that a judgment is an adjudication on all the matters which are essential to support it, and that every proposition assumed or decided by the court leading up to the final conclusion and upon which such conclusion is based is as effectually passed upon as the ultimate question which is finally solved.9 (Citations omitted) (Emphases supplied) In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so negligent as to have proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J.,

resolved that issue in his Decision and held the "Don Carlos" to have been negligent rather than the "Yotai Maru" and, as already noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1978. The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two (2) vessels, had long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206- R. Private respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error When it disregarded the Decision of this Court affirming the Reyes Decision. 10

Go Thong sought to appeal to the then Ministry of National Defense from the orders of the PCG by filing with the PCG on 6 January 1981 a motion for a 30-day extension from 7 January 1981 within which to submit its record on appeal. On 4 February 1981, Go Thong filed a second urgent motion for another extension of thirty (30) days from 7 February 1981. On 12 March 1981, Go Thong filed a motion for a final extension of time and filed its record on appeal on 17 March 1981. The PCG noted that Go Thong's record on appeal was filed late, that is, seven (7) days after the last extension granted by the PCG had expired. Nevertheless, on 1 July 1981 (after the Petition for Review on Certiorari in the case at bar had been filed with this Court), the Ministry of Defense rendered a decision reversing and setting aside the 19 May 1980 decision of the PCG

Private respondent Go Thong also argues that a compromise agreement entered into between Sanyo Shipping Company as owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos," under which the former paid P268,000.00 to the latter, effectively settled that the "Yotai Maru" had been at fault. This argument is wanting in both factual basis and legal substance. True it is that by virtue of the compromise agreement, the owner of the "Yotai Maru" paid a sum of money to the owner of the "Don Carlos." Nowhere, however, in the compromise agreement did the owner of the "Yotai Maru " admit or concede that the "Yotai Maru" had been at fault in the collision. The familiar rule is that "an offer of compromise is not an admission that anything is due, and is not admissible in evidence against the person making the offer."11 A compromise is an agreement between two (2) or more persons who, in order to forestall or put an end to a law suit, adjust their differences by mutual consent, an adjustment which everyone of them prefers to the hope of gaining more, balanced by the danger of losing more. 12 An offer to compromise does not, in legal contemplation, involve an admission on the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further controversy and saving the expenses of litigation.13 It is of the very nature of an offer of compromise that it is made tentatively, hypothetically and in contemplation of mutual concessions.14 The above rule on compromises is anchored on public policy of the most insistent and basic kind; that the incidence of litigation should be reduced and its duration shortened to the maximum extent feasible.

The owners of the "Yotai Maru" then filed with the Office of the President a Motion for Reconsideration of the Defense Ministry's decision. The Office of the President rendered a decision dated 17 April 1986 denying the Motion for Reconsideration. The decision of the Office of the President correctly recognized that Go Thong had failed to appeal in a seasonable manner:

The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of litigations but also administrative proceedings before the Board of Marine Inquiry ("BMI"). The collision was the subject matter of an investigation by the BMI in BMI Case No. 228. On 12 July 1971, the BMI through Commodore Leovegildo L. Gantioki, found both vessels to have been negligent in the collision. Both parties moved for reconsideration of the BMI's decision. The Motions for Reconsideration were resolved by the Philippine Coast Guard ("PCG") nine (9) years later, in an order dated 19 May 1980 issued by PCG Commandant, Commodore Simeon M. Alejandro. The dispositive portion of the PCG decision read as follows: Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and amended absolving the officers of "YOTAI MARU" from responsibility for the collision. This Headquarters finds no reason to modify the penalties imposed upon the officers of Don Carlos. (Annex "C", Reply, September 5, 1981).15 Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order dated September 1980.

MV "DON CARLOS" filed her Notice of Appeal on January 5, 1981. However, the records also show beyond peradventure of doubt that the PCG Commandant's decision of May 19, 1980, had already become final and executory When MV "DON CARLOS" filed her Record on Appeal on March 17, 1981, and When the motion for third extension was filed after the expiry date. Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant Marine Rules and Regulations, decisions of the PCG Commandant shall be final unless, within thirty (30) days after receipt of a copy thereof, an appeal to the Minister of National Defense is filed and perfected by the filing of a notice of appeal and a record on appeal. Such administrative regulation has the force and effect of law, and the failure of MV "DON CARLOS" to comply therewith rendered the PCG Commandant's decision on May 19, 1980, as final and executory, (Antique Sawmills, Inc. vs. Zayco, 17 SCRA 316; Deslata vs. Executive Secretary, 19 SCRA 487; Macailing vs. Andrada, 31 SCRA 126.) (Annex "A", Go Thong's Manifestation and Motion for Early Resolution, November 24, 1986).16 (Emphases supplied) Nonetheless, acting under the misapprehension that certain "supervening" events had taken place, the Office of the President held that the Minister of National Defense could validly modify or alter the PCG Commandant's decision: However, the records likewise show that, on November 26, 1980, the Court of Appeals rendered a decision in CA-G.R. No. 61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go Thong & Co.) holding that the proximate cause of the collision between MV "DON CARLOS" AND MS "YOTAI MARU" was the negligence, failure and error of judgment of the officers of MS "YOTAI MARU". Earlier, or on February 27, 1976, the Court of First Instance of Cebu rendered a decision in Civil Case No. R-11973 (Carlos A. Go Thong vs. San-yo Marine Co.) holding that MS "YOTAI MARU" was solely responsible for the collision, which decision was upheld by the Court of Appeals. The foregoing judicial pronouncements rendered after the finality of the PCG Commandant's decision of May 19, 1980, were supervening causes or reasons that rendered the PCG Commandant's decision as no longer enforceable and entitled MV "DON CARLOS" to request the Minister of National Defense to modify or alter the questioned decision to harmonize the

same with justice and tile facts. (De la Costa vs. Cleofas, 67 Phil. 686; City of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs. Canizares, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA 244). Under such precise circumstances, the Minister of National Defense may validly modify or alter the PCG commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550, Revised Administrative Code; Province of Pangasinan vs. Secretary of Public Works and Communications, 30 SCRA 134; Estrelia vs. Orendain, 37 SCRA 640). 17 (Emphasis supplied) The multiple misapprehensions under which the Office of the President labored, were the following: It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision that is the subject of review in the Petition at bar and therefore not final. At the same time, the Office of the President either ignored or was unaware of the Reyes, L.B., J., Decision in C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for the collision, and of the fact that that Decision had been affirmed by the Supreme Court and had long ago become final and executory. A third misapprehension of the Office of the President related to a decision in a Cebu Court of First Instance litigation which had been settled by the compromise agreement between the Sanyo Marine Company and Go Thong. The Office of the President mistakenly believed that the Cebu Court of First Instance had rendered a decision holding the "Yotai Maru" solely responsible for the collision, When in truth the Cebu court had rendered a judgment of dismissal on the basis of the compromise agreement. The Cebu decision was not, of course, appealed to the Court of Appeals. It thus appears that the decision of the Office of the President upholding the belated reversal by the Ministry of National Defense of the PCG'S decision holding the "Don Carlos" solely liable for the collision, is so deeply flawed as not to warrant any further examination. Upon the other hand, the basic decision of the PCG holding the "Don Carlos" solely negligent in the collision remains in effect. II In their Petition for Review, petitioners assail the finding and conclusion of the Sison Decision, that the "Yotai Maru" was negligent and at fault in the collision, rather than the "Don Carlos." In view of the conclusions reached in Part I above, it may not be strictly necessary to deal with the issue of the correctness of the Sison Decision in this respect. The Court considers, nonetheless, that in view of the conflicting conclusions reached by Reyes, L.B., J., on the one hand, and Sison, P.V., J., on the other, and since in affirming the Reyes Decision, the Court did not engage in a detailed written examination of the question of which vessel had been negligent, and in view of the importance of the issues of admiralty law involved, the Court should undertake a careful review of the record of the case at bar and discuss those issues in extenso. The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the evidence concerning the collision. It is worth underscoring that the findings of fact of Judge Fernandez in Civil Case No. 82567 (which was affirmed by the Court of Appeals in the Reyes Decision and by this Court in G.R. No. L-48839) are just about identical with the findings of Judge Cuevas. Examining the facts as found by Judge Cuevas, the Court believes that there are three (3) principal factors which are constitutive of negligence on the part of the "Don Carlos," which negligence was the proximate cause of the collision. The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18 (a) of the International Rules of the Road ("Rules")," which provides as follows

(a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each shall alter her course to starboard, so that each may pass on the port side of the other. This Rule only applies to cases where vessels are meeting end on or nearly end on, in such a manner as to involve risk of collision, and does not apply to two vessels which must, if both keep on their respective course, pass clear of each other. The only cases to which it does apply are when each of two vessels is end on, or nearly end on, to the other; in other words, to cases in which, by day, each vessel sees the masts of the other in a line or nearly in a line with her own; and by night to cases in which each vessel is in such a position as to see both the sidelights of the other. It does not apply, by day, to cases in which a vessel sees another ahead crossing her own course; or, by night, to cases where the red light of one vessel is opposed to the red light of the other or where the green light of one vessel is opposed to the green light of the other or where a red light without a green light or a green light without a red light is seen ahead, or Where both green and red lights are seen anywhere but ahead. (Emphasis supplied) The evidence on this factor was summarized by Judge Cuevas in the following manner: Plaintiff's and defendant's evidence seem to agree that each vessel made a visual sighting of each other ten minute before the collision which occurred at 0350. German's version of the incident that followed, was that "Don Carlos" was proceeding directly to [a] meeting [on an] "end-on or nearly end-on situation" (Exh. S, page 8). He also testified that "Yotai Maru's' headlights were "nearly in line at 0340 A.M." (t.s.n., June 6, 1974) clearly indicating that both vessels were sailing on exactly opposite paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the International Rules of the Road provides as follows: xxx

xxx

xxx

And yet German altered "Don Carlos" course by five degrees to the left at 0343 hours instead of to the right (t.s.n. June 6, 1974, pages 4445) which maneuver was the error that caused the collision in question. Why German did so is likewise explained by the evidence on record. "Don Carlos" was overtaking another vessel, the "Don Francisco",and was then at the starboard (right side) of the aforesaid vessel at 3:40 a.m. It was in the process of overtaking"Don Francisco" that "Don Carlos' was finally brought into a situation where he was meeting end-on or nearly end-on "Yotai Maru, thus involving risk of collision. Hence, German in his testimony before the Board of Marine inquiry stated: Atty. Chung: You said in answer to the cross-examination that you took a change of course to the left. Why did you not take a course to the right instead? German: I did not take any course to the right because the other vessel was in my mind at the starboard side following me. Besides, I don't want to get risk of the Caballo Island (Exh. 2, pages 209 and 210).19 (Emphasis supplied) For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the "Yotai Maru" found herself on an "end-on" or a "nearly end-on" situation vis-a-vis the "Don Carlos, " and as the

distance between them was rapidly shrinking, the "Yotai Maru" turned starboard (to its right) and at the same time gave the required signal consisting of one short horn blast. The "Don Carlos" turned to portside (to its left), instead of turning to starboard as demanded by Rule 18 (a). The "Don Carlos" also violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning "I am altering my course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the master of the "Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and stopped her engines; at about 3:46 a.m. the "Yotai Maru" went "full astern engine."20 The collision occurred at exactly 3:50 a.m. The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to have on board that night a "proper look-out" as required by Rule I (B) Under Rule 29 of the same set of Rules, all consequences arising from the failure of the "Don Carlos" to keep a "proper look-out" must be borne by the "Don Carlos." Judge Cuevas' summary of the evidence said: The evidence on record likewise discloses very convincingly that "Don Carlos" did not have "look-out" whose sole and only duty is only to act as Such. . . . 21 A "proper look-out" is one who has been trained as such and who is given no other duty save to act as a look-out and who is stationed where he can see and hear best and maintain good communication with the officer in charge of the vessel, and who must, of course, be vigilant. Judge Cuevas wrote: The "look-out" should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548, 571). He has only one duty, that which its name implies—to keep "look-out". So a deckhand who has other duties, is not a proper "look-out" (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is not a sufficient"look-out" (Larcen B. Myrtle, 44 Fed. 779)—Griffin on Collision, pages 277-278). Neither the captain nor the [helmsman] in the pilothouse can be considered to be a "look-out" within the meaning of the maritime law. Nor should he be stationed in the bridge. He should be as near as practicable to the surface of the water so as to be able to see low-lying lights (Griffin on Collision, page 273). On the strength of the foregoing authorities, which do not appear to be disputed even by the defendant, it is hardly probable that neither German or Leo Enriquez may qualify as "look-out" in the real sense of the word.22(Emphasis supplied) In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision with the "Yotai Maru" coming in from the opposite direction, was at least in part due to the failure of the "Don Carlos" to maintain a proper look-out. The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second Mate Benito German was, immediately before and during the collision, in command of the "Don Carlos." Judge Cuevas summed up the evidence on this point in the following manner: The evidence on record clearly discloses that "Don Carlos" was, at the time of the collision and immediately prior thereto, under the command of Benito German, a second mate although its captain, Captain Rivera, was very much in the said vessel at the time. The defendant's evidence appears bereft of any explanation as to why second mate German was at the helm of the

aforesaid vessel when Captain Rivera did not appear to be under any disability at the time. In this connection, Article [633] of the Code of Commerce provides: Art. [633] — The second mate shall take command of the vessel in case of the inability or disqualification of the captain and sailing mate, assuming, in such case, their powers and liability. The fact that second mate German was allowed to be in command of "Don Carlos" and not the chief or the sailing mate in the absence of Captain Rivera, gives rise to no other conclusion except that said vessel [had] no chief mate. Otherwise, the defense evidence should have at least explained why it was German, only a second mate, who was at the helm of the vessel "Don Carlos" at the time of the fatal collision. But that is not all. Worst still, aside from German's being only a second mate, is his apparent lack of sufficient knowledge of the basic and generally established rules of navigation. For instance, he appeared unaware of the necessity of employing a "look- out" (t.s.n. June 6, 1974, page 27) which is manifest even in his testimony before the Board of Marine Inquiry on the same subject (Exh. 2, page 209). There is, therefore, every reasonable ground to believe that his inability to grasp actual situation and the implication brought about by inadequacy of experience and technical know-how was mainly responsible and decidedly accounted for the collision of the vessels involved in this case.. . .23 (Emphasis supplied) Second Mate German simply did not have the level of experience, judgment and skill essential for recognizing and coping with the risk of collision as it presented itself that early morning when the "Don Carlos," running at maximum speed and having just overtaken the "Don Francisco" then approximately one mile behind to the starboard side of the "Don Carlos," found itself head-on or nearly head on vis-avis the "Yotai Maru. " It is essential to point out that this situation was created by the "Don Carlos" itself. The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which contradicted the findings of fact made by Judge Cuevas. What Sison, P.V., J. actually did was to disregard all the facts found by Judge Cuevas, and discussed above and, astonishingly, found a duty on the "Yotai Maru" alone to avoid collision with and to give way to the "Don Carlos ". Sison, P.V., J., wrote: At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh] and Chonabayashi had ample time to adopt effective precautionary measures to steer away from the Philippine vessel, particularly because both [Katoh] and Chonabayashi also deposed that at the time they had first eyesight of the "Don Carlos" there was still "no danger at all" of a collision.1âwphi1 Having sighted the "Don Carlos" at a comparatively safe distance—"no danger at all" of a collision—the Japanese ship should have observed with the highest diligence the course and movements of the Philippine interisland vessel as to enable the former to adopt such precautions as will necessarily present a collision, or give way, and in case of a collision, the former is prima facie at fault. In G. Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632, the Supreme Court held: Nautical rules require that where a steamship and sailing vessel are approaching each other from opposite directions, or on intersecting lines, the steamship, from the moment the sailing vessel is seen, shall watch with the highest diligence her course and movements so as to enable it to adopt such timely means of precaution as will

necessarily prevent the two boats from coming in contact.' (Underscoring in the original) At 3:44 p.m., or 4 minutes after first sighting the "Don Carlos", or 6 minutes before contact time, Chonabayashi revealed that the "Yotai Maru" gave a one-blast whistle to inform the Philippine vessel that the Japanese ship was turning to starboard or to the right and that there was no blast or a proper signal from the "Don Carlos" (pp. 67-68. Deposition of Chonabayashi, List of Exhibits). The absence of a reply signal from the"Don Carlos" placed the "Yotai Maru" in a situation of doubt as to the course the "Don Carlos" would take. Such being the case, it was the duty of the Japanese officers "to stop, reverse or come to a standstill until the course of the "Don Carlos" has been determined and the risk of a collision removed (The Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum, etc. vs. Cebu Stevedoring, etc., 5 C.A.R. 2d 853, 861-862).. . . .24(Emphasis supplied) The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an exclusive obligation upon one of the vessels, the "Yotai Maru, " to avoid the collision, the Court of Appeals not only chose to overlook all the above facts constitutive of negligence on the part of the "Don Carlos;" it also in effect used the very negligence on the part of the "Don Carlos" to absolve it from responsibility and to shift that responsibility exclusively onto the "Yotai Maru" the vessel which had observed carefully the mandate of Rule 18 (a). Moreover, G. Urrutia and Company v. Baco River Plantation Company25 invoked by the Court of Appeals seems simply inappropriate and inapplicable. For the collision in the Urrutia case was between a sailing vessel, on the one hand, and a power-driven vessel, on the other; the Rules, of course, imposed a special duty on the power-driven vessel to watch the movements of a sailing vessel, the latter being necessarily much slower and much less maneuverable than the power-driven one. In the case at bar, both the "Don Carlos" and the "Yotai Maru" were powerdriven and both were equipped with radar; the maximum speed of the "Yotai Maru" was thirteen (13) knots while that of the "Don Carlos" was eleven (11) knots. Moreover, as already noted, the "Yotai Maru" precisely took last minute measures to avert collision as it saw the "Don Carlos" turning to portside: the "Yotai Maru" turned "hard starboard" and stopped its engines and then put its engines "full astern." Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with Judge Fernandez and Nocon, J.,26 that the "Don Carlos" had been negligent and that its negligence was the sole proximate cause of the collision and of the resulting damages. FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in C.A.G.R. No. 61206-R is hereby REVERSED and SET ASIDE. The decision of the trial court dated 22 September 1975 is hereby REINSTATED and AFFIRMED in its entirety. Costs against private respondent. SO ORDERED.

It should be noted that F/B Aquarius G is a fishing vessel with a speed of only 7.5 or 8 knots per hour and according to the master of the vessel, they are not required by law to have a lookout because the SULPICIO LINES, INC. and CRESENCIO G. CASTANEDA, petitioners, vs. COURT OF vessel is small. M/V Don Sulpicio is a passenger boat with a speed of about 15.5 knots an hour and being APPEALS and AQUARIUS FISHING CO., INC., respondents. a passenger boat, it is bigger boat and a faster boat. It is incumbent upon its master to see to it that the direction to which they are proceeding is clear. Having seen for the first time the 2 vessels, F/B Aquarius C and F/B Aquarius G about 4 miles ahead and that they were almost parallel to each other or in the same D E C I S I ON line with each other, as M/V Don Sulpicio was following, M/V Don Sulpicio should have used sufficient PURISIMA, J.: diligence to avoid collision. It appears from the evidence that during the incident, the weather was clear and visibility was very good. The M/V Don Sulpicio had a clear opportunity to avoid collision, but it At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking failed to do so. M/V Don Sulpicio believed, that considering that it was a following vessel, it can just go [1] the reversal of the Decision, dated November 29, 1989, of the Court of Appeals in CA GR No. 15081, thru and proceed irrespective of danger. The Court believes that the evidence is abundant to show and the Resolution, dated April 24, 1990, denying petitioners Motion for Reconsideration. negligence on the part of the master of the defendants and as such, defendants should be held responsible for all the damages suffered by F/B Aquarius G. The facts that matter are as follows: [G.R. No. 93291. March 29, 1999]

The case stemmed from a complaint for damages of Aquarius Fishing Co., Inc. against Sulpicio Defendants claim that the vessel involved was F/B Aquarius B. However, the evidence show that the Lines, Inc. and Cresencio G. Castaneda, docketed as Civil Case No. 14510 before Branch 44 of Regional fishing vessel that sunk was F/B Aquarius G and not F/B Aquarius B. And as shown by the evidence, the Trial Court in Bacolod City. In due time, said defendants submitted their Answer with counterclaim. total loss of F/B Aquarius G together with its articles and provisions was P564,448.80.[2] On May 31, 1986, the trial court came out with its Decision in favor of plaintiff Aquarius Fishing Co., Inc. ratiocinating and disposing thus: WHEREFORE, the Court finds the complaint duly supported by evidence and judgment is hereby rendered in favor of the plaintiff and against the defendants, who are hereby ordered to pay, jointly and severally, the plaintiff the sum of P564,448.80 for the actual loss of F/B Aquarius G including its articles The question to be determined is whether the collision between M/V Don Sulpicio and F/B Aquarius 'G' and provisions; the sum of P10,000.00 per month from the date of the accident representing deprivation was due to the negligence of the defendants or of the plaintiff. It is admitted in the evidence that at a of the use and services of F/B Aquarius G and another sum of P10,000.00 for actual expenses and costs distance of about 4 miles M/V Don Sulpicio has sighted 2 fishing boats, namely: F/B Aquarius 'C' and of litigation, another sum of P10,000.00 by way of exemplary damages, another sum equivalent to 15% F/B Aquarius G although defendants maintained it was F/B Aquarius 'B'. From the evidence it appears that the 2 fishing boats had a speed of about 7.5 to 8 knots per hour while M/V Don Sulpicio was running of the total claim of plaintiff as attorneys fees plus P300.00 per court appearance, and to pay legal rate of interest of all the amounts so adjudged from November 18, 1978 until the entire amount is fully paid, and about 15.5 knots per hour. It would appear that the speed of M/V Don Sulpicio was more than twice as to pay the costs. Counterclaim is dismissed.[3] fast as the speed of the two fishing boats. The weather at that time the accident happened was clear and visibility was good. In other words, from the distance of about four miles at sea, the men of Don Sulpicio The defendants appealed to the Court of Appeals, assigning seven (7) errors which the appellate could clearly see the 2 fishing boats which were ahead about 4 miles and likewise, the men of the 2 court summed up and treated as two pivotal issues, to wit: fishing boats could clearly see M/V Don Sulpicio following. The plaintiff claims that they continued on their speed in their course and while maintaining their speed they were rammed by M/V Don Sulpicio. 1. THE COURT A QUO ERRED IN DISREGARDING THE REGULATION FOR PREVENTING COLLISION AT SEA, MORE POPULARLY KNOWN AS THE RULE OF THE ROAD IN Defendants claim that plaintiff was negligent and that the collision was due to the negligence of the men DETERMINING WHICH OF THE TWO VESSELS WAS NEGLIGENT AND LIABLE, manning F/B Aquarius 'B' and submit that considering that F/B Aquarius 'B' had no lookout and that the CONSIDERING THAT M/V DON SULPICIO COMPLIED WITH THEIR PROVISIONS, WHILE F/B fishing boat was ahead, F/B Aquarius 'B' should have given way to M/V Don Sulpicio who was AQUARIUS G DID NOT; AND following in order to avoid collision. And considering that F/B Aquarius 'B' was at fault, it should suffer its own damage. 2. THE COURT A QUO ERRED IN AWARDING DAMAGES, ATTORNEYS FEES, ACTUAL xxx xxx xxx EXPENSES AND COSTS OF LITIGATION, LEGAL RATE OF INTEREST OF ALL THE AWARDS FROM NOVEMBER 18, 1978 UNTIL ALL THE AMOUNTS ARE FULLY PAID.[4] It appears in the theory of defendants that simply because a vessel had no lookout and that the vessel was On November 29, 1989, the Court of Appeals affirmed the Decision of the trial court of origin. The ahead, if it is rammed by another vessel that is following, the fault would be on the vessel that is ahead Motion for Reconsideration interposed on December 23, 1989 by appellants met the same fate. It was because the vessel that is ahead should always give way to the vessel that is following. denied on April 24, 1990. xxx xxx xxx Undaunted, petitioners found their way to this Court via the present Petition for Review on Certiorari, contending that: From this argument, it would appear that whether actual negligence was committed by the vessel ahead I or not, but as long as the vessel had no lookout and has not given way to the vessel following, the vessel following, if it ram the vessel ahead, has no fault.

THE LOWER COURT ERRED IN EXONERATING THE VESSEL F/B AQUARIUS B AND HER MASTER FROM NEGLIGENCE DESPITE THE ADMISSION BY AGAPITO GERBOLINGA, PATRON OF SAID VESSEL THAT THEY HAD NO LOOKOUT DURING THE COLLISION. II THE LOWER COURT ERRED IN DISREGARDING THE REGULATION FOR PREVENTING COLLISION AT SEA, MORE POPULARLY KNOWN AS THE RULES OF THE ROAD IN DETERMINING WHICH OF THE TWO VESSELS WAS NEGLIGENT AND LIABLE. III THE LOWER COURT ERRED IN IMPUTING NEGLIGENCE ON THE VESSEL M/V DON SULPICIO, THE PRIVILEGED VESSEL WHICH COMPLIED WITH RULES 19 AND 21, RULES OF THE ROAD. IV THE LOWER COURT ERRED IN AWARDING TO PLAINTIFF-APPELLEE THE AMOUNT OF P564,448.80 AS ACTUAL LOSS PLUS P10,000.00 PER MONTH FROM THE PERIOD OF NOVEMBER 18, 1978 REPRESENTING DEPRIVATION OF USE AND SERVICES OF F/B AQUARIUS B AND ANOTHER SUM OF P10,000.00 FOR ACTUAL EXPENSES AND COST OF LITIGATION. V THE LOWER COURT ERRED IN AWARDING PLAINTIFF AND AGAINST DEFENDANTS THE SUM OF P10,000.00 AS EXEMPLARY DAMAGES.

xxx xxx xxx It was clearly established by the positive testimony of second mate, Aurelio Villacampa, Jr. on July 14, 1981 and the sketch prepared by said witness (Exhibit 2) that the two vessels were in a crossing situation. The vessel M/V Don Sulpicio was approaching on the starboard or right side of the crossing vessel F/B Aquarius B. The applicable rules in such a crossing situation are Rules 19, 21, 22 and 23. We quote the above Rules as follows: Rule 19. When two power driven vessels are crossing, so as to involve risk of collision, the vessel which has the other on her starboard side shall keep out of the way of the other. Rule 21. Where, by any of the Rules, one of two vessels is to keep out of the way, the other shall keep her course and speed. Rule 22. Every vessel which is directed by these Rules to keep out of the way of another vessel, so far as possible, take positive early action to comply with this obligation, and shall, if the circumstance of the case admit, avoid crossing ahead of the other. Rule 23. Every power-driven vessel which is directed by these Rules to keep out of the way of another vessel shall, on approaching her, if necessary, slacken her speed or stop or reverse. The M/V DON SULPICIO was the privileged vessel and the F/B Aquarius B was the burdened vessel in the crossing situation (Exhibits 2, 3, 4, 9, 10). However, the F/B Aquarius B violated the rules, did not keep out of the way, did not slacken speed but instead went full ahead and crossed the bow of M/V DON SULPICIO. xxx xxx xxx xxx

VI THE LOWER COURT ERRED IN AWARDING PLAINTIFF AND AGAINST THE DEFENDANTAPPELLEE THE SUM EQUIVALENT TO 15% OF THE TOTAL CLAIM AS ATTORNEYS FEES PLUS P300.00 PER COURT APPEARANCE. VII THE LOWER COURT ERRED IN AWARDING LEGAL RATE OF INTEREST OF ALL THE AWARDS TO PLAINTIFF-APPELLEE FROM NOVEMBER 18, 1978 UNTIL ALL THE AMOUNTS ARE FULLY PAID.[5]

In the case at bar F/B Aquarius B by failure to keep out of the way and slacken her speed has allowed herself to come to close proximity to the vessel M/V DON SULPICIO bringing about the collision. The award to private respondent of the sum of P564,448.80 as actual loss is based on surmises and conjectures. No appraisal of the value of the vessel F/B Aquarius B was presented to support said claim of total loss. The claim of P564,448.80 was derived after summarizing up invoices and receipts of alleged purchases of materials, provisions dating back since 1972 and even after November 18, 1978 the date of the collision (Exhibits CC to KK). This award is exaggerated (sic) and speculative.[6] On October 24, 1990, respondent Aquarius Fishing Co., Inc. sent in its Comment, stating:

Placing reliance on the Rules of the Road and Regulations on the Prevention of Collision, petitioners Granting for the sake of argument that any or all of the petitioners witnesses can be classified as lookouts maintain: for M/V Don Sulpicio, their negligence is made much clearer because they could not determine risk of collision, speed was not slackened, no warning sign was made and the course of M/V Don Sulpicio was xxx that respondent Court of Appeals completely disregarded the rule of admission in matters adverse to not changed to avoid the collision. ones interest. It is very clear that the F/B Aquarius B, her patron and crew were negligent in this case. The Rules of the Road which is Annex A' of the Philippine Merchant Rules and Regulations requires that all vessels must have a lookout (Rule 29, Rules of the Road). All vessels irrespective of size At any rate, the office of the Coast Guard Judge Advocate which we believed is the proper authority and has the technical competence to determine who is at fault in maritime cases has this to say on the look and make must keep a lookout. There is no exception to this rule. out defense put up by the petitioners:

It is clear that the M/V Don Sulpicio was the overtaking vessel and, under the Rules on the Road, was the burdened vessel which had the duty to take all the necessary actions to keep clear of the overtaken vessel. It was also shown that M/V Don Sulpicio did not alter her course to reduce her speed and being at close range with F/B Aquarius G, did not even give a warning signal. It was likewise shown that the Aquarius Fishing Co., Inc. did not own a vessel named F/B Aquarius B ( as identified by Chief Mate Oro), but it did own a vessel named Aquarius G at the time of the incident. The fact that F/B 'Aquarius G' had no lookout at the time of the collision does not excuse M/V Don Sulpicio from observing her duty to keep clear of the overtaken vessel especially so when there was sufficient room for her to do so. [7] The Petition is not impressed with merit.

forward of or abaft more than 2 points from the vessel. It is beyond cavil that M/V Don Sulpicio must assume responsibility as it was in a better position to avoid the collision. It should have blown its horn or give signs to warn the other vessel that it was to overtake it. Assuming argumenti ex gratia that F/B Aquarius G had no lookout during the collision, the omission does not suffice to exculpate Sulpicio Lines from Liability. M/V Don Sulpicio cannot claim that it was a privileged vessel being in the portside which can maintain its course and speed during the collision. When it overtook F/B Aquarius G, it was duty bound during the collision. When it overtook F/B Aquarius G, it was duty bound to slacken its speed and keep away from other vessel, which it failed to do. The stance of petitioners that F/B Aquarius G is a burdened vessel which should have kept out of the way of M/V Don Sulpicio is not supported by facts.

Well-settled to the point of being elementary is the doctrine that the findings by the trial court are binding on the appellate court and will not be disturbed on appeal, unless the trial court has overlooked or Anent the award of actual damage in the amount of P564,448.80, petitioners mere allegation that the ignored some fact or circumstance of sufficient weight or significance which, if considered, would alter award of actual damages is exaggerated and speculative, without controverting the receipts and invoices the situation.[8] when the boat was constructed and which were bases of accounting entries in the books of accounts presented by the private respondent, are unavailing to defeat the award. To be sure, the private respondent amply established the compensatory damages it suffered by reason of the collision. "Factual findings of the appellate court deemed conclusive. (Estonina v. Court of Appeals, 266 SCRA 627)" It is a fundamental rule in criminal as well as in civil cases that in the matter of credibility of witnesses, the findings of the trial court are given great weight and highest degree of respect by the appellate court. (Lee Eng Hong v. Court of Appeals, 241 SCRA 392 citing Pagsuyuin v. Intermediate Appellate Court, 193 SCRA 547) xxx It is not the function of this Court to assess and evaluate all over again the evidence, testimonial and evidentiary, adduced by the parties particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (South Sea Surety and Insurance Company, Inc. v. Court of Appeals, 244 SCRA 744) It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate court xxx" (Limketkai Sons Milling, Inc. vs. Court of Appeals, 250 SCRA 253, citing Serrano vs. Court of Appeals, 196 SCRA 107)

The award of fifteen (15%) percent of the total claim sued upon as attorneys fees and the legal rate of interest adjudged are proper. However, the P10,000.00 a month awarded by the trial court and the respondent court for earnings that would have derived from F/B Aquarius G, without indicating the material period is too uncertain and onerous to deserve serious consideration. In awarding P10,000.00 per month, representing the supposed profits F/B Aquarius G could have netted, the trial court relied on the sole testimony of Mr. Johnny L. Chua, who is in the employ of private respondent. The arguments of petitioners that the earnings of F/B Aquarius G must be shown is not applicable in this case. F/B Aquarius G is just a carrier to its mother boat Aquarius G. Its role was to carry the catch from the fishing ground to the port and it was serving not only its mother boat, but other boats owned by respondent Aquarius. The income of F/B Aquarius G is therefore impossible to really determine. The only reasonable basis is only its rental value compared with similar boats.[9]

As regards the reckoning period, there is tenability in petitioners submission that a fishing boat deteriorates quite quickly due to exposure to the elements. To hold Sulpicio Lines to pay the profits that After a thorough review and examination of the evidence on hand, we discern no ground or basis for would have been realized by the private respondents for an unlimited period of time is to burden it disregarding the findings and conclusion arrived at below. indefinitely, which cannot be countenanced. Petitioners asserted that private respondent, through its patron, admitted that the vessel had no lookout during the collision despite the absolute rule provided in Rule 9 of the Rules of Road. To bolster xxx The decision awarding P10,000.00 per month reckoned from November 1978 up to the present its stance, it contended that it was a privileged vessel pursuant to Rules 19, 21, 22, 23 of the Regulations implies unlimited existence of the fishing vessel F/B Aquarius G which is not the case as any common man will experience. The Honorable Court can take judicial notice of the deterioration of the wood in a for the Prevention of Collisions at Sea. fishing boat that is always exposed to the elements. Surely, said existence will not last for more than ten Both the trial court and the respondent court found that M/V Don Sulpicio was crossing at 15.5 knots years. Considering that the fishing vessel is already six years old, then it has a lifespan of not more than per hour while F/B Aquarius G was obeying a speed limit of 7.5 knots per hour. The weather was clear and four more years.[10] visibility was good. M/V Don Sulpicio was four (4) miles away when it first sighted F/B Aquarius G. All Failure of Aquarius Fishing Co., Inc. to come forward with controverting evidence to the allegation the time up to the collision, M/V Don Sulpicio maintained its speed of 16 knots. It was only two (2) minutes before the collision when M/V Don Sulpicio changed its course. of Sulpicio Lines that the ordinary lifespan of a fishing vessel is more than ten (10) years, amounted to an admission of such allegation. The vessel was constructed in 1972 while the collision occurred in 1978. The Whether or not the collision sued upon occurred in a crossing situation is immaterial as the Court of remaining life span of F/B Aquarius G was therefore four (4) years. Conformably, computed at P10,000.00 Appeals, relying on Rule 24-C, Regulations for Preventing Collisions at the Sea, rules that the duty to keep per month for a period of four (4) years, the unrealized profits/earnings involved, amounted to at out of the way remained even if the overtaking vessel cannot determine with certainty whether she is most P480,000.00.

As regards the attorneys fees equivalent to 15% of all the awards granted by the Regional Trial Court, the propriety thereof cannot be questioned. Gross and evident bad faith on the part of petitioner in refusing to pay the claim sued upon constrained the private respondent to enlist the services of a lawyer to litigate. Petitioner must have placed reliance on the general rule that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. (Philtranco Service Enterprises, Inc. v. Court of Appeals, 273 SCRA 562; Morales v. Court of Appeals, 274 SCRA 282). But the aforecited rule is inapplicable here in the face of the stubborn refusal of petitioner to respect the valid claim of the private respondent. The payment of legal interest is also in order. But it should be computed from November 18, 1978, not from March 30, 1986, when the Regional Trial Court a quo came out with its Decision. It was from the time of the collision complained of that the private respondent began to be deprived of subject vessel. WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals in CA GR CV No. 15081 AFFIRMED, with the MODIFICATION that the award for exemplary damages is deleted for want of legal basis, and the amount of unrealized profits awarded is fixed at P480,000.00. No pronouncement as to cost. SO ORDERED.

noticed that the anchor did not take hold. Gavino thereafter gave the full-astern code. Before the right anchor and additional shackles could be dropped, the bow of the vessel rammed into the apron of the pier FAR EASTERN SHIPPING COMPANY, petitioner, vs. COURT OF APPELAS and PHILIPPINE causing considerable damage to the pier. The vessel sustained damage too. (Exhibit 7-Far Eastern PORTS AUTHORITY, respondents. Shipping). Kavankov filed his sea protest (Exhibit1-Vessel). Gavino submitted his report to the Chief Pilot (Exhibit 1-Pilot) who referred the report to the Philippine Ports Authority (Exhibit 2-Pilot) Abellana likewise submitted his report of the incident (Exhibit B). [G.R. No. 130068. October 1, 1998]

[G.R. No. 130150. October 1, 1998]

Per contract and supplemental contract of the Philippine Ports Authority and the contractor for the rehabilitation of the damaged pier, the same cost the Philippine Ports Authority the amount MANILA PILOTS ASSOCIATION, petitioner, vs. PHILIPPINE PORTS AUTHORITY and FAR of P1,126,132.25 (Exhibits D and E).[3] EASTERN SHIPPING COMPANY, respondents. On January 10, 1983, the Philippine Ports Authority (PPA, for brevity), through the Solicitor General, filed before the Regional Trial Court of Manila, Branch 39, a complaint for a sum of money DECISION against Far Eastern Shipping Co., Capt. Senen C. Gavino and the Manila Pilots Association, docketed as REGALADO, J.: Civil Case No. 83-14958,[4] praying that the defendants therein be held jointly and severally liable to pay the plaintiff actual and exemplary damages plus costs of suit. In a decision dated August 1, 1985, the trial These consolidated petitions for review on certiorari seek in unison to annul and set aside the court ordered the defendants therein jointly and severally to pay the PPA the amount of P1,053,300.00 decision[1] of respondent Court of Appeals of November 15, 1996 and its resolution[2] dated July 31, 1997 representing actual damages and the cost of suit.[5] in CA-G.R. CV No. 24072, entitled Philippine Ports Authority, Plaintiff-Appellee vs. Far Eastern Shipping Company, Senen C. Gavino and Manila Pilots Association. Defendants-Appellants, which affirmed with The defendants appealed to the Court of Appeals and raised the following issues: (1) Is the pilot of modification the judgment of the trial court holding the defendants-appellants therein solidarily liable for a commercial vessel, under compulsory pilotage, solely liable for the damage caused by the vessel to the damages in favor of herein private respondent. pier, at the port of destination, for his negligence? And (2) Would the owner of the vessel be liable likewise if the damage is caused by the concurrent negligence of the master of vessel and the pilot under a There is no dispute about the facts as found by the appellate court, thus -compulsory pilotage? x x x On June 20, 1980, the M/V PAVLODAR, flying under the flagship of the USSR, owned and operated by the Far Eastern Shipping Company (FESC for brevitys sake), arrived at the Port of Manila from Vancouver, British Columbia at about 7:00 oclock in the morning. The vessel was assigned Berth 4 of the Manila International Port, as its berthing space. Captain Roberto Abellana was tasked by the Philippine Port Authority to supervise the berthing of the vessel. Appellant Senen Gavino was assigned by the appellant Manila Pilots Association (MPA for brevitys sake) to conduct docking maneuvers for the safe berthing of the vessel to Berth No. 4.

As stated at the outset, respondent appellate court affirmed the findings of the court a quo except that it found no employer-employee relationship existing between herein private respondents Manila Pilots Association (MPA, for short) and Capt. Gavino.[6] This being so, it ruled instead that the liability of MPA is anchored, not on Article 2180 of the Civil Code, but on the provisions of Customs Administrative Order No. 15-65,[7] and accordingly modified said decision of the trial court by holding MPA, along with its codefendants therein, still solidarily liable to PPA but entitled MPA to reimbursement from Capt. Gavino for such amount of the adjudged pecuniary liability in excess of the amount equivalent to seventy-five percent (75%) of its prescribed reserve fund.[8]

Gavino boarded the vessel at the quarantine anchorage and stationed himself in the bridge, with the master of the vessel, Victor Kavankov, beside him. After a briefing of Gavino by Kavankov of the particulars of the vessel and its cargo, the vessel lifted anchor from the quarantine anchorage and proceeded to the Manila International Port. The sea was calm and the wind was ideal for docking maneuvers.

Neither Far Eastern Shipping Co. (briefly, FESC) nor MPA was happy with the decision of the Court of Appeals and both of them elevated their respective plaints to us via separate petitions for review on certiorari.

When the vessel reached the landmark (the big church by the Tondo North Harbor) one-half mile from the pier, Gavino ordered the engine stopped. When the vessel was already about 2,000 feet from the pier, Gavino ordered the anchor dropped. Kavankov relayed the orders to the crew of the vessel on the bow. The left anchor, with two (2) shackles were dropped. However, the anchor did not take hold as expected. The speed of the vessel did not slacken. A commotion ensued between the crew members. A brief conference ensued between Kavankov and the crew members. When Gavino inquired what was all the commotion about, Kavankov assured Gavino that there was nothing of it. After Gavino noticed that the anchor did not take hold, he ordered the engines half-astern. Abellana, who was then on the pier apron, noticed that the vessel was approaching the pier fast. Kavankov likewise

In G.R. No. 130068, which was assigned to the Second Division of this Court, FESC imputed that the Court of Appeals seriously erred: 1. in not holding Senen C. Gavino and the Manila Pilots Association as the parties solely responsible for the resulting damages sustained by the pier deliberately ignoring the established jurisprudence on the matter. 2. in holding that the master had not exercised the required diligence demanded from him by the circumstances at the time the incident happened; 3. in affirming the amount of damages sustained by the respondent Philippine Ports Authority despite a strong and convincing evidence that the amount is clearly exorbitant and unreasonable;

4. in not awarding any amount of counterclaim prayed for by the petitioner in its answer; and 5. in not granting herein petitioner's claim against pilot Senen C. Gavino and Manila Pilots' Association in the event that it be held liable.[9]

On the other hand, public respondent PPA, likewise through representations by the Solicitor General, assumes the same supportive stance it took in G.R. No. 130068 in declaring its total accord with the ruling of the Court of Appeals that MPA is solidarily liable with Capt. Gavino and FESC for damages, and in its application to the fullest extent of the provisions of Customs Administrative Order No. 15-65 in relation to MPA's constitution and by-laws which spell out the conditions of and govern their respective liabilities. These provisions are clear and ambiguous as regards MPA's liability without need for interpretation or construction. Although Customs Administrative Order No. 15-65 is a mere regulation issued by an administrative agency pursuant to delegated legislative authority to fix details to implement the law, it is legally binding and has the same statutory force as any valid statute. [16]

Petitioner asserts that since the MV PAVLODAR was under compulsory pilotage at the time of the incident, it was a compulsory pilot, Capt. Gavino, who was in command and had complete control in the navigation and docking of the vessel. It is the pilot who supersedes the master for the time being in the command and navigation of a ship and his orders must be obeyed in all respects connected with her navigation. Consequently, he was solely responsible for the damage caused upon the pier apron, and not Upon motion[17] by FESC dated April 24, 1998 in G.R. No. 130150, said case was consolidated with the owners of the vessel. It claims that the master of the boat did not commit any act of negligence when G.R. No. 130068.[18] he failed to countermand or overrule the orders of the pilot because he did not see any justifiable reason to do so. In other words, the master cannot be faulted for relying absolutely on the competence of the Prefatorily, on matters of compliance with procedural requirements, it must be mentioned that the compulsory pilot. If the master does not observe that a compulsory pilot is incompetent or physically conduct of the respective counsel for FESC and PPA leaves much to be desired, to the displeasure and [10] incapacitated, the master is justified in relying on the pilot. disappointment of this Court. Respondent PPA, in its comment, predictably in full agreement with the ruling of respondent court on the solidary liability of FESC, MPA and Capt. Gavino, stresses the concurrent negligence of Capt. Gavino, the harbor pilot, and Capt. Viktor Kabankov, *shipmaster of MV Pavlodar, as the basis of their solidary liability for damages sustained by PPA. It posits that the vessel was being piloted by Capt. Gavino with Capt. Kabankov beside him all the while on the bridge of the vessel, as the former took over the helm of MV Pavlodar when it rammed and damaged the apron of the pier of Berth No. 4 of the Manila International Port. Their concurrent negligence was the immediate and proximate cause of the collision between the vessel and the pier - Capt. Gavino, for his negligence in the conduct of docking maneuvers for the safe berthing of the vessel; and Capt. Kabankov, for failing to countermand the orders of the harbor pilot and to take over and steer the vessel himself in the face of imminent danger, as well as for merely relying on Capt. Gavino during the berthing procedure.[11] On the other hand, in G.R. No. 130150, originally assigned to the Court's First Division and later transferred to the Third Division, MPA, now as petitioner in this case, avers the respondent court's errors consisted in disregarding and misinterpreting Customs Administrative Order No. 15-65 which limits the liability of MPA. Said pilots' association asseverates that it should not be held solidarily liable with Capt. Gavino who, as held by respondent court, is only a member, not an employee, thereof. There being no employer-employee relationship, neither can MPA be held liable for any vicarious liability for the respective exercise of profession by its members nor be considered a joint tortfeasor as to be held jointly and severally liable.[12] It further argues that there was erroneous reliance on Customs Administrative Order No. 15-65 and the constitution and by-laws of MPA, instead of the provisions of the Civil Code on damages which, being a substantive law, is higher in category than the aforesaid constitution and by-laws of a professional organization or an administrative order which bears no provision classifying the nature of the liability of MPA for the negligence its member pilots.[13]

Section 2, Rule 42 of the 1997 Rules of Civil Procedure[19] incorporates the former Circular No. 2891 which provided for what has come to be known as the certification against forum shopping as an additional requisite for petitions filed with the Supreme Court and the Court of Appeals, aside from the other requirements contained in pertinent provisions of the Rules of Court therefor, with the end in view of preventing the filing of multiple complaints involving the same issues in the Supreme Court, Court of Appeals or different divisions thereof or any other tribunal or agency. More particularly, the second paragraph of Section 2, Rule 42 provides: xxxxxxxxx The petitioner shall also submit together with the petition a certification under oath that he has not therefore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. (Italics supplied.) For petitions for review filed before the Supreme Court, Section 4(e), Rule 45 specifically requires that such petition shall contain a sworn certification against forum shopping as provided in the last paragraph of Section 2, Rule 42. The records show that the law firm of Del Rosario and Del Rosario through its associate, Atty. Herbert A. Tria, is the counsel of record for FESC in both G.R. No. 130068 and G.R. No. 130150.

As for Capt. Gavino, counsel for MPA states that the former had retired from active pilotage services G.R. No. 130068, which is assigned to the Court's Second Division, commenced with the filing by since July 28, 1994 and has ceased to be a member of petitioner pilots' association. He is not joined as a [14] FESC through counsel on August 22, 1997 of a verified motion for extension of time to file its petition for petitioner in this case since his whereabouts are unknown. thirty (30) days from August 28, 1997 or until September 27, 1997.[20] Said motion contained the following FESC's comment thereto relied on the competence of the Court of Appeals in construing provisions certification against forum shopping[21] signed by Atty. Herbert A. Tria as affiant: of law or administrative orders as basis for ascertaining the liability of MPA, and expressed full accord CERTIFICATION with the appellate court's holding of solidary liability among itself, MPA and Capt. Gavino. It further avers AGAINST FORUM SHOPPING that the disputed provisions of Customs Administrative Order No. 15-65 clearly established MPA's solidary liability.[15]

I/we hereby certify that I/we have not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; that to the best of my own knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or any other tribunal or agency; that if I/we should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency, I/we undertake to report that fact within five (5) days therefrom to this Honorable Court. This motion having been granted, FESC subsequently filed its petition on September 26, 1997, this time bearing a "verification and certification against forum-shopping" executed by one Teodoro P. Lopez on September 24, 1997,[22] to wit: VERIFICATION AND CERTIFICATION AGAINST FORUM SHOPPING in compliance with Section 4(e), Rule 45 in relation to Section 2, Rule 42 of the Revised Rules of Civil Procedure I, Teodoro P. Lopez, of legal age, after being duly sworn, depose and state: 1. That I am the Manager, Claims Department of Filsov Shipping Company, the local agent of petitioner in this case. 2. That I have caused the preparation of this Petition for Review on Certiorari.

Inasmuch as MPA's petition in G.R. No. 130150 was posted by registered mail on August 29, 1997 and taking judicial notice of the average period of time it takes local mail to reach its destination, by reasonable estimation it would be fair to conclude that when FESC filed its petition in G.R. No. 130068 on September 26, 1997, it would already have received a copy of the former and would then have knowledge of the pendency of the other petition initially filed with the First Division. It was therefore incumbent upon FESC to inform the Court of that fact through its certification against forum shopping. For failure to make such disclosure, it would appear that the aforequoted certification accompanying the petition in G.R. No. 130068 is defective and could have been a ground for dismissal thereof. Even assuming that FESC has not yet received its copy of MPA's petition at the time it filed its own petition and executed said certification, its signatory did state "that if I should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or any other tribunal or agency, I undertake to report the fact within five (5) days therefrom in this Honorable Court."[25] Scouring the records page by page in this case, we find that no manifestation concordant with such undertaking was then or at any other time thereafter ever filed by FESC nor was there any attempt to bring such matter to the attention of the Court. Moreover, it cannot feign non-knowledge of the existence of such other petition because FESC itself filed the motion for consolidation in G.R. No. 130150 of these two cases on April 24, 1998. It is disturbing to note that counsel for FESC, the law firm of Del Rosario and Del Rosario, displays an unprofessional tendency of taking the Rules for granted, in this instance exemplified by its pro forma compliance therewith but apparently without full comprehension of and with less than faithful commitment to its undertakings to this Court in the interest of just, speedy and orderly administration of court proceedings.

As between the lawyer and the courts, a lawyer owes candor, fairness and good faith to the court.[26] He is an officer of the court exercising a privilege which is indispensable in the administration of justice.[27] Candidness, especially towards the courts, is essential for the expeditious administration of justice. Courts are entitled to expect only complete honesty from lawyers appearing and pleading before them.[28] Candor in all dealings is the very essence of honorable membership in the legal 4. That I certify that petitioner has not commenced any other action or proceeding involving the same profession.[29] More specifically, a lawyer is obliged to observe the rules of procedure and not to misuse issues in the Supreme Court or Court of Appeals, or any other tribunal or agency, that to the best of my them to defeat the ends of justice.[30] It behooves a lawyer, therefore, to exert every effort and consider it own knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals or his duty to assist in the speedy and efficient administration of justice.[31] Being an officer of the court, a any other tribunal or agency, that I should thereafter learn that a similar action or proceeding has been lawyer has a responsibility in the proper administration of justice. Like the court itself, he is an instrument filed or is pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency, I to advance its ends -- the speedy, efficient, impartial, correct and inexpensive adjudication of cases and the undertake to report the fact within five (5) days therefrom to this Honorable Court. (Italics supplied for prompt satisfaction of final judgments. A lawyer should not only help attain these objectives but should emphasis.) likewise avoid any unethical or improper practices that impede, obstruct or prevent their realization, Reviewing the records, we find that the petition filed by MPA in G.R. No. 130150 then pending with charged as he is with the primary task of assisting in the speedy and efficient administration of justice. [32] the Third Division was duly filed on August 29, 1997 with a copy thereof furnished on the same date by Sad to say, the members of said law firm sorely failed to observe their duties as responsible members registered mail to counsel for FESC.[23] Counsel of record for MPA, Atty. Jesus P. Amparo, in his of the Bar. Their actuations are indicative of their predisposition to take lightly the avowed duties of verification accompanying said petition dutifully revealed to the Court that-officers of the Court to promote respect for law and for legal processes.[33] We cannot allow this state of things to pass judicial muster. xxxxxxxxx 3. That I have read the same and the allegations therein contained are true and correct based on the records of this case.

3. Petitioner has not commenced any other action or proceeding involving the same issues in his Honorable Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, but to the best of his knowledge, there is an action or proceeding pending in this Honorable Court, entitled Far Eastern Shipping Co., Petitioner, vs. Philippine Ports Authority and Court of Appeals with a Motion for Extension of time to file Petition for Review by Certiorari filed sometime on August 18, 1997. If undersigned counsel will come to know of any other pending action or claim filed or pending he undertakes to report such fact within five (5) days to this Honorable Court.[24] (Italics supplied.)

In view of the fact that at around the time these petitions were commenced, the 1997 Rules of Civil Procedure had just taken effect, the Court treated infractions of the new Rules then with relative liberality in evaluating full compliance therewith. Nevertheless, it would do well to remind all concerned that the penal provisions of Circular No. 28-91 which remain operative provides, inter alia: 3. Penalties.xxxxxxxxx

(c) The submission of a false certification under Par. 2 of the Circular shall likewise constitute contempt of court, without prejudice to the filing of criminal action against the guilty party. The lawyer may also be subjected to disciplinary proceedings. It must be stressed that the certification against forum shopping ordained under the Rules is to be executed by the petitioner, and not by counsel. Obviously it is the petitioner, and not always the counsel whose professional services have been retained for a particular case, who is in the best position to know whether he or it actually filed or caused the filing of a petition in that case. Hence, a certification against forum shopping by counsel is a defective certification. It is clearly equivalent to non-compliance with the requirement under Section 2, Rule 42 in relation to Section 4, Rule 45, and constitutes a valid cause for dismissal of the petition. Hence, the initial certification appended to the motion for extension of time to file petition n G.R. No. 130068 executed in behalf of FESC by Atty. Tria is procedurally deficient. But considering that it was a superfluity at that stage of the proceeding, it being unnecessary to file such a certification with a mere motion for extension, we shall disregard such error. Besides, the certification subsequently executed by Teodoro P. Lopez in behalf of FESC cures that defect to a certain extent, despite the inaccuracies earlier pointed out. In the same vein, we shall consider the verification signed in behalf of MPA by its counsel, Atty. Amparo, in G.R. No. 130150 as substantial compliance inasmuch as it served the purpose of the Rules of informing the Court of the pendency of another action or proceeding involving the same issues.

background of the case and if only to make its job easier by having to prepare and file only one comment. It could not have been unaware of the pendency of one or the other petition because, being counsel for respondent in both cases, petitioner is required to furnish it with a copy of the petition under pain of dismissal of the petition for failure otherwise.[40] Besides, in G.R. 130068, it prefaces its discussions thus -Incidentally, the Manila Pilots' Association (MPA), one of the defendants-appellants in the case before the respondent Court of Appeals, has taken a separate appeal from the said decision to this Honorable Court, which was docketed as G.R. No. 130150 and entitled "Manila Pilots' Association, Petitioner, versus Philippine Ports Authority and Far Eastern Shipping Co., Respondents.[41] Similarly, in G.R. No. 130150, it states Incidentally, respondent Far Eastern Shipping Co. (FESC) had also taken an appeal from the said decision to this Honorable Court, docketed as G.R. No. 130068, entitled "Far Eastern Shipping Co. vs. Court of Appeals and Philippine Ports Authority."[42] We find here a lackadaisical attitude and complacency on the part of the OSG in the handling of its cases and an almost reflexive propensity to move for countless extensions, as if to test the patience of the Court, before favoring it with the timely submission of required pleadings.

It bears stressing that procedural rules are instruments in the speedy and efficient administration of justice. They should be used to achieve such end and not to derail it.[34]

It must be emphasized that the Court can resolve cases only as fast as the respective parties in a case file the necessary pleadings. The OSG, be needlessly extending the pendency of these cases through its Counsel for PPA did not make matters any better. Despite the fact that, save for the Solicitor General numerous motions for extension, came very close to exhausting this Court's forbearance and has regrettably at the time, the same legal team of the Office of the Solicitor General (OSG, for short) composed of fallen short of its duties as the People's Tribune. Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, with the addition of The OSG is reminded that just like other members of the Bar, the canons under the Code of Assistant Solicitor General Pio C. Guerrero very much later in the proceedings, represented PPA Professional Responsibility apply with equal force on lawyers in government service in the discharge of throughout the appellate proceedings in both G.R. No. 130068 and G.R. No. 130150 and was presumably [43] fully acquainted with the facts and issues of the case, it took the OSG an inordinately and almost their official tasks. These ethical duties are rendered even more exacting as to them because, as government counsel, they have the added duty to abide by the policy of the State to promote a high standard unreasonably long period of time to file its comment, thus unduly delaying the resolution of these cases. It [44] Furthermore, it is incumbent upon the OSG, as part of the government of ethics in public service. took several changes of leadership in the OSG -- from Silvestre H. Bello III to Romeo C. dela Cruz and, bureaucracy, to perform and discharge its duties with the highest degree of professionalism, intelligence finally, Ricardo P. Galvez -- before the comment in behalf of PPA was finally filed. and skill[45] and to extend prompt, courteous and adequate service to the public.[46] In G.R. No. 130068, it took eight (8) motions for extension of time totaling 210 days, a warning that Now, on the merits of the case. After a judicious examination of the records of this case, the pleadings no further extensions shall be granted, and personal service on the Solicitor General himself of the filed, and the evidence presented by the parties in the two petitions, we find no cogent reason to reverse resolution requiring the filing of such comment before the OSG indulged the Court with the long required comment on July 10, 1998.[35] This, despite the fact that said office was required to file its comment way and set aside the questioned decision. While not entirely a case of first impression, we shall discuss the back on November 12, 1997.[36] A closer scrutiny of the records likewise indicates that petitioner FESC issues seriatim and, correlatively by way of a judicial once-over, inasmuch as the matters raised in both was not even furnished a copy of said comment as required by Section 5, Rule 42. Instead, a copy thereof petitions beg for validation and updating of well worn maritime jurisprudence. Thereby, we shall was inadvertently furnished to MPA which, from the point of view of G.R. No. 130068, was a non- write finis to the endless finger-pointing in this shipping mishap which has been stretched beyond the limits party.[37] The OSG fared slightly better in G.R. No. 130150 in that it took only six (6) extensions, or a total of judicial tolerance. of 180 days, before the comment was finally filed.[38] And while it properly furnished petitioner MPA with The Port of Manila is within the Manila Pilotage District which is under compulsory pilotage a copy of its comment, it would have been more desirable and expedient in this case to have furnished its pursuant to Section 8, Article III of Philippine Ports Authority Administrative Order No. 03-85,[47] which therein co-respondent FESC with a copy thereof, if only as a matter of professional courtesy. [39] provides that: This undeniably dilatory disinclination of the OSG to seasonably file required pleadings constitutes deplorable disservice to the tax-paying public and can only be categorized as censurable inefficiency on SEC. 8. Compulsory Pilotage Service.- For entering a harbor and anchoring thereat, or passing through rivers or straits within a pilotage district, as well as docking and undocking at any pier/wharf, or shifting the part of the government law office. This is most certainly professionally unbecoming of the OSG. from one berth or another, every vessel engaged in coastwise and foreign trade shall be under Another thing that baffles the Court is why the OSG did not take the initiative of filing a motion for compulsory pilotage. x x x consolidation in either G.R. No. 130068 or G.R. No. 130150, considering its familiarity with the

In case of compulsory pilotage, the respective duties and responsibilities of the compulsory pilot and the master have been specified by the same regulation in this wise: SEC. 11. Control of vessels and liability for damage. - On compulsory pilotage grounds, the Harbor Pilot, providing the service to a vessel shall be responsible for the damage caused to a vessel or to life and property at ports due to his negligence or fault. He can only be absolved from liability if the accident is caused by force majeure or natural calamities provided he has exercised prudence and extra diligence to prevent or minimize damage. The Master shall retain overall command of the vessel even on pilotage grounds whereby he can countermand or overrule the order or command of the Harbor Pilot on board. In such event, any damage caused to a vessel or to life and property at ports by reason of the fault or negligence of the Master shall be the responsibility and liability of the registered owner of the vessel concerned without prejudice to recourse against said Master.

We start our discussion of the successive issues bearing in mind the evidentiary rule in American jurisprudence that there is a presumption of fault against a moving vessel that strikes a stationary object such as a dock or navigational aid. In admiralty, this presumption does more than merely require the ship to go forward and produce some evidence on the presumptive matter. The moving vessel must show that it was without fault or that the collision was occasioned by the fault of the stationary object or was the result of inevitable accident. It has been held that such vessel must exhaust every reasonable possibility which the circumstances admit and show that in each, they did all that reasonable care required.[50] In the absence of sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides with a fixed object and makes a prima facie case of fault against the vessel.[51] Logic and experience support this presumption:

Such liability of the owner or Master of the vessel or its pilots shall be determined by competent authority in appropriate proceedings in the light of the facts and circumstances of each particular case.

The common sense behind the rule makes the burden a heavy one. Such accidents simply do not occur in the ordinary course of things unless the vessel has been mismanaged in some way. It is not sufficient for the respondent to produce witnesses who testify that as soon as the danger became apparent everything possible was done to avoid an accident. The question remains, How then did the collision occur? The answer must be either that, in spite of the testimony of the witnesses, what was done was too little or too late or, if not, then the vessel was at fault for being in a position in which an unavoidable collision would occur.[52]

SEC. 32. Duties and responsibilities of the Pilot or Pilots' Association. - The duties and responsibilities of the Harbor Pilot shall be as follows:

The task, therefore, in these cases is to pinpoint who was negligent - the master of the ship, the harbor pilot or both.

xxxxxxxxx f) a pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a pilot thereof until he leaves it anchored or berthed safely; Provided, however, that his responsibility shall cease at the moment the Master neglects or refuses to carry out his order.

A pilot, in maritime law, is a person duly qualified, and licensed, to conduct a vessel into or out of ports, or in certain waters. In a broad sense, the term "pilot" includes both (1) those whose duty it is to guide vessels into or out of ports, or in particular waters and (2) those entrusted with the navigation of vessels on the high seas.[53] However, the term "pilot" is more generally understood as a person taken on board at a particular place for the purpose of conducting a ship through a river, road or channel, or from a port.[54]

Customs Administrative Order No. 15-65 issued twenty years earlier likewise provided in Chapter I Under English and American authorities, generally speaking, the pilot supersedes the master for the thereof for the responsibilities of pilots: time being in the command and navigation of the ship, and his orders must be obeyed in all matters connected with her navigation. He becomes the master pro hac vice and should give all directions as to speed, course, stopping and reversing, anchoring, towing and the like. And when a licensed pilot is Par. XXXIX. - A Pilot shall be held responsible for the direction of a vessel from the time he assumes control thereof until he leaves it anchored free from shoal; Provided, That his responsibility shall cease at employed in a place where pilotage is compulsory, it is his duty to insist on having effective control of the vessel, or to decline to act as pilot. Under certain systems of foreign law, the pilot does not take entire the moment the master neglects or refuses to carry out his instructions. charge of the vessel, but is deemed merely the adviser of the master, who retains command and control of xxxxxxxxx the navigation even on localities where pilotage is compulsory. [55] Par. XLIV. - Pilots shall properly and safely secure or anchor vessels under their control when requested to do so by the master of such vessels. I. G.R. No. 130068

It is quite common for states and localities to provide for compulsory pilotage, and safety laws have been enacted requiring vessels approaching their ports, with certain exceptions, to take on board pilots duly licensed under local law. The purpose of these laws is to create a body of seamen thoroughly acquainted with the harbor, to pilot vessels seeking to enter or depart, and thus protect life and property from the dangers of navigation.[56]

Petitioner FESC faults the respondent court with serious error in not holding MPA and Capt. Gavino In line with such established doctrines, Chapter II of Customs Administrative Order No. 15-65 solely responsible for the damages caused to the pier. It avers that since the vessel was under compulsory pilotage at the time with Capt. Gavino in command and having exclusive control of the vessel during the prescribes the rules of compulsory pilotage in the covered pilotage districts, among which is the Manila docking maneuvers, then the latter should be responsible for damages caused to the pier.[48] It likewise Pilotage District, viz. -holds the appellate court in error for holding that the master of the ship, Capt. Kabankov, did not exercise the required diligence demanded by the circumstances.[49] PARAGRAPH I. - Pilotage for entering a harbor and anchoring thereat, as well as docking and undocking in any pier or shifting from one berth to another shall be compulsory, except Government vessels and vessels of foreign governments entitled to courtesy, and other vessels engaged solely in river

or harbor work, or in a daily ferry service between ports which shall be exempt from compulsory pilotage provisions of these regulations: provided, however, that compulsory pilotage shall not apply in pilotage districts whose optional pilotage is allowed under these regulations.

Q By that testimony, you are leading the Court to understand that is that anchor was released immediately at the time you gave the order, the incident would not have happened. Is that correct?

Pursuant thereto, Capt. Gavino was assigned to pilot MV Pavlodar into Berth 4 of the Manila International Port. Upon assuming such office as compulsory pilot, Capt. Gavino is held to the universally accepted high standards of care and diligence required of a pilot, whereby he assumes to have skill and knowledge in respect to navigation in the particular waters over which his license extends superior to and more to be trusted than that of the master.[57] A pilot should have a thorough knowledge of general and local regulations and physical conditions affecting the vessel in his charge and the waters for which he is licensed, such as a particular harbor or river. He is not held to the highest possible degree of skill and care, but must have and exercise the ordinary skill and care demanded by the circumstances, and usually shown by an expert in his profession. Under extraordinary circumstances, a pilot must exercise extraordinary care.[58]

A Yes, sir, but actually it was only a presumption on my part because there was a commotion between the officers who are in charge of the dropping of the anchor and the captain. I could not understand their language, it was in Russian, so I presumed the anchor was not dropped on time.

In Atlee vs. The Northwestern Union Packet Company,[59] Mr. Justice Miller spelled out in great detail the duties of a pilot: x x x (T)he pilot of a river steamer, like the harbor pilot, is selected for his personal knowledge of the topography through which he steers his vessel. In the long course of a thousand miles in one of these rivers, he must be familiar with the appearance of the shore on each side of the river as he goes along. Its banks, towns, its landings, its houses and trees, are all landmarks by which he steers his vessel. The compass is of little use to him. He must know where the navigable channel is, in its relation to all these external objects, especially in the night. He must also be familiar with all dangers that are permanently located in the course of the river, as sand-bars, snags, sunken rocks or trees or abandoned vessels or barges. All this he must know and remember and avoid. To do this, he must be constantly informed of the changes in the current of the river, of the sand-bars newly made, of logs or snags, or other objects newly presented, against which his vessel might be injured. xxxxxxxxx It may be said that this is exacting a very high order of ability in a pilot. But when we consider the value of the lives and property committed to their control, for in this they are absolute masters, the high compensation they receive, the care which Congress has taken to secure by rigid and frequent examinations and renewal of licenses, this very class of skill, we do not think we fix the standard too high.

Q So, you are not sure whether it was really dropped on time or not? A I am not sure, your Honor. xxxxxxxxx Q You are not even sure what could have caused the incident. What factor could have caused the incident? A Well, in this case now, because either the anchor was not dropped on time or the anchor did not hold, that was the cause of the incident, your Honor.[60] It is disconcertingly riddled with too much incertitude and manifests a seeming indifference for the possibly injurious consequences his commands as pilot may have. Prudence required that he, as pilot, should have made sure that his directions were promptly and strictly followed. As correctly noted by the trial court Moreover, assuming that he did indeed give the command to drop the anchor on time, as pilot he should have seen to it that the order was carried out, and he could have done this in a number of ways, one of which was to inspect the bow of the vessel where the anchor mechanism was installed. Of course, Captain Gavino makes reference to a commotion among the crew members which supposedly caused the delay in the execution of the command. This account was reflected in the pilot's report prepared four hours later, but Capt. Kavankov, while not admitting whether or not such a commotion occurred, maintained that the command to drop anchor was followed "immediately and precisely." Hence, the Court cannot give much weight or consideration to this portion of Gavino's testimony."[61] An act may be negligent if it is done without the competence that a reasonable person in the position of the actor would recognize as necessary to prevent it from creating an unreasonable risk of harm to another.[62] Those who undertake any work calling for special skills are required not only to exercise reasonable care in what they do but also possess a standard minimum of special knowledge and ability. [63]

Tested thereby, we affirm respondent court's finding that Capt. Gavino failed to measure up to such Every man who offers his services to another, and is employed, assumes to exercise in the strict standard of care and diligence required of pilots in the performance of their duties. Witness this employment such skills he possesses, with a reasonable degree of diligence. In all these employments testimony of Capt. Gavino: where peculiar skill is requisite, if one offers his services he is understood as holding himself out to the public as possessing the degree of skill commonly possessed by others in the same employment, and if his Court: pretensions are unfounded he commits a species of fraud on every man who employs him in reliance on [64] You have testified before that the reason why the vessel bumped the pier was because the anchor his public profession. was not released immediately or as soon as you have given the order. Do you remember having Furthermore, there is an obligation on all persons to take the care which, under ordinary stated that? circumstances of the case, a reasonable and prudent man would take, and the omission of that care A Yes, your Honor. Q And you gave this order to the captain of the vessel? A Yes, your Honor.

constitutes negligence.[65] Generally, the degree of care required is graduated according to the danger a person or property attendant upon the activity which the actor pursues or the instrumentality which he uses. The greater the danger the greater the degree of care required. What is ordinary under extraordinary of conditions is dictated by those conditions; extraordinary risk demands extraordinary care. Similarly, the more imminent the danger, the higher the degree of care. [66]

We give our imprimatur to the bases for the conclusion of the Court of Appeals that Capt. Gavino was indeed negligent in the performance of his duties: xxxxxxxxx x x x As can be gleaned from the logbook, Gavino ordered the left anchor and two (2) shackles dropped at 8:30 o'clock in the morning. He ordered the engines of the vessel stopped at 8:31 o'clock. By then, Gavino must have realized that the anchor did not hit a hard object and was not clawed so as to reduce the momentum of the vessel. In point of fact, the vessel continued travelling towards the pier at the same speed. Gavino failed to react. At 8:32 o'clock, the two (2) tugboats began to push the stern part of the vessel from the port side but the momentum of the vessel was not contained. Still, Gavino did not react. He did not even order the other anchor and two (2) more shackles dropped to arrest the momentum of the vessel. Neither did he order full-astern. It was only at 8:34 o'clock, or four (4) minutes, after the anchor was dropped that Gavino reacted. But his reaction was even (haphazard) because instead of arresting fully the momentum of the vessel with the help of the tugboats, Gavino ordered merely "halfastern". It took Gavino another minute to order a "full-astern". By then, it was too late. The vessel's momentum could no longer be arrested and, barely a minute thereafter, the bow of the vessel hit the apron of the pier. Patently, Gavino miscalculated. He failed to react and undertake adequate measures to arrest fully the momentum of the vessel after the anchor failed to claw to the seabed. When he reacted, the same was even (haphazard). Gavino failed to reckon the bulk of the vessel, its size and its cargo. He erroneously believed that only one (1) anchor would suffice and even when the anchor failed to claw into the seabed or against a hard object in the seabed, Gavino failed to order the other anchor dropped immediately. His claim that the anchor was dropped when the vessel was only 1,000 feet from the pier is but a belated attempt to extricate himself from the quagmire of his own insouciance and negligence. In sum, then, Appellants' claim that the incident was caused by "force majeure" is barren of factual basis. xxxxxxxxx The harbor pilots are especially trained for this job. In the Philippines, one may not be a harbor pilot unless he passed the required examination and training conducted then by the Bureau of Custom, under Customs Administrative Order No. 15-65, now under the Philippine Ports Authority under PPA Administrative Order 63-85. Paragraph XXXIX of the Customs Administrative Order No. 15-65 provides that "the pilot shall be held responsible for the direction of the vessel from the time he assumes control thereof, until he leaves it anchored free from shoal: Provided, that his responsibility shall cease at the moment the master neglects or refuse(s) to carry out his instructions." The overall direction regarding the procedure for docking and undocking the vessel emanates from the harbor pilot. In the present recourse, Gavino failed to live up to his responsibilities and exercise reasonable care or that degree of care required by the exigencies of the occasion. Failure on his part to exercise the degree of care demanded by the circumstances is negligence (Reese versus Philadelphia & RR Co. 239 US 463, 60 L ed. 384, 57 Am Jur. 2d 12age 418).[67] This affirms the findings of the trial court regarding Capt. Gavino's negligence: This discussion should not however, divert the court from the fact that negligence in manuevering the vessel must be attributed to Capt. Senen Gavino. He was an experienced pilot and by this time should have long familiarized himself with the depth of the port and the distance he could keep between the vessel and port in order to berth safely.[68]

The negligence on the part of Capt. Gavino is evident; but Capt. Kabankov is no less responsible for the allision. His unconcerned lethargy as master of the ship in the face of troublous exigence constitutes negligence. While it is indubitable that in exercising his functions a pilot-is in sole command of the ship[69] and supersedes the master for the time being in the command and navigation of a ship and that he becomes master pro hac vice of a vessel piloted by him,[70] there is overwhelming authority to the effect that the master does not surrender his vessel to the pilot and the pilot is not the master. The master is still in command of the vessel notwithstanding the presence of a pilot. There are occasions when the master may and should interfere and even displace the pilot, as when the pilot is obviously incompetent or intoxicated and the circumstances may require the master to displace a compulsory pilot because of incompetency or physical incapacity. If, however, the master does not observe that a compulsory pilot is incompetent or physically incapacitated, the master is justified in relying on the pilot, but not blindly.[71] The master is not wholly absolved from his duties while a pilot is on board his vessel, and may advise with or offer suggestions to him. He is still in command of the vessel, except so far as her navigation is concerned, and must cause the ordinary work of the vessel to be properly carried on and the usual precaution taken. Thus, in particular, he is bound to see that there is sufficient watch on deck, and that the men are attentive to their duties, also that engines are stopped, towlines cast off, and the anchors clear and ready to go at the pilot's order.[72] A perusal of Capt. Kabankov's testimony makes it apparent that he was remiss in the discharge of his duties as master of the ship, leaving the entire docking procedure up to the pilot, instead of maintaining watchful vigilance over this risky maneuver: Q Will you please tell us whether you have the right to intervene in docking of your ship in the harbor? A No sir, I have no right to intervene in time of docking, only in case there is imminent danger to the vessel and to the pier. Q Did you ever intervene during the time that your ship was being docked by Capt. Gavino? A No sir, I did not intervene at the time when the pilot was docking my ship. Q Up to the time it was actually docked at the pier, is that correct'? A No sir, I did not intervene up to the very moment when the vessel was docked. xxxxxxxxx Atty. Del Rosario (to the witness) Q Mr. Witness, what happened, if any, or was there anything unusual that happened during the docking? A Yes sir, our ship touched the pier and the pier was damaged. Court (to the witness) Q When you said touched the pier, are you leading the court to understand that your ship bumped the pier? A I believe that my vessel only touched the pier but the impact was very weak. Q Do you know whether the pier was damaged as a result of that slight or weak impact?

A Yes sir, after the pier was damaged. xxxxxxxxx Q Being most concerned with the safety of your vessel, in the maneuvering of your vessel, to the port, did you observe anything irregular in the maneuvering by Capt. Gavino at the time he was trying to cause the vessel to be docked at the pier? A You mean the action of Capt. Gavino or his condition? Court: Q Not the actuation that conform to the safety maneuver of the ship to the harbor? A No sir, it was a usual docking.

Q If you knew that the shackles were not enough to hold the ship, did you not make any protest to the pilot? A No sir, after the incident, that was my assumption. Q Did you come to know later whether that presumption is correct? A I still don't know the ground in the harbor or the depths. Q So from the beginning, you were not competent whether the 2 shackles were also dropped to hold the ship? A No sir, at the beginning, I did not doubt it because I believe Capt. Gavino to be an experienced pilot and he should be more aware as to the depths of the harbor and the ground and I was confident in his actions.

Q By that statement of yours, you are leading the court to understand that there was nothing irregular in the docking of the ship? A Yes sir, during the initial period, of the docking, there was nothing unusual that happened. Q What about in the last portion of the docking of the ship, was there anything unusual or abnormal that happened? A None Your Honor, I believe that Capt. Gavino thought that the anchor could keep or hold the vessel. Q You want us to understand, Mr. Witness, that the dropping of the anchor of the vessel was not timely? A I don't know the depth of this port but I think, if the anchor was dropped earlier and with more shackles, there could not have been an incident.

xxxxxxxxx Solicitor Abad (to the witness) Q Now, you were standing with the pilot on the bridge of the vessel before the incident happened, were you not? A Yes sir, all the time, I was standing with the pilot. Q And so whatever the pilot saw, you could also see from that point of view? A That is right. Q Whatever the pilot can read from the panel of the bridge, you also could read, is that correct? A What is the meaning of panel'?

Q So you could not precisely tell the court that the dropping of the anchor was timely because you are not well aware of the seabed, is that correct?

Q All indications necessary for men on the bridge to be informed of the movements of the ship?

A Yes sir, that, is right.

A That is right. xxxxxxxxx

Q And whatever sound the captain... Capt. Gavino would hear from the bridge, you could also hear?

Q Alright, Capt. Kavankov, did you come to know later whether the anchor held its ground so much so that the vessel could not travel?

A That is right.

A It is difficult for me to say definitely. I believe that the anchor did not hold the ship.

A This command was executed by the third mate and boatswain.

Q You mean you don't know whether the anchor blades stuck to the ground to stop the ship from further moving?

Court (to the witness)

A Yes sir, it is possible. Q What is possible?

Q Mr. Witness, earlier in today's hearing, you said that you did not intervene with the duties of the pilot and that, in your opinion, you can only intervene if the ship is placed in imminent danger, is that correct?

A I think, the 2 shackles were not enough to hold the vessel.

A That is right, I did say that.

Q Did you know that the 2 shackles were dropped?

Q In your observation before the incident actually happened, did you observe whether or not the ship, before the actual incident, the ship was placed in imminent danger?.

A Yes sir, I knew that.

Q Now, you said that when the command to lower the anchor was given, it was obeyed, is that right?

A No sir, I did not observe.

Q By that answer, are you leading the court to understand that because you did not intervene and because you believed that it was your duty to intervene when the vessel is placed in imminent danger to which you did not observe any imminent danger thereof, you have not intervened in any manner to the command of the pilot? A That is right, sir.

Court (to the witness) Q You were in full accord with the steps being taken by Capt. Gavino because you relied on his knowledge, on his familiarity of the seabed and shoals and other surroundings or conditions under the sea, is that correct? A Yes sir, that is right.

xxxxxxxxx

xxxxxxxxx

Q Assuming that you disagreed with the pilot regarding the step being taken by the pilot in maneuvering the vessel. whose command will prevail, in case of imminent danger to the vessel?

Solicitor Abad (to the witness)

A I did not consider the situation as having an imminent danger. I believed that the vessel will dock alongside the pier.

Q And so after the anchors were ordered dropped and they did not take hold of the seabed, you were alerted that there was danger already on hand?

Q You want us to understand that you did not see an imminent danger to your ship, is that what you mean?

A No sir, there was no imminent danger to the vessel.

A Yes sir, up to the very last moment, I believed that there was no imminent danger.

Q Do you mean to tell us that even if the anchor was supposed to take hold of the bottom and it did not, there was no danger to the ship?

Q Because of that, did you ever intervene in the command of the pilot?

A Yes sir, because the anchor dragged on the ground later.

A Yes sir, I did not intervene because I believed that the command of the pilot to be correct.

Q And after a few moments when the anchor should have taken hold the seabed but not done (sic), as you expected, you already were alerted that there was danger to the ship, is that correct?

Solicitor Abad (to the witness) Q As a captain of M/V Pavlodar, you consider docking maneuvers a serious matter, is it not? A Yes sir, that is right.

A Yes sir, I was alerted but there was no danger. Q And you were alerted that somebody was wrong? A Yes sir, I was alerted.

Q Since it affects not only the safety of the port or pier, but also the safety of the vessel and the cargo, is it not?

Q And this alert you assumed was the ordinary alertness that you have for normal docking?

A That is right.

A Yes sir, I mean that it was usual condition of any man in time of docking to be alert.

Q So that, I assume that you were watching Capt. Gavino very closely at the time he was making his commands?

Q And that is the same alertness when the anchor did not hold onto the ground, is that correct?

A I was close to him, I was hearing his command and being executed. Q And that you were also alert for any possible mistakes he might commit in the maneuvering of the vessel?

Q Since, as you said that you agreed all the while with the orders of Capt. Gavino, you also therefore agreed with him in his failure to take necessary precaution against the eventuality that the anchor will not hold as expected?

A Yes sir, that is right.

Atty. Del Rosario:

Q But at no time during the maneuver did you issue order contrary to the orders Capt. Gavino made? A No sir. Q So that you were in full accord with all of Capt. Gavino's orders?

A Yes sir, me and Capt. Gavino (thought) that the anchor will hold the ground.

May I ask that the question ... Solicitor Abad: Never mind, I will reform the question. xxxxxxxxx

A Yes sir. Q Because, otherwise, you would have issued order that would supersede his own order?

Solicitor Abad (to the witness)

A In that case, I should take him away from his command or remove the command from him.

Q Is it not a fact that the vessel bumped the pier? A That is right, it bumped the pier.

Q For the main reason that the anchor of the vessel did not hold the ground as expected? A Yes sir, that is my opinion.

[73]

Further, on redirect examination, Capt. Kabankov fortified his apathetic assessment of the situation: Q Now, after the anchor was dropped, was there any point in time that you felt that the vessel was in imminent danger. A No, at that time, the vessel was not in imminent danger, sir."[74]

Atty. Catris: But in this instance of docking of the MV Pavlodar, do you remember of a time during the course of the docking that the MV Pavlodar was in imminent danger of bumping the pier? A When we were about more than one thousand meters from the pier. I think, the anchor was not holding, so I immediately ordered to push the bow at a fourth quarter, at the back of the vessel in order to swing the bow away from the pier and at the same time, I ordered for a full astern of the engine."[75]

This cavalier appraisal of the event by Capt. Kabankov is disturbingly antipodal to Capt. Gavino's These conflicting reactions can only imply, at the very least, unmindful disregard or, worse, neglectful relinquishment of duty by the shipmaster, tantamount to negligence. anxious assessment of the situation: The findings of the trial court on this aspect is noteworthy: Q When a pilot is on board a vessel, it is the pilot's command which should be followed-at that moment until the vessel is, or goes to port or reaches port? For, while the pilot Gavino may indeed have been charged with the task of docking the vessel in A Yes, your Honor, but it does not take away from the Captain his prerogative to countermand the the berthing space, it is undisputed that the master of the vessel had the corresponding duty to pilot. countermand any of the orders made by the pilot, aid even maneuver the vessel himself, in case of imminent danger to the vessel and the port. Q In what way? A In any case, which he thinks the pilot is not maneuvering correctly, the Captain always has the prerogative to countermand the pilot's order.

In fact, in his testimony, Capt. Kavankov admitted that all throughout the man(eu)vering procedures he did not notice anything was going wrong, and even observed that the order given to drop the anchor, was done at the proper time. He even ventured the opinion that the accident occurred because Q But insofar as competence, efficiency and functional knowledge of the seabed which are vital or the anchor failed to take hold but that this did not alarm him because there was still time to drop a second decisive in the safety (sic) bringing of a vessel to the port, he is not competent? anchor. A Yes, your Honor. That is why they hire a pilot in an advisory capacity, but still, the safety of the vessel rest(s) upon the Captain, the Master of the vessel. Under normal circumstances, the above-mentioned facts would have caused the master of a vessel to take charge of the situation and see to the man(eu)vering of the vessel himself. Instead, Q In this case, there was not a disagreement between you and the Captain of the vessel in the bringing Capt. Kavankov chose to rely blindly upon his pilot, who by this time was proven ill-equipped to cope of the vessel to port? with the situation. A No, your Honor. xxxxxxxxx Court: It is apparent that Gavino was negligent but Far Eastern's employee Capt. Kavankov was no less May proceed. responsible for as master of the vessel he stood by the pilot during the man(eu)vering procedures and was privy to every move the latter made, as well as the vessel's response to each of the commands. His choice Atty. Catris: to rely blindly upon the pilot's skills, to the point that despite being appraised of a notice of alert he In fact, the Master of the vessel testified here that he was all along in conformity with the orders continued to relinquish control of the vessel to Gavino, shows indubitably that he was not performing his you gave to him, and, as matter of fact, as he said, he obeyed all your orders. Can you tell, if in duties with the diligence required of him and therefore may be charged with negligence along with the course of giving such normal orders for the saf(e) docking of the MV Pavlodar, do you defendant Gavino.[76] remember of any instance that the Master of the vessel did not obey your command for the safety As correctly affirmed by the Court of Appeals docking of the MV Pavlodar? Atty. del Rosario:

We are in full accord with the findings and disquisitions of the Court a quo.

Already answered, he already said yes sir. In the present recourse, Captain Viktor Kavankov had been a mariner for thirty-two years before the incident. When Gavino was (in) the command of the vessel, Kavankov was beside Gavino, relaying Yes, he has just answered yes sir to the Court that there was no disagreement insofar as the the commands or orders of Gavino to the crewmembers-officers of the vessel concerned. He was thus fully aware of the docking maneuvers and procedure Gavino undertook to dock the vessel. Irrefragably, bringing of the vessel safely to the port. Kavankov was fully aware of the bulk and size of the vessel and its cargo as well as the weight of the

Court:

vessel. Kavankov categorically admitted that, when the anchor and two (2) shackles were dropped to the sea floor, the claws of the anchor did not hitch on to any hard object in the seabed. The momentum of the vessel was not arrested. The use of the two (2) tugboats was insufficient. The momentum of the vessel, although a little bit arrested, continued (sic) the vessel going straightforward with its bow towards the port (Exhibit "A-1"). There was thus a need for the vessel to move "full-astern" and to drop the other anchor with another shackle or two '(2), for the vessel to avoid hitting the pier. Kavankov refused to act even as Gavino failed to act. Even as Gavino gave mere "half-astern" order, Kavankov supinely stood by. The vessel was already about twenty (20) meters away from the pier when Gavino gave the 'fullastern" order. Even then, Kavankov did nothing to prevent the vessel from hitting the pier simply because he relied on the competence and plan of Gavino. While the "full-astern" maneuver momentarily arrested the momentum of the vessel, it was, by then, too late. All along, Kavankov stood supinely beside Gavino, doing nothing but relay the commands of Gavino.Inscrutably, then, Kavankov was negligent.

In Jure vs. United Fruit Co.,[80] which, like the present petitions, involved compulsory pilotage, with a similar scenario where at and prior to the time of injury, the vessel was in the charge of a pilot with the master on the bridge of the vessel beside said pilot, the court therein ruled: The authority of the master of a vessel is not in complete abeyance while a pilot, who is required by law to be accepted, is in discharge of his functions. x x x It is the duty of the master to interfere in cases of the pilot's intoxication or manifest incapacity, in cases of danger which he does not foresee, and in all cases of great necessity . The master has the same power to displace the pilot that he has to remove any subordinate officer of the vessel. He may exercise it, or not, according to his discretion. There was evidence to support findings that plaintiff's injury was due to the negligent operation of the Atenas, and that the master of that vessel was negligent in failing to take action to avoid endangering a vessel situated as the City of Canton was and persons or property thereon.

xxxxxxxxx A phase of the evidence furnished support for the inferences x x x that he negligently failed to suggest to the pilot the danger which was disclosed, and means of avoiding such danger; and that the master's negligence in failing to give timely admonition to the pilot proximately contributed to the injury complained of. We are of opinion that the evidence mentioned tended to prove conduct of the pilot, known to the master, giving rise to a case of danger or great necessity, calling for the intervention of the master. A master of a vessel is not Without fault in acquiescing in conduct of a pilot which involves We find strong and well-reasoned support in time-tested American maritime jurisprudence, on which apparent and avoidable danger, whether such danger is to the vessel upon which the pilot is, or to much of our laws and jurisprudence on the matter are based, for the conclusions of the Court of Appeals another vessel, or persons or property thereon or on shore. (Italics ours.) adjudging both Capt. Gavino and Capt. Kabankov negligent. Still in another case involving a nearly identical setting, the captain of a vessel alongside the compulsory As early as 1869, the U.S. Supreme Court declared, through Mr. Justice Swayne, in The Steamship pilot was deemed to be negligent, since, in the words of the court, "he was in a position to exercise his China vs. Walsh,[78] that it is the duty of the master to interfere in cases of the pilot's intoxication or manifest superior authority if he had deemed the speed excessive on the occasion in question. I think it was clearly incapacity, in cases of danger which he does not foresee, and in all cases of great necessity. The master has negligent of him not to have recognized the danger to any craft moored at Gravell Dock and that he should the same power to displace the pilot that he has to remove any subordinate officer of the vessel, at his have directed the pilot to reduce his speed as required by the local governmental regulations. His failure amounted to negligence and renders the respondent liable."[81] (Italics supplied.) Though a compulsory discretion. pilot might be regarded as an independent contractor, he is at all times subject to the ultimate control of In 1895, the U.S. Supreme Court, this time through Mr. Justice Brown, emphatically ruled that: the ship's master.[82] The stark incompetence of Kavankov is competent evidence to prove the unseaworthiness of the vessel. It has been held that the incompetence of the navigator, the master of the vessel or its crew makes the vessel unseaworthy (Tug Ocean Prince versus United States of America, 584 F. 2nd, page 1151). Hence, the Appellant FESC is likewise liable for the damage sustained by the Appellee."[77]

Nor are we satisfied with the conduct of the master in leaving the pilot in sole charge of the vessel. While the pilot doubtless supersedes the master for the time being in the command and navigation of the ship, and his orders must be obeyed in all matters connected with her navigation, the master is not wholly absolved from his duties while the pilot is on board, and may advise with him, and even displace him in case he is intoxicated or manifestly incompetent. He is still in command of the vessel, except so far as her navigation is concerned, and bound to see that there is a sufficient watch on deck, and that the men are attentive to their duties. xxx (N)otwithstanding the pilot has charge, it is the duty of the master to prevent accident, and not to abandon the vessel entirely to the pilot; but that there are certain duties he has to discharge (notwithstanding there is a pilot on board) for the benefit of the owners. x x x that in well conducted ships the master does not regard the presence of a duly licensed pilot in compulsory pilot waters as freeing him from every obligation to attend to the safety of the vessel; but that, while the master sees that his officers and crew duly attend to the pilot's orders, he himself is bound to keep a vigilant eye on the navigation of the vessel, and, when exceptional circumstances exist, not only to urge upon the pilot to use every precaution, but to insist upon, such being taken."[79] (Italics for emphasis.)

In sum, where a compulsory pilot is in charge of a ship, the master being required to permit him to navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty of the master to refuse to permit the pilot to act. But if no such reasons are present, then the master is justified in relying upon the pilot, but not blindly. Under the circumstances of this case, if a situation arose where the master, exercising that reasonable vigilance which the master of a ship should exercise, observed, or should have observed, that the pilot was so navigating the vessel that she was going, or was likely to go, into danger, and there was in the exercise of reasonable care and vigilance an opportunity for the master to intervene so as to save the ship from danger, the master should have acted accordingly. [83] The master of a vessel must exercise a degree of vigilance commensurate with the circumstances.[84] Inasmuch as the matter of negligence is a question of fact, [85] we defer to the findings of the trial court, especially as this is affirmed by the Court of Appeals.[86] But even beyond that, our own evaluation is that Capt. Kabankov's shared liability is due mainly to the fact that he failed to act when the perilous situation should have spurred him into quick and decisive action as master of the ship. In the face of imminent or actual danger, he did not have to wait for the happenstance to occur before countermanding or overruling the pilot. By his own admission, Capt. Kabankov concurred with Capt. Gavino's decisions, and this is precisely the reason why he decided not to countermand any of the latter's orders. Inasmuch as both lower courts found Capt. Gavino negligent, by expressing full agreement therewith Capt. Kabankov was just as negligent as Capt. Gavino.

In general, a pilot is personally liable for damages caused by his own negligence or default to the owners of the vessel, and to third parties for damages sustained in a collision. Such negligence of the pilot in the performance of duty constitutes a maritime tort.[87]At common law, a shipowner is not liable for injuries inflicted exclusively by the negligence of a pilot accepted by a vessel compulsorily. [88] The exemption from liability for such negligence shall apply if the pilot is actually in charge and solely in fault. Since, a pilot is responsible only for his own personal negligence, he cannot be held accountable for damages proximately caused by the default of others,[89] or, if there be anything which concurred with the fault of the pilot in producing the accident, the vessel master and owners are liable. Since the colliding vessel is prima facie responsible, the burden of proof is upon the party claiming benefit of the exemption from liability. It must be shown affirmatively that the pilot was at fault, and that there was no fault on the part of the officers or crew, which might have been conducive to the damage. The fact that the law compelled the master to take the pilot does not exonerate the vessel from liability. The parties who suffer are entitled to have their remedy against the vessel that occasioned the damage, and are not under necessity to look to the pilot from whom redress is not always had for compensation. The owners of the vessel are responsible to the injured party for the acts of the pilot, and they must be left to recover the amount as well as they can against him. It cannot be maintained that the circumstance of having a pilot on board, and acting in conformity to his directions operate as a discharge of responsibility of the owners.[90] Except insofar as their liability is limited or exempted by statute, the vessel or her owner are liable for all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel. Where the pilot of a vessel is not a compulsory one in the sense that the owner or master of the vessel are bound to accept him, but is employed voluntarily, the owners of the vessel are, all the more, liable for his negligent act.[91] In the United States, the owners of a vessel are not personally liable for the negligent acts of a compulsory pilot, but by admiralty law, the fault or negligence of a compulsory pilot is imputable to the vessel and it may be held liable therefor in rem. Where, however, by the provisions of the statute the pilot is compulsory only in the sense that his fee must be paid, and is not in compulsory charge of the vessel, there is no exemption from liability. Even though the pilot is compulsory, if his negligence was not the sole cause of the injury, but the negligence of the master or crew contributed thereto, the owners are liable.[92] But the liability of the ship in rem does not release the pilot from the consequences of his own negligence.[93] The rationale for this rule is that the master is not entirely absolved of responsibility with respect to navigation when a compulsory pilot is in charge.[94]

negligence, and that negligence having been the proximate cause of the damages, he is liable for such damages as usually and naturally flow therefrom. x x x. x x x (T)he defendant should have known of the existence and location of the rock upon which the vessel struck while under his control and management. x x x. Consistent with the pronouncements in these two earlier cases, but on a slightly different tack, the Court in Yap Tico & Co. exonerated the pilot from liability for the accident where the order's of the pilot in the handling of the ship were disregarded by the officers and crew of the ship. According to the Court, a pilot is "x x x responsible for a full knowledge of the channel and the navigation only so far as he can accomplish it through the officers and crew of the ship, and I don't see that he can be held responsible for damage when the evidence shows, as it does in this case, that the officers and crew of the ship failed to obey his orders." Nonetheless, it is possible for a compulsory pilot and the master of the vessel to be concurrently negligent and thus share the blame for the resulting damage as Joint tortfeasors, [98] but only under the circumstances obtaining in and demonstrated by the instant petitions. It may be said, as a general rule, that negligence in order to render a person liable need not be the sole cause of an injury. It is sufficient that his negligence, concurring with one or more efficient causes other than plaintiff's, is the proximate cause of the injury.Accordingly, where several causes combine to produce injuries, a person is not relieved from liability because he is responsible for only one of them, it being sufficient that the negligence of the person charged with injury is an efficient cause without which the injury would not have resulted to as great an extent, and that such cause is not attributable to the person injured. It is no defense to one of the concurrent tortfeasors that the injury would not have resulted from his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor. [99] Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not have happened, the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case, it may appear that one of them was more culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury.[100]

There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total damage. Where the concurrent or successive negligent acts or omissions of two or more By way of validation and in light of the aforecited guidepost rulings in American maritime cases, persons, although acting independently, are in combination the direct and proximate cause of a single injury we declare that our rulings during the early years of this century in City of Manila vs. Gambe, [95] China to a third person, it is impossible to determine in what proportion each contributed to the injury and either Navigation Co., Ltd. vs. Vidal,[96] and Yap Tico & Co. vs. Anderson, et al.[97] have withstood the proverbial of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage test of time and remain good and relevant case law to this day. to a third party, they become joint tortfeasors and are solidarity liable for the resulting damage under Article [101] of the Civil Code.[102] City of Manila stands for the doctrine that the pilot who was in command and complete control of a 2194 vessel, and not the owners, must be held responsible for an accident which was solely the result of the As for the amount of damages awarded by the trial court, we find the same to be reasonable. The mistake of the pilot in not giving proper orders, and which did not result from the failure of the owners to testimony of Mr. Pascual Barral, witness for PPA, on cross and redirect examination, appears to be equip the vessel with the most modern and improved machinery. In China Navigation Co., the pilot grounded on practical considerations: deviated from the ordinary and safe course, without heeding the warnings of the ship captain. It was this careless deviation that caused the vessel to collide with a pinnacle rock which, though uncharted, was Q So that the cost of the two additional piles as well as the (two) square meters is already included in known to pilots and local navigators. Obviously, the captain was blameless. It was the negligence of the this -P1,300,999.77. pilot alone which was the proximate cause of the collision. The Court could not but then rule that A Yes sir, everything. It is (the) final cost already. The pilot in the case at bar having deviated from the usual and ordinary course followed by navigators in passing through the strait in question, without a substantial reason, was guilty of

Q For the eight piles. A Including the reduced areas and other reductions.

With regards to the amount of damages that is to be awarded to plaintiff, the Court finds that the amount of P1,053,300.00 is justified. Firstly, the doctrine of res ipsa loquitur best expounded upon in the A Yes sir. landmark case of Republic vs. Luzon Stevedoring Corp. (21 SCRA 279) establishes the presumption that Q In other words, this P1,300,999.77 does not represent only for the six piles that was damaged as well in the ordinary course of events the ramming of the dock would not have occurred if proper care was used. as the corresponding two piles. Q (A)nd the two square meters.

A The area was corresponding, was increased by almost two in the actual payment. That was why the Secondly, the various estimates and plans justify the cost of the port construction price. The new contract was decreased, the real amount was P1,124,627.40 and the final one is P1300,999.77. structure constructed not only replaced the damaged one but was built of stronger materials to forestall the possibility of any similar accidents in the future. Q Yes, but that P1,300,999.77 included the additional two new posts. A It was increased. Q Why was it increased? A The original was 48 and the actual was 46.

The Court inevitably finds that the plaintiff is entitled to an award of P1,053,300.00 which represents actual damages caused by the damage to Berth 4 of the Manila International Port. Co-defendants Far Eastern Shipping, Capt. Senen Gavino and Manila Pilots Association are solidarity liable to pay this amount to plaintiff.[104]

Q Now, the damage was somewhere in 1980. It took place in 1980 and you started the repair and The Solicitor General rightly commented that the adjudicated amount of damages represents the proportional cost of repair and rehabilitation of the damaged section of the pier. [105] reconstruction in 1982, that took almost two years? Except insofar as their liability is limited or exempted by statute, the vessel or her owners are liable for all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel. As Q May it not happen that by natural factors, the existing damage in 1980 was aggravated for the 2 year a general rule, the owners or those in possession and control of a vessel and the vessel are liable for all period that the damage portion was not repaired? natural and proximate damages caused to persons or property by reason of her negligent management or navigation.[106] A I don't think so because that area was at once marked and no vehicles can park, it was closed. FESC's imputation of PPA's failure to provide a safe and reliable berthing place is obtuse, not only Q Even if or even natural elements cannot affect the damage? because it appears to be a mere afterthought, being tardily raised only in this petition, but also because there is no allegation or evidence on record about Berth No. 4 being unsafe and unreliable, although perhaps A Cannot, sir. it is a modest pier by international standards. There was, therefore, no error on the part of the Court of xxxxxxxxx Appeals in dismissing FESC's counterclaim. A Yes sir.

Q You said in the cross-examination that there were six piles damaged by the accident, but that in the reconstruction of the pier, PPA drove and constructed 8 piles. Will you explain to us why there was change in the number of piles from the original number?

II. G.R. No. 130150

A In piers where the piles are withdrawn or pulled out, you cannot re-drive or drive piles at the same This consolidated case treats on whether the Court of Appeals erred in holding MPA jointly and point. You have to redesign the driving of the piles. We cannot drive the piles at the same point solidarity liable with its member pilot, Capt. Gavino, in the absence of employer-employee relationship where the piles are broken or damaged or pulled out. We have to redesign, and you will note that and in applying Customs Administrative Order No. 15-65, as basis for the adjudged solidary liability of in the reconstruction, we redesigned such that it necessitated 8 piles. MPA and Capt. Gavino. Q Why not, why could you not drive the same number of piles and on the same spot?

The pertinent provisions in Chapter I of Customs Administrative Order No. 15-65 are:

A The original location was already disturbed. We cannot get required bearing capacity. The area is "PAR. XXVII.-- In all pilotage districts where pilotage is compulsory, there shall be created and already disturbed. maintained by the pilots or pilots' association, in the manner hereinafter prescribed, a reserve fund equal Q Nonetheless, if you drove the original number of piles, six, on different places, would not that have to P1,000.00 for each pilot thereof for the purpose of paying claims for damages to vessels or property sustained the same load? caused through acts or omissions of its members while rendered in compulsory pilotage service. In Manila, the reserve fund shall be P2,000.00 for each pilot. [103] A It will not suffice, sir." We quote the findings of the lower court with approval:

PAR. XXVIII.-- A pilots' association shall not be liable under these regulations for damage to any vessel, or other property, resulting from acts of a member of an association in the actual performance of his duty for a greater amount than seventy-five per centum (75%) of its prescribed reserve fund; it being

understood that if the association is held liable for an amount greater than the amount above-stated, the excess shall be paid by the personal funds of the member concerned. PAR. XXXI.-- If a payment is made from the reserve fund of an association on account of damages caused by a member thereof, and he shall have been found at fault, such member shall reimburse the association in the amount so paid as soon as practicable; and for this purpose, not less than twenty-five per centum of his dividends shall be retained each month until the full amount has been returned to the reserve fund. PAR. XXXIV. - Nothing in these regulations shall relieve any pilots' association or members thereof, individually or collectively, from civil responsibility for damages to life or property resulting from the acts of members in the performance of their duties. Correlatively, the relevant provisions of PPA Administrative Order No. 03-85, which timely amended this applicable maritime regulation, state:

Article IV SEC. 17. Pilots' Association -- The Pilots in a Pilotage District shall organize themselves into a Pilots' Association or firm, the members of which shall promulgate their own By-Laws not in conflict with the rules and regulations promulgated by the Authority. These By-Laws shall be submitted not later than one (1) month after the organization of the Pilots' Association for approval by the General Manager of the Authority. Subsequent amendments thereto shall likewise be submitted for approval.

xxxxxxxxx 5) If payment is made from the reserve fund of an Association on account of damage caused by a member thereof who is found at fault, he shall reimburse the Association in the amount so paid as soon as practicable; and for this purpose, not less than twenty-five percentum (25%) of his dividend shall be retained each month until the full amount has been returned to the reserve fund. Thereafter, the pilot involved shall be entitled to his full dividend. 6) When the reimbursement has been completed as prescribed in the preceding paragraph, the ten percentum (10%) and the interest withheld from the shares of the other pilots in accordance with paragraph (4) hereof shall be returned to them. c) Liability of Pilots' Association -- Nothing in these regulations shall relieve any Pilots' Association or members thereof, individually or collectively, from any civil, administrative and/or criminal responsibility for damages to life or property resulting from the individual acts of its members as well as those of the Association's employees and crew in the performance of their duties. The Court of Appeals, while affirming the trial court's finding of solidary liability on the part of FESC, MPA and Capt. Gavino, correctly based MPA's liability not on the concept of employer-employee relationship between Capt. Gavino and itself, but on the provisions of Customs Administrative Order No. 15-65:

SEC. 25. Indemnity Insurance and Reserve Fund-a) Each Pilots' Association shall collectively insure its membership at the rate of P50,000.00 each member to cover in whole or in part any liability arising from any accident resulting in damage to vessel(s), port facilities and other properties and/or injury to persons or death which any member may have caused in the course of his performance of pilotage duties. x x x. b) The Pilotage Association shall likewise set up and maintain a reserve fund which shall answer for any part of the liability referred to in the immediately preceding paragraph which is left unsatisfied by the insurance proceeds, in the following manner: 1) Each pilot in the Association shall contribute from his own account an amount of P4,000.00 (P6,000.00 in the Manila Pilotage District) to the reserve fund. This fund shall not be considered part of the capital of the Association nor charged as an expense thereof. 2) Seventy-five percent (75%) of the reserve fund shall be set aside for use, in the payment of damages referred to above incurred in the actual performance of pilots' duties and the excess shall be paid from the personal funds of the member concerned.

The Appellant MPA avers that, contrary to the findings and disquisitions of the Court a quo, the Appellant Gavino was not and has never been an employee of the MPA but was only a member thereof. The Court a quo, it is noteworthy,, did not state the factual basis on which it anchored its finding that Gavino was the employee of MPA. We are in accord with MPA's pose. Case law teaches Us that, for an employer-employee relationship to exist the confluence of the following elements must be established: (1) selection and engagement of employees; (2) the payment of wages; (3) the power of dismissal; (4) the employer's power to control the employees with respect to the means and method by which the work is to be performed (Ruga versus NLRC, 181SCRA 266). xxxxxxxxx The liability of MPA for damages is not anchored on Article 2180 of the New Civil Code as erroneously found and declared by the Court a quo but under the provisions of Customs Administrative Order No. 1565, supra, in tandem with the by-laws of the MPA."[107] There being no employer-employee relationship, clearly Article 2180[108] of the Civil Code is inapplicable since there is no vicarious liability of an employer to speak of. It is so stated in American law, as follows: The well-established rule is that pilot associations are immune to vicarious liability for the tort of their members. They are not the employer of their members and exercise no control over them once they take the helm of the vessel. They are also not partnerships because the members do not function as agents for

the association or for each other. Pilots' associations are also not liable for negligently assuring, the competence of their members because as professional associations they made no guarantee of the professional conduct of their members to the general public.[109] Where under local statutes and regulations, pilot associations lack the necessary legal incidents of responsibility, they have been held not liable for damages caused by the default of a member pilot.[110] Whether or not the members of a pilots' association are in legal effect a copartnership depends wholly on the powers and duties of the members in relation to one another under the provisions of the governing statutes and regulations. The relation of a pilot to his association is not that of a servant to the master, but of an associate assisting and participating in a common purpose. Ultimately, the rights and liabilities between a pilots' association and an individual member depend largely upon the constitution, articles or by-laws of the association, subject to appropriate government regulations.[111]

WHEREFORE, in view of all of the foregoing, the consolidated petitions for review are DENIED and the assailed decision of the Court of Appeals is AFFIRMED in toto. Counsel for FESC, the law firm of Del Rosario and Del Rosario, specifically its associate, Atty. Herbert A. Tria, is REPRIMANDED and WARNED that a repetition of the same or similar acts of heedless disregard of its undertakings under the Rules shall be dealt with more severely. The original members of the legal team of the Office of the Solicitor General assigned to this case, namely, Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, are ADMONISHED and WARNED that a repetition of the same or similar acts of unduly delaying proceedings due to delayed filing of required pleadings shall also be dealt with more stringently.

The Solicitor General is DIRECTED to look into the circumstances of this case and to adopt provident measures to avoid a repetition of this incident and which would ensure prompt compliance with No reliance can be placed by MPA on the cited American rulings as to immunity from liability of a pilots' association in light of existing positive regulation under Philippine law. The Court of Appeals orders of this Court regarding the timely filing of requisite pleadings, in the interest of just, speedy and properly applied the clear and unequivocal provisions of Customs Administrative Order No. 15-65. In orderly administration of justice. doing so, it was just being consistent with its finding of the non-existence of employer-employee Let copies of this decision be spread upon the personal records of the lawyers named herein in the relationship between MPA and Capt. Gavino precludes the application of Article 2180 of the Civil Code. Office of the Bar Confidant. True, Customs Administrative Order No. 15-65 does not categorically characterize or label MPA's liability as solidary in nature. Nevertheless, a careful reading and proper analysis of the correlated provisions lead to the conclusion that MPA is solidarity liable for the negligence of its member pilots, without prejudice to subsequent reimbursement from the pilot at fault. Article 1207 of the Civil Code provides that there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Plainly, Customs Administrative Order No. 15-65, which as an implementing rule has the force and effect of law, can validly provide for solidary liability. We note the Solicitor General's comment hereon, to wit: x x x Customs Administrative Order No. 15-65 may be a mere rule and regulation issued by an administrative agency pursuant to a delegated authority to fix "the details" in the execution or enforcement of a policy set out in the law itself. Nonetheless, said administrative order, which adds to the procedural or enforcing provisions of substantive law, is legally binding and receives the same statutory force upon going into effect. In that sense, it has equal, not lower, statutory force and effect as a regular statute passed by the legislature."[112] MPA's prayer for modification of the appellate court's decision under review by exculpating petitioner MPA "from liability beyond seventy-five percent (75%) of Reserve Fund" is unnecessary because the liability of MPA under Par. XXVIII of Customs Administrative Order No. 15-65 is in fact limited to seventy-five percent (75%) of its prescribed reserve fund, any amount of liability beyond that being for the personal account of the erring pilot and subject to reimbursement in case of a finding of fault by the member concerned. This is clarified by the Solicitor General: Moreover, contrary to petitioners pretensions, the provisions of Customs Administrative Order No. 15-65 do not limit the liability of petitioner as a pilots' association to an absurdly small amount of seventy-five per centum (75%) of the member pilots' contribution of P2,000.00 to the reserve fund. The law speaks of the entire reserve fund required to be maintained by the pilots' association to answer (for) whatever liability arising from the tortious act of its members. And even if the association is held liable for an amount greater than the reserve fund, the association may not resist the liability by claiming to be liable only up to seventy-five per centum (75%) of the reserve fund because in such instance it has the right to be reimbursed by the offending member pilot for the excess."[113]

SO ORDERED.