Transpo Cases

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ABOITIZ SHIPPING CORPORATION, G.R. No. 121833Petitioner,

- versus -

COURT OF APPEALS, MALAYAN INSURANCE COMPANY,

INC.,COMPAGNIE MARITIME DES CHARGEURS REUNIS, andF.E. ZUELLIG (M), INC.,*

Respondents.

x-----------------------------------------x

ABOITIZ SHIPPING CORPORATION, G.R. No. 130752Petitioner,

- versus -

COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in hiscapacity as Presiding Judge of the RTC, Branch 20; ASIA TRADERS INSURANCE CORPORATION, and ALLIED GUARANTEEINSURANCE CORPORATION,

Respondents.

x-----------------------------------------xABOITIZ SHIPPING CORPORATION, G.R. No. 137801

Petitioner,

- versus -

EQUITABLE INSURANCE Promulgated:CORPORATION,

Respondent. October 17, 2008

x-------------------------------------------------------------------------------x

D E C I S I O N

TINGA, J.:

Before this Court are three consolidated Rule 45 petitions all involving

the issue of whether the real and hypothecary doctrine may be invoked by

the shipowner in relation to the loss of cargoes occasioned by the sinkingof M/V P. Aboitiz on 31 October 1980. The petitions filed by Aboitiz ShippingCorporation (Aboitiz) commonly seek the computation of its liability inaccordance with the Court‘s pronouncement in Aboitiz Shipping Corporationv. General Accident Fire and Life Assurance Corporation, Ltd .

[1] (hereafter

referred to as ―the 1993GAFLAC case‖).

The three petitions stemmed from some of the several suits filed

against Aboitiz before different regional trial courts by shippers or their successors-in-interest for the recovery of the monetary value of the cargoeslost, or by the insurers for the reimbursement of whatever they paid. The trialcourts awarded to various claimants the amountsof P639,862.02, P646,926.30, and P87,633.81 in G.R. Nos. 121833, 130752and 137801, respectively.

ANTECEDENTS

G.R. No. 121833

Respondent Malayan Insurance Company, Inc. (Malayan) filed fiveseparate actions against several defendants for the collection of the amountsof the cargoes allegedly paid by Malayan under various marine cargopolicies

[2] issued to the insurance claimants. The five civil cases, namely,

Civil Cases No. 138761, No. 139083, No. 138762, No. R-81-526 and No.138879, were consolidated and heard before the Regional Trial Court (RTC)of Manila, Branch 54.

The defendants in Civil Case No. 138761 and in Civil Case No.139083 were Malayan International Shipping Corporation, a foreigncorporation based in Malaysia, its local ship agent, Litonjua MerchantShipping Agency (Litonjua), and Aboitiz. The defendants in Civil Case No.138762 were Compagnie Maritime des Chargeurs Reunis (CMCR), its localship agent, F.E. Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filedCivil Case No. R-81-526 only against CMCR and Zuellig. Thus, defendantsCMCR and Zuellig filed a third-party complaint against Aboitiz. In the fifthcomplaint docketed as Civil Case No. 138879, only Aboitiz was impleaded asdefendant.

The shipments were supported by their respective bills of lading andinsured separately by Malayan against the risk of loss or damage. In the fiveconsolidated cases, Malayan sought the recovery of amountstotaling P639,862.02.

Aboitiz raised the defenses of lack of jurisdiction, lack of cause of

action and prescription. It also claimed that M/V P. Aboitiz was seaworthy,

http://sc.judiciary.gov.ph/jurisprudence/2008/october2008/121833.htm#_ftn1












that it exercised extraordinary diligence and that the loss was caused by afortuitous event.

After trial on the merits, the RTC of Manila rendered a Decisiondated 27 November 1989, adjudging Aboitiz liable on the money claims.The decretal portion reads:

WHEREFORE, judgment is hereby rendered asfollows:

1. In Civil Case No. 138072 (R-81-526-CV), thedefendants are adjudged liable and ordered to pay to theplaintiffs jointly and severally the amount of P128,896.79; thethird-party defendant Aboitiz is adjudged liable to reimburseand ordered to pay the defendants or whosoever of thempaid the plaintiff up to the said amount;

2. In Civil Case No. 138761, Aboitiz is adjudgedliable and ordered to pay plaintiff the amount of OneHundred Sixty Three-Thousand Seven Hundred ThirteenPesos and Thirty-Eight Centavos (P163,713.38).

3. In Civil Case No. 138762, defendant Aboitiz isadjudged liable and ordered to pay plaintiff the sum of Seventy Three Thousand Five Hundred Sixty-Nine Pesosand Ninety-Four Centavos (P73,569.94); and Sixty-Four Thousand Seven Hundred Four Pesos and Seventy-SevenCentavos (P64,704.77);

4. In Civil Case No. 139083, defendant Aboitiz isadjudged liable and ordered to pay plaintiff the amount of One Hundred Fifty-Six Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four Centavos (P156,287.64);

In Civil Case No. 138879, defendant Aboitiz isadjudged liable and ordered to pay plaintiff the amount of Fifty-Two Thousand Six Hundred Eighty-Nine Pesos andFifty Centavos (P52,689.50).

All the aforesaid award shall bear interest at thelegal rate from the filing of the respective complaints.Considering that there is no clear showing that the cases fallunder Article 2208, Nos. 4 and 5, of the Civil Code, and inconsonance with the basic rule that there be no penalty (interms of attorney‘s fees) imposed on the right to litigate, no

damages by way of attorney‘s fees are awarded; however,costs of the party/parties to whom judgment awards aremade shall be made by the party ordered to pay the said

judgment awards.

SO ORDERED.[3]

Aboitiz, CMCR and Zuellig appealed the RTC decision to the Courtof Appeals. The appeal was docketed as CA-G.R. SP No. 35975-CV. Duringthe pendency of the appeal, the Court promulgated the decision in the1993 GAFLAC case.

On 31 March 1995, the Court of Appeals (Ninth Division) affirmed theRTC decision. It disregarded Aboitiz‘s argument that the sinking of the vesselwas caused by a force majeure, in view of this Court‘s finding in a relatedcase, Aboitiz Shipping Corporation v. Court of Appeals, et al. (the 1990GAFLAC case).

[4] In said case, this Court affirmed the Court of Appeals‘

finding that the sinking of M/V P. Aboitiz was caused by the negligence of itsofficers and crew. It is one of the numerous collection suits against Aboitiz,which eventually reached this Court in connection with the sinking of M/V P. Aboitiz .

As to the computation of Aboitiz‘s liability, the Court of Appeals againbased its ruling on the 1990 GAFLAC case that Aboitiz‘s liability should bebased on the declared value of the shipment in consonance with theexceptional rule under Section 4(5)

[5] of the Carriage of Goods by Sea Act.

Aboitiz moved for reconsideration[6]

to no avail. Hence, it filed thispetition for review on certiorari docketed as G.R. No. 121833.

[7] The instant

petition is based on the following grounds:

THE COURT OF APPEALS SHOULD HAVE LIMITEDTHE RECOVERABLE AMOUNT FROM ASC TO THAT

AMOUNT STIPULATED IN THE BILL OF LADING.

IN THE ALTERNATIVE, THE COURT OF APPEALSSHOULD HAVE FOUND THAT THE TOTAL LIABILITY OF

ASC IS LIMITED TO THE VALUE OF THE VESSEL ORTHE INSURANCE PROCEEDS THEREOF.

[8]

On 4 December 1995, the Court issued a Resolution[9]

denying thepetition. Aboitiz moved for reconsideration, arguing that the limited liabilitydoctrine enunciated in the 1993GAFLAC case should be applied in the

computation of its liability. In the Resolution[10] dated 6 March 1996, the Court
































granted the motion and ordered the reinstatement of the petition and thefiling of a comment.

G.R. No. 130752

Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied Guarantee Insurance Corporation (Allied) filed separate actions for

damages against Aboitiz to recover by way of subrogation the value of thecargoes insured by them and lost in the sinking of the vessel M/V P. Aboitiz .The two actions were consolidated and heard before the RTC of Manila,Branch 20.

Aboitiz reiterated the defense of force majeure. The trial courtrendered a decision

[11] on 25 April 1990 ordering Aboitiz to pay damages in

the amount of P646,926.30. Aboitizsought reconsideration, arguing that thetrial court should have considered the findings of the Board of Marine Inquirythat the sinking of the M/V P. Aboitiz was caused by a typhoon and shouldhave applied the real and hypothecary doctrine in limiting the monetaryaward in favor of the claimants. The trial court denied Aboitiz‘s motion for reconsideration.

Aboitiz elevated the case to the Court of Appeals. While the appealwas pending, this Court promulgated the decision in the 1993 GAFLAC case.The Court of Appeals subsequently rendered a decision on 30 May 1994,affirming the RTC decision.

[12]

Aboitiz appealed the Court of Appeals decision to this Court.[13]

In aResolution dated 20 September 1995,

[14] the Court denied the petition for

raising factual issues and for failure to show that the Court of Appealscommitted any reversible error. Aboitiz‘s motion for reconsideration was alsodenied in a Resolution dated 22 November 1995.

[15]

The 22 November 1995 Resolution became final and executory.On 26 February 1996, Asia Traders and Allied filed a motion for executionbefore the RTC of Manila, Branch 20.Aboitiz opposed the motion. On 16

August 1996, the trial court granted the motion and issued a writ of execution.

Alleging that it had no other speedy, just or adequate remedy toprevent the execution of the judgment, Aboitiz filed with the Court of Appealsa petition for certiorari and prohibition with an urgent prayer for preliminaryinjunction and/or temporary restraining order docketed as CA-G.R. SP No.41696.

[16] The petition was mainly anchored on this Court‘s ruling in the

1993 GAFLAC case.

On 8 August 1997, the Court of Appeals (Special SeventeenthDivision) rendered the assailed decision dismissing the petition.

[17] Based on

the trial court‘s finding that Aboitiz was actually negligent in ensuring theseaworthiness of M/V P. Aboitiz , the appellate court held that the real andhypothecary doctrine enunciated in the 1993 GAFLAC case may not beapplied in the case.

In view of the denial of its motion for reconsideration,[18]

Aboitiz filed

before this Court the instant petition for review on certiorari docketed as G.R.No. 130752.[19] The petition attributes the following errors to the Court of Appeals:

THE COURT OF APPEALS GRAVELY ERREDWHEN IT RULED THAT THE LOWER COURT HAD MADE

AN EXPRESS FINDING OF THE ACTUAL NEGLIGENCEOF ABOITIZ IN THE SINKING OF THE M/V P.

ABOITIZ THEREBY DEPRIVING ABOITIZ OF THEBENEFIT OF THE DOCTRINE OF THE REAL ANDHYPOTHECARY NATURE OF MARITIME LAW.

[20]

THE COURT OF APPEALS ERRED IN NOTGIVING WEIGHT TO THE GAFLAC CASE DECIDED BYTHE HONORABLE COURT WHICH SUPPORTS THE

APPLICABILITY OF THE REAL AND HYPOTHECARYNATURE OF MARITIME LAW IN THE PRESENT CASE.

[21]

G.R. No. 137801

On 27 February 1981, Equitable Insurance Corporation (Equitable)filed an action for damages against Aboitiz to recover by way of subrogationthe value of the cargoes insured by Equitable that were lost in the sinkingof M/V P. Aboitiz .

[22] The complaint, which was docketed as Civil Case No.

138395, was later amended to implead Seatrain Pacific Services S.A. andCitadel Lines, Inc. as party defendants.

[23] The complaint against the latter

defendants was subsequently dismissed upon motion in view of the amicablesettlement reached by the parties.

On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment

[24] ordering Aboitiz to pay Equitable the amount of P87,633.81, plus

legal interest and attorney‘s fees.[25]

It found that Aboitiz was guilty of contributory negligence and, therefore, liable for the loss.

In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invokedthe doctrine of limited liability and claimed that the typhoon was the































































proximate cause of the loss. On 27 November 1998, the Court of Appealsrendered a decision, affirming the RTC decision.

[26]

The Court of Appeals (Fifteenth Division) ruled that the loss of thecargoes and the sinking of the vessel were due to its unseaworthiness andthe failure of the crew to exercise extraordinary diligence. Said findings wereanchored on the 1990 GAFLAC case and on this Court‘s resolutiondated November 13, 1989 in G.R. No. 88159, dismissing Aboitiz‘s petition

and affirming the findings of the appellate court on thevessel‘s unseaworthiness and the crew‘s negligence.

Its motion for reconsideration[27]

having been denied,[28]

Aboitiz filedbefore this Court a petition for review on certiorari, docketed as G.R. No.137801,

[29] raising this sole issue, to wit:

WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF MARITIME LAW (ALSOKNOWN AS THE ―LIMITED LIABILITY RULE‖)

APPLIES.[30]

ISSUES

The principal issue common to all three petitions iswhether Aboitiz can avail limited liability on the basis of the realand hypothecary doctrine of maritime law. Corollary to this issue is thedetermination of actual negligence on the part of Aboitiz.

These consolidated petitions similarly posit that Aboitiz‘s liability torespondents should be limited to the value of the insurance proceeds of thelost vessel plus pending freightage and not correspond to the full insurablevalue of the cargoes paid by respondents, based on the Court‘s ruling in the1993 GAFLAC case.

Respondents in G.R. No. 121833 counter that the limited liability ruleshould not be applied because there was a finding of negligence in the careof the goods on the part of Aboitizbased on this Court‘s Resolution dated 4December 1995 in G.R. No. 121833, which affirmed the trial court‘s finding of negligence on the part of the vessel‘s captain. Likewise, respondent in G.R.No. 137801 relies on the finding of the trial court, as affirmed by the appellatecourt, that Aboitiz was guilty of negligence.

Respondents in G.R No. 130752 argue that this Court had alreadyaffirmed in toto the appellate court‘s finding that the vessel was notseaworthy and that Aboitiz failed to exercise extraordinary diligence in thehandling of the cargoes. This being the law of the case, Aboitiz should not be

entitled to the limited liability rule as far as this petition is concerned,respondents contend.

RULING of the COURT

These consolidated petitions are just among the many otherselevated to this Court involving Aboitiz‘s liability to shippers and insurers as aresult of the sinking of its vessel, M/V P.Aboitiz , on 31 October 1980 inthe South China Sea. One of those petitions is the 1993 GAFLAC case,docketed as G.R. No. 100446.[31]

The 1993 GAFLAC case was an offshoot of an earlier finaland executory judgment in the 1990 GAFLAC case, where the General

Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment obligee therein, sought the execution of the monetary awardagainst Aboitiz. The trial court granted GAFLAC‘s prayer for execution of thefull judgment award. The appellate court dismissed Aboitiz‘s petition to nullifythe order of execution, prompting Aboitiz to file a petition with this Court.

In the 1993 GAFLAC case, Aboitiz argued that the realand hypothecary doctrine warranted the immediate stay of execution of

judgment to prevent the impairment of the other creditors‘ shares. Invokingthe rule on the law of the case, private respondent therein countered that the1990 GAFLAC case had already settled the extent of Aboitiz‘s liability.

Following the doctrine of limited liability, however, the Court declaredin the 1993 GAFLAC case that claims against Aboitiz arising from the sinkingof M/V P. Aboitiz should be limited only to the extent of the value of thevessel. Thus, the Court held that the execution of judgments in cases alreadyresolved with finality must be stayed pending the resolution of all the other similar claims arising from the sinking of M/V P. Aboitiz . Considering that theclaims against Aboitiz had reached more than 100, the Court found itnecessary to collate all these claims before their payment from the insuranceproceeds of the vessel and its pending freightage. As a result, the Courtexhorted the trial courts before whom similar cases remained pending toproceed with trial and adjudicate these claims so that the pro-rated share of each claim could be determined after all the cases shall have beendecided.

[32]

In the 1993 GAFLAC case, the Court applied the limited liability rulein favor of Aboitiz based on the trial court‘s finding therein that Aboitiz wasnot negligent. The Court explained, thus:

x x x In the few instances when the matter was consideredby this Court, we have been consistent in this jurisdiction in

holding that the only time the Limited Liability Rule does not































apply is when there is an actual finding of negligence on thepart of the vessel owner or agent x x x. The pivotal question,thus, is whether there is finding of such negligence on thepart of the owner in the instant case.

A careful reading of the decision rendered by thetrial court in Civil Case No. 144425 as well as the entirety of the records in the instant case will show that there has beenno actual finding of negligence on the part of petitioner . x x x

The same is true of the decision of this Court in G.R.No. 89757 affirming the decision of the Court of Appeals inCA-G.R. CV No. 10609 since both decisions did not makeany new and additional finding of fact. Both merely affirmedthe factual findings of the trial court, adding that the cause of the sinking of the vessel was becauseof unseaworthiness due to the failure of the crew and themaster to exercise extraordinary diligence. Indeed, thereappears to have been no evidence presented sufficient toform a conclusion that petitioner shipowner itself wasnegligent, and no tribunal, including this Court, will add or subtract to such evidence to justify a conclusion to thecontrary.

[33] (Citations entitled) (Emphasis supplied)

The ruling in the 1993 GAFLAC case cited the realand hypothecary doctrine in maritime law that the shipowner or agent‘sliability is merely co-extensive with his interest in the vessel such that a totalloss thereof results in its extinction. ―No vessel, no liability‖ expresses in anutshell the limited liability rule.

[34]

In this jurisdiction, the limited liability rule is embodied in Articles 587,590 and 837 under Book III of the Code of Commerce, thus:

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

Art. 590. The co-owners of the vessel shall be civillyliable in the proportion of their interests in the common fund

for the results of the acts of the captain referred to in Art.587.

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

Art. 837. The civil liability incurred by shipowners inthe case prescribed in this section, shall be understood aslimited to the value of the vessel with all its appurtenancesand freightage served during the voyage.

These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned inthe voyage, provided that the owner or agent abandons the vessel .

[35] When

the vessel is totally lost in which case there is no vessel to abandon,abandonment is not required. Because of such total loss the liability of theshipowner or agent for damages is extinguished.

[36] However, despite the

total loss of the vessel, its insurance answers for the damages for whicha shipowner or agent may be held liable.

[37]

Nonetheless, there are exceptional circumstances wherein the shipagent could still be held answerable despite the abandonment of the vessel,as where the loss or injury was due to the fault of the shipowner and thecaptain. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner‘s liability, does not apply tocases where the injury or average was occasioned by the shipowner‘s ownfault.

[38] Likewise, the shipowner may be held liable for injuries to

passengers notwithstanding the exclusively real andhypothecary nature of maritime law if fault can be attributed to the shipowner .

[39]

As can be gleaned from the foregoing disquisition in the1993 GAFLAC case, the Court applied the doctrine of limited liability in viewof the absence of an express finding thatAboitiz‘s negligence was the directcause of the sinking of the vessel. The circumstances in the1993 GAFLAC case, however, are not obtaining in the instant petitions.

A perusal of the decisions of the courts below in all three petitionsreveals that there is a categorical finding of negligence on the part of Aboitiz.For instance, in G.R. No. 121833, the RTC therein expressly stated that thecaptain of M/V P. Aboitiz was negligent in failing to take a course of actionthat would prevent the vessel from sailing into the typhoon. In G.R. No.130752, the RTC concluded that Aboitiz failed to show that it had exercised

the required extraordinary diligence in steering the vessel before, during and































after the storm. In G.R. No. 137801, the RTC categorically stated that thesinking of M/V P. Aboitiz was attributable to the negligence or fault of Aboitiz.In all instances, the Court of Appeals affirmed the factual findings of the trialcourts.

The finding of actual fault on the part of Aboitiz is central to the issueof its liability to the respondents. Aboitiz‘s contention, that with the sinkingof M/V P. Aboitiz , its liability to the cargo shippers and shippers should belimited only to the insurance proceeds of the vessel absent any finding of fault on the part of Aboitiz, is not supported by the record. Thus, Aboitiz is notentitled to the limited liability rule and is, therefore, liable for the value of thelost cargoes as so duly alleged and proven during trial.

Events have supervened during the pendency of the instantpetitions. On two other occasions, the Court ruled on separate petitionsinvolving monetary claims against Aboitiz as a result of the 1980 sinkingof the vessel M/V P. Aboitiz . One of them is the consolidated petitionsof Monarch Ins. Co., Inc v. Court of Appeals ,

[40] Allied Guarantee Insurance

Company v. Court of Appeal s[41]

and Equitable Insurance Corporation v.Court of Appeal s[42] (hereafter collectively referred to as Monarch Insurance)promulgated on 08 June 2000. This time, the petitioners consisted of claimants against Aboitiz because either the execution of the judgmentawarding full indemnification of their claims was stayed or set aside or thelower courts awarded damages only to the extent of the claimants‘proportionate share in the insurance proceeds of the vessel.

In Monarch Insurance, the Court deemed it fit to settle once and for all this factual issue by declaring that the sinking of M/V P. Aboitiz wascaused by the concurrence of theunseaworthiness of the vessel and thenegligence of both Aboitiz and the vessel‘s crew and master and notbecause of force majeure. Notwithstanding this finding, the Court did notreverse but reiterated instead the pronouncement in GAFLAC to the effectthat the claimants be treated as ―creditors in an insolvent corporation whoseassets are not enough to satisfy the totality of claims against it.‖

[43] The Court

explained that the peculiar circumstances warranted that procedural rules of evidence be set aside to prevent frustrating the just claims of shippers/insurers. Thus, the Court in Monarch Insurance ordered Aboitiz toinstitute the necessary limitation and distribution action before the proper RTC and to deposit with the said court the insurance proceeds of and thefreightage earned by the ill-fated ship.

However, on 02 May 2006, the Court rendered a decisionin Aboitiz Shipping Corporation v. New India Assurance Company,

Ltd .[44] (New India), reiterating the well-settled principle that the exception to

the limited liability doctrine applies when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and thecaptain. Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be applied.

[45] In New India,

the Court clarified that the earlier pronouncement in Monarch Insurance wasnot an abandonment of the doctrine of limited liability and that thecircumstances therein still made the doctrine applicable.

[46]

In New India, the Court declared that Aboitiz failed to discharge itsburden of showing that it exercised extraordinary diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine.Thus, the Court rejected Aboitiz‘s argument that the award of damages torespondent therein should be limited to its pro rata share in the insuranceproceeds from the sinking of M/V P. Aboitiz .

The instant petitions provide another occasion for the Court toreiterate the well-settled doctrine of the real and hypothecary nature of maritime law. As a general rule, a ship owner‘s liability is merely co-extensivewith his interest in the vessel, except where actual faultis attributable to the shipowner. Thus, as an exception to the limitedliability doctrine, a shipowner or ship agent may be held liable for damageswhen the sinking of the vessel is attributable to the actual fault or negligenceof the shipowner or its failure to ensure the seaworthiness of the vessel. Theinstant petitions cannot be spared from the application of the exception to thedoctrine of limited liability in view of the unanimous findings of the courtsbelow that both Aboitiz and the crew failed to ensure the seaworthiness of the M/V P. Aboitiz .

WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and137801 are DENIED. The decisions of the Court of Appeals in CA-G.R. SPNo. 35975-CV, CA-G.R. SP No. 41696 and CA-G.R. CV No. 43458 arehereby AFFIRMED. Costs against petitioner.

SO ORDERED.































G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,INC., petitioner,vs.COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J .:

This case deals with the liability, if any, of a shipowner for loss of cargo dueto its failure to observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rightsof the insured upon payment of the insurance claim.

On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by respondent Felman Shipping Lines(FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to betransported from Zamboanga City to Cebu City for consignee Coca-ColaBottlers Philippines, Inc., Cebu. 1 The shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity),under Marine Open Policy No. 100367-PAG.

"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in theevening of the same day. At around eight forty-five the following morning, 7July 1983, the vessel sank in the waters of Zamboanga del Norte bringingdown her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu

plant, filed a claim with respondent FELMAN for recovery of damages itsustained as a result of the loss of its softdrink bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file aninsurance claim with PHILAMGEN which paid its claim of P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse againstrespondent FELMAN which disclaimed any liability for the loss.Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due to the vessel's unseaworthiness as she was

put to sea in an unstable condition. It further alleged that the vessel wasimproperly manned and that its officers were grossly negligent in failing to

take appropriate measures to proceed to a nearby port or beach after thevessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on theaffirmative defense that no right of subrogation in favor of PHILAMGEN wastransmitted by the shipper, and that, in any event, FELMAN had abandonedall 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

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN.On appeal the Court of Appeals set aside the dismissal and remanded thecase to the lower court for trial on the merits. FELMAN filed a petitionfor certiorari with this Court but it was subsequently denied on 13 February1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN.

3It ruled that "MV Asilda" was seaworthy when it left the port of

Zamboanga as confirmed by certificates issued by the Philippine CoastGuard and the shipowner's surveyor attesting to its seaworthiness. Thus the

loss of the vessel and its entire shipment could only be attributed to either afortuitous event, in which case, no liability should attach unless there was astipulation to the contrary, or to the negligence of the captain and his crew, inwhich case, Art. 587 of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy,still PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on thevessel's seaworthiness. Resultantly, the payment made by PHILAMGEN tothe assured was an undue, wrong and mistaken payment. Since it was notlegally owing, it did not give PHILAMGEN the right of subrogation so as topermit it to bring an action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent appellate court rendered judgmentfinding "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words,while the vessel possessed the necessary Coast Guard certificationindicating its seaworthiness with respect to the structure of the ship itself, itwas not seaworthy with respect to the cargo. Nonetheless, the appellatecourt denied the claim of PHILAMGEN on the ground that the assured'simplied warranty of seaworthiness was not complied with. Perfunctorily,PHILAMGEN was not properly subrogated to the rights and interests of theshipper. Furthermore, respondent court held that the f iling of notice of



abandonment had absolved the shipowner/agent from liability under thelimited liability rule.

The issues for resolution in this petition are: (a) whether "MV Asilda" wasseaworthy when it left the port of Zamboanga; (b) whether the limited liabilityunder Art. 587 of the Code of Commerce should apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions whichthe shipper had against FELMAN, the shipowner.

"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a jointstatement, the captain as well as the chief mate of the vessel confirmed thatthe weather was fine when they left the port of Zamboanga. According tothem, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrinkbottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and anundetermined quantity of empty boxes for fresh eggs. They loaded the emptyboxes for eggs and about 500 cases of Coca-Cola bottles on deck.

4The ship

captain stated that around four o'clock in the morning of 7 July 1983 he wasawakened by the officer on duty to inform him that the vessel had hit afloating log. At that time he noticed that the weather had deteriorated withstrong southeast winds inducing big waves. After thirty minutes he observed

that the vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift thecargo from starboard to portside until the vessel was balanced. At aboutseven o'clock in the morning, the master of the vessel stopped the enginebecause the vessel was listing dangerously to portside. He ordered his crewto shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and beforethe captain could decide on his next move, some of the cargo on deck werethrown 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. Heascribed the sinking to the entry of seawater through a hole in the hullcaused by the vessel's collision with a partially submerged log.

5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was adopted by the Court of Appeals, reads —

We found in the course of our investigation that a reasonableexplanation for the series of lists experienced by the vesselthat eventually led to her capsizing and sinking, was that thevessel wastop-heavy which is to say that while the vesselmay not have been overloaded, yet the distribution or

stowage of the cargo on board was done in such a manner

that the vessel was in top-heavy condition at the time of her departure and which condition rendered her unstable andunseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact thatthis vessel was designed as a fishing vessel . . . and it wasnot 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 beenaccommodated under deck, her stability would not havebeen affected and the vessel would not have been in anydanger of capsizing, even given the prevailing weather conditions at that time of sinking.

But from the moment that the vessel was utilized to loadheavy cargo on its deck, the vessel was renderedunseaworthy for the purpose of carrying the type of cargobecause the weight of the deck cargo so decreased thevessel's metacentric height as to cause it to becomeunstable.

Finally, with regard to the allegation that the vesselencountered big waves, it must be pointed out that ships areprecisely designed to be able to navigate safely even duringheavy weather and frequently we hear of ships safely andsuccessfully weathering encounters with typhoons andalthough they may sustain some amount of damage, thesinking of ship during heavy weather is not a frequentoccurrence and is not likely to occur unless they areinherently unstable and unseaworthy . . . .

We believe, therefore, and so hold that the proximate

cause of the sinking of the M/V " Asilda" was her condition of unseaworthiness arising from her having been top-heavywhen she departed from the Port of Zamboanga. Her havingcapsized and eventually sunk was bound to happen and wastherefore in the category of an inevitable occurrence(emphasis supplied).

6

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking of "MV Asilda" was its beingtop-heavy. Contrary to the ship captain's allegations, evidence shows thatapproximately 2,500 cases of softdrink bottles were stowed on deck. Severaldays after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic

cases were recovered near the vicinity of the sinking. Considering that the



ship's hatches were properly secured, the empty Coca-Cola cases recoveredcould have come only from the vessel's deck cargo. It is settled that carryinga deck cargo raises the presumption of unseaworthiness unless it can beshown that the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that "MV Asilda" was notdesigned to carry substantial amount of cargo on deck. The inordinateloading of cargo deck resulted in the decrease of the vessel's metacentricheight

7thus making it unstable. The strong winds and waves encountered

by the vessel are but the ordinary vicissitudes of a sea voyage and as suchmerely contributed to its already unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable tothe case at bar.

8Simply put, the ship agent is liable for the negligent acts of

the captain in the care of goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its equipment andfreightage as provided in Art. 587. Nonetheless, there are exceptionalcircumstances wherein the ship agent could still be held answerable despitethe abandonment, as where the loss or injury was due to the fault of theshipowner and the captain.

9The international rule is to the effect that the

right of abandonment of vessels, as a legal limitation of a shipowner's

liability, does not apply to cases where the injury or average was occasionedby the shipowner's own fault.10

It must be stressed at this point that Art. 587speaks only of situations where the fault or negligence is committed solely bythe captain. Where the shipowner is likewise to be blamed, Art. 587 will notapply, and such situation will be covered by the provisions of the Civil Codeon common carrier.

11

It was already established at the outset that the sinking of "MV Asilda" wasdue to its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loadedon deck. Closer supervision on the part of the shipowner could haveprevented this fatal 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 extraordinarydiligence in the vigilance over the goods and for the safety of the passengerstransported by them, according to all the circumstances of each case . . ." Inthe event of loss of goods, common carriers are presumed to have actednegligently. 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 notentitled 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 assuredimpliedly warrants to the assurer that the vessel is seaworthy and suchwarranty is as much a term of the contract as if expressly written on the faceof the policy.

12Thus Sec. 113 of the Insurance Code provides that "(i)n

every marine insurance upon a ship or freight, or freightage, or uponanything which is the subject of marine insurance, a warranty is implied thatthe ship is seaworthy." Under Sec. 114, a ship is "seaworthy whenreasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy." Thus it becomes theobligation of the cargo owner to look for a reliable common carrier whichkeeps its vessels in seaworthy condition. He may have no control over thevessel but he has full control in the selection of the common carrier that willtransport his goods. He also has full discretion in the choice of assurer thatwill underwrite a particular venture.

We need not belabor the alleged breach of warranty of seaworthiness by the

assured as painstakingly pointed out by FELMAN to stress that subrogationwill not work in this case. In policies where the law will generally imply awarranty of seaworthiness, it can only be excluded by terms in writing in thepolicy in the clearest language.

13 And where the policy stipulates that the

seaworthiness of the vessel as between the assured and the assurer isadmitted, the question of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured.

14

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in atleast two (2) instances has dispensed with the usual warranty of worthiness.Paragraph 15 of the Marine Open Policy No. 100367-PAG reads "(t)heliberties as per Contract of Affreightment the presence of the Negligence

Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Partyand/or Contract of Affreightment as between the Assured and the Companyshall not prejudice the insurance. The seaworthiness of the vessel asbetween the Assured and the Assurers is hereby admitted."

15

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.)of the policy which states "(t)he seaworthiness of the vessel as between the

Assured and Underwriters in hereby admitted . . . ."16

The result of the admission of seaworthiness by the assurer PHILAMGENmay mean one or two things: (a) that the warranty of the seaworthiness is tobe taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by

the insurance company. 17 The insertion of such waiver clauses in cargo



policies is in recognition of the realistic fact that cargo owners cannot controlthe state of the vessel. Thus it can be said that with such categorical waiver,PHILAMGEN has accepted the risk of unseaworthiness so that if the shipshould sink by unseaworthiness, as what occurred in this case, PHILAMGENis liable.

Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action against FELMAN is squarely sanctioned

by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and hehas received indemnity from the insurance company for theinjury or loss arising out of the wrong or breach of contractcomplained of, the insurance company shall be subrogatedto the rights of the insured against the wrongdoer or theperson who has violated the contract. If the amount paid bythe insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover thedeficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v . Court of Appeals,18

we said thatpayment by the assurer to the assured operates as an equitable assignmentto the assurer of all the remedies which the assured may have against thethird party whose negligence or wrongful 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 insuranceclaim.

The doctrine of subrogation has its roots in equity. It is designed to promoteand to accomplish justice and is the mode which equity adopts to compel theultimate payment of a debt by one who in justice, equity and good

conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN toCoca-Cola Bottlers Philippines, Inc., gave the former the right to bring anaction as subrogee against FELMAN. Having failed to rebut the presumptionof 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 SHIPPINGLINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERALINSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundredand Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29November 1983, the date of judicial demand, pursuant to Arts. 2212 and2213 of the Civil Code.

20

SO ORDERED.



G.R. No. 150751 September 20, 2004

CENTRAL SHIPPING COMPANY, INC., petitioner,vs.INSURANCE COMPANY OF NORTH AMERICA, respondent.

D E C I S I O N

PANGANIBAN, J .:

A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its cargo, unless it can prove that thesole and proximate cause of such event is one of the causes enumerated in

Article 1734 of the Civil Code, or that it exercised extraordinary diligence toprevent or minimize the loss. In the present case, the weather conditionencountered by petitioner‘s vessel was not a "storm" or a natural disaster comprehended in the law. Given the known weather condition prevailingduring the voyage, the manner of stowage employed by the carrier wasinsufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it

cannot now disclaim any liability for the loss.

The Case

Before the Court is a Petition for Review1

under Rule 45 of the Rules of Court, seeking to reverse and set aside the March 23, 2001 Decision

2of the

Court of Appeals (CA) in CA-GR CV No. 48915. The assailed Decisiondisposed as follows:

"WHEREFORE, the decision of the Regional Trial Court of MakatiCity, Branch 148 dated August 4, 1994 is hereby MODIFIED in so far

as the award of attorney‘s fees is DELETED. The decision is AFFIRMED in all other respects."3

The CA denied petitioner‘s Motion for Reconsideration in its November 7,2001 Resolution.

4

The Facts

The factual antecedents, summarized by the trial court and adopted by theappellate court, are as follows:

"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner]received on board its vessel, the M/V ‗Central Bohol‘, 376 pieces [of]

Philippine Apitong Round Logs and undertook to transport saidshipment to Manila for delivery to Alaska Lumber Co., Inc.

"The cargo was insured for P3,000,000.00 against total loss under [respondent‘s] Marine Cargo Policy No. MCPB-00170.

"On July 25, 1990, upon completion of loading of the cargo, thevessel left Palawan and commenced the voyage to Manila.

"At about 0125 hours on July 26, 1990, while enroute to Manila, thevessel listed about 10 degrees starboardside, due to the shifting of logs in the hold.

"At about 0128 hours, after the listing of the vessel had increased to15 degrees, the ship captain ordered his men to abandon ship and atabout 0130 hours of the same day the vessel completely sank. Dueto the sinking of the vessel, the cargo was totally lost.

"[Respondent] alleged that the total loss of the shipment was causedby the fault and negligence of the [petitioner] and its captain and asdirect consequence thereof the consignee suffered damage in thesum ofP3,000,000.00.

"The consignee, Alaska Lumber Co. Inc., presented a claim for thevalue of the shipment to the [petitioner] but the latter failed andrefused to settle the claim, hence [respondent], being the insurer,paid said claim and now seeks to be subrogated to all the rights andactions of the consignee as against the [petitioner].

"[Petitioner], while admitting the sinking of the vessel, interposed thedefense that the vessel was fully manned, fully equipped and in all

respects seaworthy; that all the logs were properly loaded andsecured; that the vessel‘s master exercised due diligence to preventor minimize the loss before, during and after the occurrence of thestorm.

"It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo was a naturaldisaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen."

5

The RTC was unconvinced that the sinking of M/V Central Bohol had beencaused by the weather or any other caso fortuito. It noted that monsoons,

which were common occurrences during the months of July to December,could have been foreseen and provided for by an ocean-going vessel.



Applying the rule of presumptive fault or negligence against the carrier, thetrial court held petitioner liable for the loss of the cargo. Thus, the RTCdeducted the salvage value of the logs in the amount of P200,000 from theprincipal claim of respondent and found that the latter was entitled to besubrogated to the rights of the insured. The court a quo disposed as follows:

"WHEREFORE, premises considered, judgment is hereby renderedin favor of the [respondent] and against the [petitioner] ordering the

latter to pay the following:

1) the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same isfully paid;

2) P80,000.00 as and for attorney‘s fees;

3) Plus costs of suit."6

Ruling of the Court of Appeals

The CA affirmed the trial court‘s finding that the southwestern monsoonencountered by the vessel was not unforeseeable. Given the season of rainsand monsoons, the ship captain and his crew should have anticipated theperils of the sea. The appellate court further held that the weather disturbance was not the sole and proximate cause of the sinking of thevessel, which was also due to the concurrent shifting of the logs in the holdthat could have resulted only from improper stowage. Thus, the carrier washeld responsible for the consequent loss of or damage to the cargo, becauseits own negligence had contributed thereto.

The CA found no merit in petitioner‘s assertion of the vessel‘s seaworthiness.

It held that the Certificates of Inspection and Drydocking were not conclusiveproofs thereof. In order to consider a vessel to be seaworthy, it must be fit tomeet the perils of the sea.

Found untenable was petitioner‘s insistence that the trial court should havegiven greater weight to the factual findings of the Board of Marine Inquiry(BMI) in the investigation of the Marine Protest filed by the ship captain,Enriquito Cahatol. The CA further observed that what petitioner hadpresented to the court a quo were mere excerpts of the testimony of CaptainCahatol given during the course of the proceedings before the BMI, not theactual findings and conclusions of the agency. Citing Arada v. CA,

7it said

that findings of the BMI were limited to the administrative liability of the

owner/operator, officers and crew of the vessel. However, the determination

of whether the carrier observed extraordinary diligence in protecting thecargo it was transporting was a function of the courts, not of the BMI.

The CA concluded that the doctrine of limited liability was not applicable, inview of petitioner‘s negligence -- particularly its improper stowage of the logs.

Hence, this Petition.8

Issues

In its Memorandum, petitioner submits the following issues for our consideration:

"(i) Whether or not the weather disturbance which caused the sinkingof the vessel M/V Central Bohol was a fortuitous event.

"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay evidence under Section 36, Rule130 of the Rules of Court.

"(iii) Whether or not the finding of the Court of Appeals that ‗the logsin the hold shifted and such shifting could only be due to improper stowage‘ has a valid and factual basis.

"(iv) Whether or not M/V Central Bohol is seaworthy.

"(v) Whether or not the Court of Appeals erred in not giving credenceto the factual finding of the Board of Marine Inquiry (BMI), anindependent government agency tasked to conduct inquiries onmaritime accidents.

"(vi) Whether or not the Doctrine of Limited Liability is applicable tothe case at bar."

9

The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of limited liability is applicable. Theseissues involve a determination of factual questions of whether the loss of thecargo was due to the occurrence of a natural disaster; and if so, whether itssole and proximate cause was such natural disaster or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss.

The Court‘s Ruling



The Petition is devoid of merit.

First Issue:

Liability for Lost Cargo

From the nature of their business and for reasons of public policy, commoncarriers are bound to observe extraordinary diligence over the goods they

transport, according to all the circumstances of each case.10 In the event of loss, destruction or deterioration of the insured goods, common carriers areresponsible; that is, unless they can prove that such loss, destruction or deterioration was brought about -- among others -- by "flood, storm,earthquake, lightning or other natural disaster or calamity."

11In all other

cases not specified under Article 1734 of the Civil Code, common carriersare presumed to have been at fault or to have acted negligently, unless theyprove that they observed extraordinary diligence.

12

In the present case, petitioner disclaims responsibility for the loss of thecargo by claiming the occurrence of a "storm" under Article 1734(1). Itattributes the sinking of its vessel solely to the weather condition between

10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.

At the outset, it must be stressed that only questions of law13

may be raisedin a petition for review on certiorari under Rule 45 of the Rules of Court.Questions of fact are not proper subjects in this mode of appeal,

14for "[t]he

Supreme Court is not a trier of facts."15

Factual findings of the CA may bereviewed on appeal

16only under exceptional circumstances such as, among

others, when the inference is manifestly mistaken,17

the judgment is basedon a misapprehension of facts,

18or the CA manifestly overlooked certain

relevant and undisputed facts that, if properly considered, would justify adifferent conclusion.

19

In the present case, petitioner has not given the Court sufficient cogentreasons to disturb the conclusion of the CA that the weather encountered bythe vessel was not a "storm" as contemplated by Article 1734(1). Establishedis the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July26, 1990, M/V Central Bohol encountered a southwestern monsoon in thecourse of its voyage.

The Note of Marine Protest,20

which the captain of the vessel issued under oath, stated that he and his crew encountered a southwestern monsoonabout 2200 hours on July 25, 1990, and another monsoon about 2400 hourson July 26, 1990. Even petitioner admitted in its Answer that the sinking of

M/V Central Bohol had been caused by the strong southwest

monsoon.21

Having made such factual representation, it cannot now beallowed to retreat and claim that the southwestern monsoon was a "storm."

The pieces of evidence with respect to the weather conditions encounteredby the vessel showed that there was a southwestern monsoon at the time.Normally expected on sea voyages, however, were such monsoons, duringwhich strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and Astronomical Services

Administration (PAGASA), testified that a thunderstorm might occur in themidst of a southwest monsoon. According to her, one did occur between 8:00p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by thePAGASA Weather Bureau.

22

Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a "storm" within the absolutory causes enumerated inthe law. Significantly, no typhoon was observed within the Philippine area of responsibility during that period.

23

According to PAGASA, a storm has a wind force of 48 to 55knots,

24equivalent to 55 to 63 miles per hour or 10 to 11 in the Beaufort

Scale. The second mate of the vessel stated that the wind was blowingaround force 7 to 8 on the Beaufort Scale.

25Consequently, the strong winds

accompanying the southwestern monsoon could not be classified as a"storm." Such winds are the ordinary vicissitudes of a sea voyage.

26

Even if the weather encountered by the ship is to be deemed a naturaldisaster under Article 1739 of the Civil Code, petitioner failed to show thatsuch natural disaster or calamity was the proximate and only cause of theloss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or worsened by thepresence of human participation.

27The defense of fortuitous event or natural

disaster cannot be successfully made when the injury could have beenavoided by human precaution.

28

Hence, if a common carrier fails to exercise due diligence -- or that ordinarycare that the circumstances of the particular case demand -- to prevent or minimize the loss before, during and after the occurrence of the naturaldisaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster under Article1734(1).

29

We also find no reason to disturb the CA‘s finding that the loss of the vesselwas caused not only by the southwestern monsoon, but also by the shifting



of the logs in the hold. Such shifting could been due only to improper stowage. The assailed Decision stated:

"Notably, in Master Cahatol‘s account, the vessel encountered thefirst southwestern monsoon at about 1[0]:00 in the evening. Themonsoon was coupled with heavy rains and rough seas yet thevessel withstood the onslaught. The second monsoon attackoccurred at about 12:00 midnight. During this occasion, the master

‗felt‘ that the logs in the hold shifted, prompting him to order secondmate Percival Dayanan to look at the bodega. Complying with thecaptain‘s order, 2nd mate Percival Dayanan found that there wasseawater in the bodega. 2nd mate Dayanan‘s account was:

‗14.T – Kung inyo pong natatandaan ang mga pangyayari,maari mo bang isalaysay ang naganap na paglubog sabarkong M/V Central Bohol?

‗S – Opo, noong ika-26 ng Julio 1990 humigit kumulang alas1:20 ng umaga (dst) habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at Cauayan

Island sakop ng El Nido, Palawan, inutusan ako ni CaptainEnriquito Cahatol na tingnan ko ang bodega; nang ako aynasa bodega, nakita ko ang loob nang bodega na maramingtubig at naririnig ko ang malakas na agos ng tubig-dagat napumapasok sa loob ng bodega ng barko; agad bumalik akokay Captain Enriquito Cahatol at sinabi ko ang malakas napagpasok ng tubig-dagat sa loob nang bodega ng barko naito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at tinawag anglahat ng mga officials at mga crew nang maipon kaminglahat ang barko ay naka-tagilid at ito ay tuloy-tuloy angpagtatagilid na ang ilan sa mga officials ay naka-hawak na

sa barandilla ng barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanya nang talunan at languyan sa dagat na malakas angalon at nang ako ay lumingon sa barko ito ay di ko nanakita.‘

"Additionally, [petitioner‘s] own witnesses, boatswain Eduardo ViñasCastro and oiler Frederick Perena, are one in saying that the vesselencountered two weather disturbances, one at around 10 o‘clock to11 o‘clock in the evening and the other at around 12 o‘clockmidnight. Both disturbances were coupled with waves and heavyrains, yet, the vessel endured the first and not the second. Why? The

reason is plain. The vessel felt the strain during the second

onslaught because the logs in the bodega shifted and there werealready seawater that seeped inside."

30

The above conclusion is supported by the fact that the vessel proceededthrough the first southwestern monsoon without any mishap, and that itbegan to list only during the second monsoon immediately after the logs hadshifted and seawater had entered the hold. In the hold, the sloshing of tons of water back and forth had created pressures that eventually caused the ship

to sink. Had the logs not shifted, the ship could have survived and reached atleast the port of El Nido. In fact, there was another motor launch that hadbeen buffeted by the same weather condition within the same area, yet it wasable to arrive safely at El Nido.

31

In its Answer, petitioner categorically admitted the allegation of respondent inparagraph 5 of the latter‘s Complaint "[t]hat at about 0125 hours on 26 July1990, while enroute to Manila, the M/V ‗Central Bohol‘ listed about 10degrees starboardside, due to the shifting of logs in the hold." Further,petitioner averred that "[t]he vessel, while navigating through this secondsouthwestern monsoon, was under extreme stress. At about 0125 hours, 26July 1990, a thud was heard in the cargo hold and the logs therein were felt

to have shifted. The vessel thereafter immediately listed by ten (10) degreesstarboardside."32

Yet, petitioner now claims that the CA‘s conclusion was grounded on merespeculations and conjectures. It alleges that it was impossible for the logs tohave shifted, because they had fitted exactly in the hold from the port to thestarboard side.

After carefully studying the records, we are inclined to believe that the logsdid indeed shift, and that they had been improperly loaded.

According to the boatswain‘s testimony, the logs were piled properly, and the

entire shipment was lashed to the vessel by cable wire.33 The ship captaintestified that out of the 376 pieces of round logs, around 360 had beenloaded in the lower hold of the vessel and 16 on deck. The logs stored in thelower hold were not secured by cable wire, because they fitted exactly fromfloor to ceiling. However, while they were placed side by side, there wereunavoidable clearances between them owing to their round shape. Thoseloaded on deck were lashed together several times across by cable wire,which had a diameter of 60 millimeters, and were secured from starboard toport.

34

It is obvious, as a matter of common sense, that the manner of stowage inthe lower hold was not sufficient to secure the logs in the event the shipshould roll in heavy weather. Notably, they were of different lengths ranging



from 3.7 to 12.7 meters.35

Being clearly prone to shifting, the round logsshould not have been stowed with nothing to hold them securely in place.Each pile of logs should have been lashed together by cable wire, and thewire fastened to the side of the hold. Considering the strong force of the windand the roll of the waves, the loose arrangement of the logs did not rule outthe possibility of their shifting. By force of gravity, those on top of the pilewould naturally roll towards the bottom of the ship.

The adjuster‘s Report, which was heavily relied upon by petitioner tostrengthen its claim that the logs had not shifted, stated that "the logs werestill properly lashed by steel chains on deck." Parenthetically, this statementreferred only to those loaded on deck and did not mention anything about thecondition of those placed in the lower hold. Thus, the finding of the surveyor that the logs were still intact clearly pertained only to those lashed on deck.

The evidence indicated that strong southwest monsoons were commonoccurrences during the month of July. Thus, the officers and crew of M/VCentral Bohol should have reasonably anticipated heavy rains, strong windsand rough seas. They should then have taken extra precaution in stowing thelogs in the hold, in consonance with their duty of observing extraordinary

diligence in safeguarding the goods. But the carrier took a calculated risk inimproperly securing the cargo. Having lost that risk, it cannot now escaperesponsibility for the loss.

Second Issue:

Doctrine of Limited Liability

The doctrine of limited liability under Article 587 of the Code of Commerce

36is not applicable to the present case. This rule does not apply to

situations in which the loss or the injury is due to the concurrent negligenceof the shipowner and the captain.

37It has already been established that the

sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as shown by the improper stowage of thecargo of logs. "Closer supervision on the part of the shipowner could haveprevented this fatal miscalculation."

38 As such, the shipowner was equally

negligent. It cannot escape liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision andResolution AFFIRMED. Costs against petitioner.

SO ORDERED.



G..R. No. 156978 May 2, 2006

ABOITIZ SHIPPING CORPORATION, Petitioner,vs.NEW INDIA ASSURANCE COMPANY, LTD., Respondent.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari are the Decision1 dated August 29, 2002 of the Court

of Appeals in CA-G.R. CV No. 28770 and its Resolution2 dated January 23,

2003 denying reconsideration. The Court of Appeals affirmed theDecision

3 dated November 20, 1989 of the Regional Trial Court of Manila in

Civil Case No. 82-1475, in favor of respondent New India AssuranceCompany, Ltd.

This petition stemmed from the action for damages against petitioner, AboitizShipping Corporation, arising from the sinking of its vessel, M/V P. Aboitiz ,on October 31, 1980.

The pertinent facts are as follows:

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliarychemicals from France on board a vessel owned by Franco-BelgianServices, Inc. The cargo was consigned to General Textile, Inc., in Manilaand insured by respondent New India Assurance Company, Ltd. While inHongkong, the cargo was transferred to M/V P. Aboitiz for transshipment toManila.

4

Before departing, the vessel was advised by the Japanese Meteorological

Center that it was safe to travel to its destination.5

But while at sea, thevessel received a report of a typhoon moving within its general path. Toavoid the typhoon, the vessel changed its course. However, it was still at thefringe of the typhoon when its hull leaked. On October 31, 1980, the vesselsank, but the captain and his crew were saved.

On November 3, 1980, the captain of M/V P. Aboitiz filed his "MarineProtest", stating that the wind force was at 10 to 15 knots at the time the shipfoundered and described the weather as "moderate breeze, small waves,becoming longer, fairly frequent white horses."

6

Thereafter, petitioner notified7 the consignee, General Textile, of the total

loss of the vessel and all of its cargoes. General Textile, lodged a claim with

respondent for the amount of its loss. Respondent paid General Textile andwas subrogated to the rights of the latter .

8

Respondent hired a surveyor, Perfect, Lambert and Company, to investigatethe cause of the sinking. In its report,

9 the surveyor concluded that the cause

was the flooding of the holds brought about by the vessel‘s questionableseaworthiness. Consequently, respondent filed a complaint for damagesagainst petitioner Aboitiz, Franco-Belgian Services and the latter‘s local

agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that the proximatecause of the loss of the shipment was the fault or negligence of the master and crew of the vessel, its unseaworthiness, and the failure of defendantstherein to exercise extraordinary diligence in the transport of the goods.Hence, respondent added, defendants therein breached their contract of carriage.

101avvphil.net

Franco-Belgian Services and Zuellig responded, claiming that they exercisedextraordinary diligence in handling the shipment while it was in their possession; its vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous event. They also filed a cross-claim against petitioner alleging that the loss occurred during the transshipment with petitioner and

so liability should rest with petitioner.

For its part, petitioner also raised the same defense that the ship wasseaworthy. It alleged that the sinking of M/V P. Aboitiz was due to anunforeseen event and without fault or negligence on its part. It also allegedthat in accordance with the real and hypothecary nature of maritime law, thesinking of M/V P. Aboitiz extinguished its liability on the loss of the cargoes.

11

Meanwhile, the Board of Marine Inquiry (BMI) conducted its owninvestigation to determine whether the captain and crew wereadministratively liable. However, petitioner neither informed respondent nor the trial court of the investigation. The BMI exonerated the captain and crew

of any administrative liability; and declared the vessel seaworthy andconcluded that the sinking was due to the vessel‘s exposure to theapproaching typhoon.

On November 20, 1989, the trial court, citing the Court of Appeals decisionin General Accident Fire and Life Assurance Corporation v. Aboitiz Shipping Corporation

12 involving the same incident, ruled in favor of respondent. It

held petitioner liable for the total value of the lost cargo plus legal interest,thus:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered infavor of New India and against Aboitiz ordering the latter to pay unto theformer the amount of P142,401.60, plus legal interest thereon until the same

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is fully paid, attorney‘s fees equivalent to fifteen [percent] (15%) of the totalamount due and the costs of suit.

The complaint with respect to Franco and Zuellig is dismissed and their counterclaim against New India is likewise dismissed

SO ORDERED.13

1avvphil.net

Petitioner elevated the case to the Court of Appeals and presented thefindings of the BMI. However, on August 29, 2002, the appellate courtaffirmed in toto the trial court‘s decision. It held that the proceedings beforethe BMI was only for the administrative liability of the captain and crew, andwas unilateral in nature, hence not binding on the courts. Petitioner movedfor reconsideration but the same was denied on January 23, 2003.

Hence, this petition for review, alleging that the Court of Appeals gravelyerred in:

I.

x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREMECOURT ON THE APPLICATION OF THE RULE ON LIMITED LIABILITYUNDER ARTICLE 587, 590 AND 837 OF THE CODE OF COMMERCE TOCASES INVOLVING THE SINKING OF THE M/V "P. ABOITIZ;

A.

x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO., INC. ET AL. V. COURT OF APPEALS ET

AL. AND ABOITIZ SHIPPING CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.;

B.

x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ONLIMITED LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE CODEOF COMMERCE HAD BEEN CONSIDERED AND PASSED UPON IN ITSDECISION;

II.

x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO

ITS PRO-RATA SHARES IN THE INSURANCE PROCEEDS FROM THESINKING OF THE M/V "P. ABOITIZ".14

Stated simply, we are asked to resolve whether the limited liability doctrine,which limits respondent‘s award of damages to its pro-rata share in theinsurance proceeds, applies in this case.

Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15

contendsthat respondent‘s claim for damages should only be against the insuranceproceeds and limited to its pro-rata share in view of the doctrine of limitedliability.

Respondent counters that the doctrine of real and hypothecary nature of maritime law is not applicable in the present case because petitioner wasfound to have been negligent. Hence, according to respondent, petitioner should be held liable for the total value of the lost cargo.

It bears stressing that this Court has variedly applied the doctrine of limitedliability to the same incident – the sinking of M/V P. Aboitiz on October 31,1980. Monarch, the latest ruling, tried to settle the conflictingpronouncements of this Court relative to the sinking of M/V P. Aboitiz .In Monarch, we said that the sinking of the vessel was not due to forcemajeure, but to its unseaworthy condition.

16 Therein, we found petitioner

concurrently negligent with the captain and crew.17

But the Court stressedthat the circumstances therein still made the doctrine of limited liabilityapplicable.

18

Our ruling in Monarch may appear inconsistent with the exception of thelimited liability doctrine, as explicitly stated in the earlier part of the Monarch decision. An exception to the limited liability doctrine is whenthe damage is due to the fault of the shipowner or to the concurrentnegligence of the shipowner and the captain. In which case, the shipowner shall be liable to the full-extent of the damage.

19 We thus find it necessary to

clarify now the applicability here of the decision in Monarch.

From the nature of their business and for reasons of public policy, commoncarriers are bound to observe extraordinary diligence over the goods theytransport according to all the circumstances of each case.

20 In the event of

loss, destruction or deterioration of the insured goods, common carriers areresponsible, unless they can prove that the loss, destruction or deteriorationwas brought about by the causes specified in Article 1734 of the CivilCode.

21 In all other cases, common carriers are presumed to have been at

fault or to have acted negligently, unless they prove that they observedextraordinary diligence.

22 Moreover, where the vessel is found unseaworthy,

the shipowner is also presumed to be negligent since it is tasked with themaintenance of its vessel. Though this duty can be delegated, still, theshipowner must exercise close supervision over its men.

23















































In the present case, petitioner has the burden of showing that it exercisedextraordinary diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine. Differently put, to limit its liability to theamount of the insurance proceeds, petitioner has the burden of proving thatthe unseaworthiness of its vessel was not due to its fault or negligence.Considering the evidence presented and the circumstances obtaining in thiscase, we find that petitioner failed to discharge this burden. It initiallyattributed the sinking to the typhoon and relied on the BMI findings that it wasnot at fault. However, both the trial and the appellate courts, in this case,found that the sinking was not due to the typhoon but to its unseaworthiness.Evidence on record showed that the weather was moderate when the vesselsank. These factual findings of the Court of Appeals, affirming those of thetrial court are not to be disturbed on appeal, but must be accorded greatweight. These findings are conclusive not only on the parties but on thisCourt as well.

24

In contrast, the findings of the BMI are not deemed always binding on thecourts.

25 Besides, exoneration of the vessel‘s officers and crew by the BMI

merely concerns their respective administrative liabilities.26

It does not in anyway operate to absolve the common carrier from its civil liabilities arisingfrom its failure to exercise extraordinary diligence, the determination of whichproperly belongs to the courts.27

Where the shipowner fails to overcome the presumption of negligence, thedoctrine of limited liability cannot be applied.

28 Therefore, we agree with the

appellate court in sustaining the trial court‘s ruling that petitioner is liable for the total value of the lost cargo.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August 29, 2002 and Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R. CV No. 28770 are AFFIRMED.

Costs against petitioner.

SO ORDERED.























[G.R. No. 140613. October 15, 2002]

SEVEN BROTHERS SHIPPING CORPORATION, petit ioner, vs .ORIENTAL ASSURANCE CORPORATION, respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J .:

In this petition for review on certiorari,[1]

Seven Brothers ShippingCorporation (Seven Brothers) assails the Decision

[2] of the Court of Appeals

dated July 19, 1999 in CA-G.R. SP No. 50262,[3]

the dispositive portion of which reads:

―WHEREFORE, the questioned orders of the publ ic respondent (RTC-Manila) are hereby REVERSED and SET ASIDE for having been issued withgrave abuse of discretion and absence of jurisdiction. Since petitioner (Oriental Assurance) is entitled to the immediate execution of this Court‘s

final and executory decision, the lifted levy and quashed execution of theRegional Trial Court are reinstated. It is further ordered that the final andexecutory Judgment in CA-G.R. CV No. 42890 be forthwith executedpending any appeal, petition for review, or petition for certiorari against thisdecision which may be raised by the respondents to the Supreme Court.

―Costs against the private respondent.

―SO ORDERED.‖

Records show that on December 20, 1998, a charter party wasexecuted between C. Alcantara & Sons, Inc. (Alcantara & Sons) and

petitioner Seven Brothers, owner of the vessel M/V ―Diamond Bear.‖ Theparties agreed, among others, that the vessel would load lauan logs atSurigao del Sur with Alcantara & Sons as consignee of the cargo.

Oriental Assurance Corporation (Oriental Assurance), respondent,insured the cargo consigned to Alcantara & Sons under a valued policy of Eight Million (P8,000,000.00) Pesos. On March 9, 1989, the cargo wasshipped on board the vessel M/V ―Diamond Bear‖ to be discharged in DavaoCity pursuant to the charter agreement.

On March 10, 1989, the entire cargo was lost when the vessel sank off the coast of Mati, Davao Oriental while en route to its destination. Alcantara& Sons then filed its claim for compensation for the loss against both Oriental

Assurance and Seven Brothers. Since Seven Brothers denied liability,

Oriental Assurance paid Alcantara & Sons P8,000,000.00 – the insured valueof the cargo – as full settlement of the claim.

Subsequently, on January 29, 1990, Oriental Assurance, in its capacityas subrogee, filed a complaint with the Regional Trial Court (RTC), Branch37, Manila, against Seven Brothers, in its capacity as owner and operator of M/V ―Diamond Bear,‖ for the recovery of the P8,000,000.00 it paid to

Alcantara and Sons, plus legal interests, attorney‘s fees and litigationexpenses, docketed as Civil Case No. 90-51833, Oriental Assurance

Corporation vs. Seven Brothers Shipping Corporation. On January 13, 1993,the RTC dismissed the complaint and the counterclaim. Oriental

Assurance‘s motion for reconsideration was likewise denied on June 1, 1993.

Oriental Assurance interposed an appeal to the Court of Appeals,docketed as CA-G.R. CV No. 42890. On September 17, 1996, the appellatecourt rendered its Decision reversing the RTC Decision, thus:

―To the mind of this Court, the loss was due, not to force majeure, but to theunseaworthiness of defendant‘s vessel. As correctly observed by theplaintiff, the vessel sank because she was not a tight, staunch and strongvessel. Hence defendant failed to exercise extraordinary diligence required of

a common carrier. This being so, Article 841, not Article 840, of the Code of Commerce finds application in this case, in accordance with thepronouncement inTan Chiong Sian vs. Inchausti and Co. (22 Phil. 152), thus:

'Treating of shipwrecks, article 840 of the Code of Commerce prescribes:

‗The losses and damages suffered by a vessel and her cargo by reason of shipwreck or stranding shall be individually for the account of the owners, thepart of the wreck which may be saved belonging to them in the sameproportion.

'And Article 841 of the same Code reads:

'If the wreck or stranding should arise through malice, negligence, or lack of skill of the captain, or because the vessel put to sea insufficiently repairedand supplied, the owner or the freighters may demand indemnity of thecaptain for the damages caused to the vessel or cargo by the accident, inaccordance with the provisions contained in articles 610, 612, 614 and 621.

'The general rule established in the first of the foregoing articles is that theloss of the vessel and of its cargo as the result of shipwreck, shall fall uponthe respective owners thereof save for the exceptions specified in the secondof the said articles.

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'These legal provisions are in harmony with those of Articles 361 and 362 of the Code of Commerce, and are applicable whenever it is proved that theloss of or damage to the goods was the result of fortuitous event or of forcemajeure; but the carrier shall be liable for the loss or damage arising from thecauses aforementioned if it shall have been proven that they occurredthrough his own fault or negligence or by his failure to take the sameprecautions usually adopted by diligent and careful persons.' (emphasisadded)

―It having been shown that defendant is liable for the loss of the shipment of logs as a result of the sinking of its vessel, the MV ―Diamond Bear‖, on March9, 1989, it is obliged to pay plaintiff as subrogee the amount of P8,000,000.00 which the latter paid to the consignee Alcantara and Sons,Inc., on the basis of the marine insurance policy covering saidshipment. However, this Court finds no sufficient basis to award attorney‘sfees in plaintiff‘s favor.

―WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and accordingly, another judgment is rendered ordering defendant topay plaintiff the amount of P8,000,000.00, plus interest at the legal rate

computed from January 11, 1990, the date the complaint was filed, until saidsum shall have been fully paid.

―No pronouncement as to costs.‖

Seven Brothers filed a motion for reconsideration but was denied by theCourt of Appeals on April 21, 1997.

Forthwith, Seven Brothers filed with this Court a petition for review oncertiorari, docketed as G.R. No. 128982. On July 16, 1997, this Court issueda Resolution dismissing the petition for lack of a certification of non-forumshopping. On October 1, 1997, Seven Brothers‘ motion for reconsideration

was denied with finality. On October 31, 1997, an Entry of Judgment wasrendered.

On March 31, 1998, the RTC granted Oriental Assurance‘s urgentmotion for issuance of a writ of execution in Civil Case No. 90-51833. Thewrit commanded the sheriff to satisfy, out of the goods and chattels of SevenBrothers, the sum of P8,000,000.00 with legal interest and the costs of suit infavor of Oriental Assurance. Thereupon, the sheriff levied on SevenBrothers‘ vessels, the M/V ―Diamond Deer‖ and the M/V ―DiamondRabbit.‖ The auction sale was set on April 17, 1998.

However, on April 14, 1998, Seven Brothers filed with the trial court amotion to quash the writ of execution and to lift the levy on its

vessels. Seven Brothers contended that:

―a) The Sheriff‘s levy on M/V Diamond Deer was invalid because the vesselis not owned by Seven Brothers but by H. Superservice ShippingCorporation, (―H. Superservice‖) a Panama company;

―b) The levy on M/V Diamond Rabbit was in violation of the Rules of Court,Rule 39, Section 9(a) and (b) because Sheriff did not make a demand on thepetitioner for payment of the judgment in cash, prior to levying on the vessel,as required by Rule 39, Section 9(a), nor allowed the petitioner to exercisethe option granted to it under Section 9(b);

and

―c) Their liability to Or iental Assurance had already been extinguished uponthe sinking of the vessel M/V Diamond Bear, in accordance with the LimitedLiability Rule in maritime law.‖

Surprisingly, despite the fact that the judgment in Civil Case No. 90-51833 has become final and executory, the RTC issued an order grantingSeven Brother‘s motion on the ground that ―the records of the case do notbear out an actual finding of negligence on the part of the defendant (SevenBrothers) which would preclude the application of the Limited Liability Rule;‖that the documentary evidence offered by Seven Brothers during the hearing

of Civil Case No. 90-51833 shows that it is not the owner of M/V ―DiamondDeer;‖ and that without a prior demand to pay in cash, the sheriff‘s levy onM/V ―Diamond Rabbit‖ violated the Rules of Civil Procedure.

Oriental Assurance filed with the Court of Appeals a petition for certiorarichallenging the RTC order quashing the writ of execution and lifting the levyon Seven Brother‘s vessels. In its Decision,

[4] the Court of Appeals held that

the RTC judge acted with grave abuse of discretion and ―in the absence of jurisdiction.‖ Thus, the appellate court set aside the RTC Decision andreinstated the writ of execution and the levy on Seven Brothers M/V―Diamond Deer‖ and M/V ―Diamond Rabbit.‖

Hence, this petition for review on certiorari ascribing to the Court of

Appeals the following errors:

―a) The Honorable Court of Appeals seriously erred in not applying the American Limited Liability Act and pertinent decisions of the Philippine and American courts;

―b) The Honorable Court of Appeals committed reversible error in reinstatingthe levy on the chartered vessel, MV ―Diamond Deer‖ owned by H.Superservice Shipping Corporation, to be sold to satisfy the obligation of thecharterer, Seven Brothers.







―c) The Honorable Court of Appeals was in grave error in not ruling that theSheriff violated the Rules of Court in levying upon the vessels MV ―DiamondDeer‖ and ―MV Diamond Rabbit.‖

It bears reiterating that the Court of Appeals, in its Decision in CA-G.R.CV No. 42890, reversed the RTC Decision in Civil Case No. 90-51833,holding that Seven Brothers is liable for the loss of the shipment of logs for itsfailure to exercise extraordinary diligence required of a common carrier. Theappellate court thus ordered Seven Brothers to pay Oriental AssuranceP8,000,000.00 plus interest at the legal rate computed from January 11,1990, the date of the filing of the complaint, until fully paid.

Seven Brothers' petition for review on certiorari (G.R. No. 128982)challenging the decision of the Court of Appeals in CA-G.R. CV No. 42890was dismissed by this Court in a Resolution dated July 16, 1997 for lack of acertification against forum shopping. The said Resolution became final andexecutory on October 31, 1997 per Entry of Judgment.

[5]

The rule in this jurisdiction is that once a decision has become final andexecutory, no further amendment or correction can be made by thecourt, except to order its execution and to correct clerical errors and

mistakes. The court loses jurisdiction over the case and not even anappellate court would have the power to review a judgment that has acquiredfinality.

[6] Thus, Seven Brothers can no longer raise in the instant petition

matters that have been passed upon and decided with finality in a previouscase.

As was long enunciated by this Court, ―it is the general rule common toall civilized systems of jurisprudence that the solemn and deliberate sentenceof the law, pronounced by its appointed organs, upon a disputed fact or stateof facts, should be regarded as a final and conclusive determination of thequestion litigated and should forever set the controversy at rest. Indeed, ithas been well said that this maxim is more than a mere rule of law; moreeven than an important principle of public policy; and that it is not too much to

say that it is a fundamental concept in the organization of every juralsociety.‖

[7]

In Lim vs. Jabalde,[8]

this Court further explained the necessity of adhering to the doctrine of immutability of final judgments, thus:

―Litigation must end and terminate sometime and somewhere and it isessential to an effective and efficient administration of justice that, once a

judgment has become final, the winning party be, not through a meresubterfuge, deprived of the fruits of the verdict. Courts must therefore guardagainst any scheme calculated to bring about that result. Constituted as theyare to put an end to controversies, courts should frown upon any attempt to

prolong them.‖

Just recently, we emphatically declared in In Re: Petition for Clarificationas to the Validity and Forceful Effect of Two (2) Final and Executory butConflicting Decisions of the Honorable Supreme Court:

[9]

―Every litigation must come to an end once a judgment becomes final,executory and unappealable. This is a fundamental and immutable legalprinciple. For ‗(j)ust as a losing party has the right to file an appeal within theprescribed period, the winning party also has the correlative right to enjoy thefinality of the resolution of his case‘ by the execution and satisfaction of the

judgment, which is the ‗life of the law.‘ Any attempt to thwart this rigid ruleand deny the prevailing litigant his right to savour the fruit of his victory, mustimmediately be struck down.―

Indeed, we cannot permit a losing party to further delay or thwart theexecution of judgment against it by continuously rehashing allegations thathave long been rejected.

We also find untenable Seven Brothers‘ contention that there was animproper levy upon the subject vessels.

Section 9, Rule 39 of the 1997 Rules of Civil Procedure, as amended,

provides:

"(a) Immediate payment on demand . – The officer shall enforce an executionof a judgment for money by demanding from the judgment obligor theimmediate payment of the full amount stated in the writ of execution and alllawful fees. The judgment obligor shall pay in cash, certified bank checkpayable to the judgment obligee, or any other form of payment acceptable tothe latter, the amount of the judgment debt under proper receipt directly tothe judgment obligee or his authorized representative if present at the time of payment. The lawful fees shall be handed under proper receipt to theexecuting sheriff who shall turn over the said amount within the same day tothe clerk of court of the court that issued the writ.

x x x

"(b) Satisfaction by levy . – If the judgment obligor cannot pay all or part of theobligation in cash, certified bank check or other mode of payment acceptableto the judgment obligee, the officer shall levy upon the properties of the

judgment obligor of every kind and nature whatsoever which may bedisposed of for value and not otherwise exempt from execution giving thelatter the option to immediately choose which property or part thereof may belevied upon, sufficient to satisfy the judgment. If the judgment obligor doesnot exercise the option, the officer shall first levy on the personal properties,if any, and then on the real properties if the personal properties areinsufficient to answer for the judgment. x x x"












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Seven Brothers contends that the sheriff did not make a demand to payits obligation in cash as required by the Rules and that absent such demand,the sheriff could not levy on its vessels.

Such contention lacks merit. In Torres vs. Cabling [10]

where thesheriff immediately levied on the judgment obligor‘s property, this Courtheld:

―A sheriff is not required to give the judgment debtor some time to raise

cash. If time be given, the property may be placed in danger of being lost or absconded. In the instant case, we doubt that the complainant was readywith cold cash to pay the judgment debt.‖

Based on evidence submitted by Oriental Assurance,[11]

the Court of Appeals found that the existing assets of Seven Brothers were insufficient tosatisfy the final judgment against it. Seven Brothers made no attempt todisprove such finding. In its motion to quash the writ of execution and theattendant levy, it did not even post a cash bond. Clearly, the sheriff recognized that Seven Brothers was in no position to pay its obligation incash, hence the immediate levy. Moreover, as aptly stated by the Court of

Appeals, the vessels will sail beyond the reach of Philippine courts and law

enforcers.[12]

This Court recognizes the importance of procedural rules in insuring theeffective enforcement of substantive rights through the orderly and speedyadministration of justice.

[13] However, while it is desirable that the Rules of

Court be conscientiously observed, the Court has never hesitated, inmeritorious cases, to interpret said rules liberally. Thus, in Cometa vs. Court of Appeals,

[14] this Court held that ―x x x since rules of procedure are mere

tools designed to facilitate the attainment of justice, their strict and rigidapplication which would result in technicalities that tend to frustrate rather than promote substantial justice must always be avoided.‖ Cometa alsocites Dayag vs. Canizares,

[15] where this Court stated that ―rules of procedure

must be interpreted in a manner that will help secure and not defeat justice.‖ WHEREFORE, the instant petition is DENIED. The challenged Decision

of the Court of Appeals dated July 19, 1999 in CA-G.R. SP No. 50262 ishereby AFFIRMED.

SO ORDERED.












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[G.R. No. 119641. May 17, 1996]

PHILIPPINE AIRLINES, INC., petitio ner, vs. COURT OF APPEALS, DR.JOSEFINO MIRANDA and LUISA MIRANDA, respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF AIRCARRIAGE; A RELATION ATTENDED WITH PUBLIC DUTY;DISCOURTEOUS CONDUCT TOWARDS A PASSENGER GIVESRISE FOR AN ACTION FOR DAMAGES. - The Court has time andagain ruled, and it cannot be over-emphasized, that a contract of air carriage generates a relation attended with a public duty and anydiscourteous conduct on the part of a carrier‘s employee toward apassenger gives the latter an action for damages and, more so, wherethere is bad faith. While it may be true that there was no direct evidenceon record of blatant rudeness on the part of PAL employees towards theMirandas, the fact that private respondents were practically compelledto haggle for accommodations, a situation unbefitting persons of their

stature, is rather demeaning and it partakes of discourtesy magnified byPAL‘s condescending attitude. Moreover, it cannot be denied that thePAL employees herein concerned were definitely less than candid, toput it mildly, when they withheld information from private respondentsthat they could actually be accommodated in a hotel of their choice.

2. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE TRIAL ANDAPPELLATE COURT ON THE EXISTENCE OF BAD FAITH ON THEPART OF THE CARRIER, GENERALLY NOT DISTURBED ONAPPEAL. - It is settled that bad faith must be duly proved and notmerely presumed. The existence of bad faith, being a factual question,and the Supreme Court not being a trier of facts, the findings thereon of the trial court as well as of the Court of Appeals shall not be disturbed

on appeal and are entitled to great weight and respect. Said findings arefinal and conclusive upon the Supreme Court except, inter alia, wherethe findings of the Court of Appeals and the trial court are contrary toeach other.

3. ID.; ID.; ID.; CASE AT BAR. - It is evident that the issues raised in thispetition are the correctness of the factual findings of the Court of

Appeals of bad faith on the part of petitioner and the award of damagesagainst it. This Court has consistently held that the findings of the Courtof Appeals and the other lower courts are as a rule binding upon it,subject to certain exceptions created by case law. As nothing in therecord indicates any of such exceptions, the factual conclusions of the

appellate court must be affirmed.

4. CIVIL LAW; DAMAGES; MORAL DAMAGES; RECOVERABLE IN ABREACH OF CONTRACT ATTENDED WITH FRAUD OR BAD FAITH;INATTENTION TO AND LACK OF CARE FOR INTERESTS OFPASSENGERS AMOUNTS TO BAD FAITH. - It is now firmly settledthat moral damages are recoverable in suits predicated on breach of acontract of carriage where it is proved that the carrier was guilty of fraudor bad faith. Inattention to and lack of care for the interests of itspassengers who are entitled to its utmost consideration, particularly asto their convenience, amount to bad faith which entitles the passenger

to an award of moral damages. What the law considers as bad faithwhich may furnish the ground for an award of moral damages would bebad faith in securing the contract and in the execution thereof, as well asin the enforcement of its terms, or any other kind of deceit. Suchunprofessional and prescribed conduct is attributable to petitioner airlinein the case at bar and the adverse doctrinal rule is accordinglyapplicable to it.

5. ID.; ID.; ID.; AWARDED TO COMPENSATE PLAINTIFF’S INJURIES. - It must, of course, be borne in mind that moral damages are notawarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered.

6. ID.; ID.; EXEMPLARY DAMAGES; AWARDED WHERE DEFENDANTACTED IN WANTON, FRAUDULENT AND OPPRESSIVE MANNER. - In a contractual or quasi-contractual relationship, exemplary damages,on the other hand, may be awarded only if the defendant had acted in awanton, fraudulent, reckless, oppressive or malevolent manner.

7. ID.; ID.; ATTORNEY’S FEES; AWARDED WHERE THERE IS A

FINDING OF BAD FAITH; CASE AT BAR. - Attorney‘s fees in theconcept of damages may be awarded where there is a finding of badfaith. The evidence on record amply sustains, and we correspondinglyfind, that the awards assessed against petitioner on the aforestateditems of damages are justified and reasonable.

8. ID.; OBLIGATIONS AND CONTRACTS; CONTRACT OF AIRCARRIAGE; LIABILITY OF CARRIER NOT LIMITED BY THEPROVISIONS OF WARSAW CONVENTION. - Although the WarsawConvention has the force and effect of law in this country, being a treatycommitment assumed by the Philippine government, said conventiondoes not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as anabsolute limit of the extent of that liability. The Warsaw Conventiondeclares the carrier liable in the enumerated cases and under certainlimitations. However, it must not be construed to preclude the operationof the Civil Code and pertinent laws. It does not regulate, much lessexempt, the carrier from liability for damages for violating the rights of itspassengers under the contract of carriage, especially if willful



misconduct on the part of the carrier‘s employees is found or established. (Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al.,G.R. No. 60501, March 5, 1993)

APPEARANCES OF COUNSEL

Siguion Reyna Montecillo & Ongsiako for petitioner. Noel P. Catre for private respondents.

D E C I S I O NREGALADO, J .:

In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL)assails the decision of respondent Court of Appeals in CA-G.R. CV No.29147

1 which affirmed the judgment of the trial court finding herein petitioner

liable as follows:

―Wherefore, premises considered, judgment is hereby rendered ordering thedefendant, Philippine Airlines or PAL, to pay to the plaintiffs, Dr. JosefinoMiranda and Luisa Miranda, the sum of P100,000.00 as moral damages;

P30,000.00 as exemplary or corrective damages; P 10,000.00 as attorney‘sfees; and the costs.‖2

The factual antecedents of the present petition reveal that sometime inMay, 1988, Dr. Josefino Miranda and his wife, Luisa, who were residentsof Surigao City, went to the United States of America on a regular flight of Philippine Airlines, Inc. (PAL). On June 19, 1988, after a stay of over a monththere, they obtained confirmed bookings from PAL‘s San Francisco Office for PAL Flight PR 101 from San Francisco to Manila via Honolulu on June 21,1988; PAL Flight PR 851 from Manila to Cebu on June 24, 1988; and PALFlight PR 905 from Cebu to Surigao also on June 24, 1988.

Accordingly, on June 21, 1988, private respondents boarded PAL FlightPR 101 in San Francisco with five (5) pieces of baggage. After a stopover at Honolulu, and upon arrival in Manila on June 23, 1988, they were told bythe PAL personnel that their baggage consisting of two balikbayan boxes,two pieces of luggage and one fishing rod case were off-loadedat Honolulu, Hawaii due to weight limitations. Consequently, privaterespondents missed their connecting flight from Manila to Cebu City, asoriginally scheduled, since they had to wait for their baggage which arrivedthe following day, June 24, 1988, after their pre-scheduled connecting flighthad left. They consequently also missed their other scheduled connectingflight from Cebu City to Surigao City.

On June 25, 1988, they departed for Cebu City and therefrom private

respondents had to transfer to PAL Flight 471 for Surigao City. On the way

to Surigao City, the pilot announced that they had to returnto Mactan Airport due to some mechanical problem. While at Mactan Airport,the passengers were provided by PAL with lunch and were booked for theafternoon flight to Surigao City. However, said flight was also canceled.

Since there were no more flights for Surigao City that day, privaterespondents asked to be billeted at the Cebu Plaza Hotel where they usuallystay whenever they happen to be in Cebu City. They were, however, told bythe PAL employees that they could not be accommodated at said hotel

supposedly because it was fully booked. Contrarily, when Dr. Miranda calledthe hotel, he was informed that he and his wife could be accommodatedthere. Although reluctant at first, PAL eventually agreed to privaterespondents‘ overnight stay at said hotel. Oscar Jereza, PAL duty manager,approved the corresponding hotel authority with standard meals. It was onlyafter private respondents‘ insistence that their meals be ordered a lacarte that they were allowed to do so by PAL provided that they sign for their orders.

Inasmuch as the shuttle bus had already left by the time privaterespondents were ready to go to the hotel, PAL offered them P 150.00 toinclude the fare for the return trip to the airport. Dr. Miranda asked for P150.00 more as he and his wife, along with all of their baggages, could notbe accommodated in just one taxi, aside from the need for tipping money for hotel boys. Upon refusal of this simple request, Dr. Miranda then declaredthat he would forego the amenities offered by PAL. Thus, the voucher for P150.00 and the authority for the hotel accommodations prepared by PALwere voided due to private respondents‘ decision not to avail themselvesthereof.

To aggravate the muddled situation, when private respondents tried toretrieve their baggage, they were told this time that the same were loaded onanother earlier PAL flight to Surigao City. Thus, private respondentsproceeded to the hotel sans their baggage and of which they were deprivedfor the remainder of their trip. Private respondents were finally able to leave

on board the first PAL flight to Surigao City only on June 26, 1988.Thereafter, they instituted an action for damages which, after trial as well ason appeal, was decided in their favor.

Petitioner PAL has come to us via the instant petition for review oncertiorari, wherein it challenges the affirmatory decision of respondent Courtof Appeals

3 (1) for applying Articles 2220, 2232 and 2208 of the Civil Code

when it sustained the award of the court a quo for moral and exemplarydamages and attorney‘s fees despite absence of bad faith on its part; and (2)for not applying the express provisions of the contract of carriage andpertinent provisions of the Warsaw Convention limiting its liability toUS$20.00 per kilo of baggage.

http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/119641.htm#_ftn1












1. Anent the first issue, petitioner argues that there was no bad faith onits part for while there was admittedly a delay in fulfilling its obligation under the contract of carriage with respect to the transport of passengers and thedelivery of their baggage, such delay was justified by the paramountconsideration of ensuring the safety of its passengers. It likewise maintainsthat its employees treated private respondents fairly and with courtesy to theextent of acceding to most of their demands in order to mitigate theinconvenience occasioned by the measures undertaken by the airline toensure passenger safety.

4

It reiterated its position that the off-loading of private respondents‘baggage was due to ―weight limitations,‖ as lengthily explained by petitioner from an aeronautically technical viewpoint,

5 taking into consideration such

variable factors as flight distance, weather, air resistance, runway conditionand fuel requirement. Given the variable weather conditions, it claimed thatthe weight limitation for each flight can only be ascertained shortly beforetake-off. While admittedly there would be a resulting inconvenience in theaccommodations of the passengers and the handling of their cargo, thesame is outweighed by the paramount concern for the safety of the flight.

Petitioner moreover impugns the Court of Appeal‘s allegedly improper reliance on the inaccurate interpretation of the testimony of PAL‘s baggageservice representative, Edgar Mondejar ,* that private respondents‘ baggagewere off-loaded to give preference to baggage and/or cargo originatingfrom Honolulu. PAL argues that Mondejar‘s knowledge of what transpiredin Honolulu was merely based on the telex report forwarded toPAL‘s Manila station stating that the off-loading was due to weightlimitations.

6

Petitioner enumerates the following incidents as indicative of its goodfaith in dealing with private respondents: (1) The cancellation of the flight toSurigao City due to mechanical/engine trouble was to ensure the safety of passengers and cargo; (2) PAL offered to shoulder private respondents‘preferred accommodations, meals and transportation while in Cebu City with

more than the usual amenities given in cases of flight disruption, and gavethem priority in the following day‘s flight to Surigao City; (3) PAL employeesdid not act rudely towards private respondents and its managerial personneleven gave them special attention; (4) It was reasonable for PAL to limit thetransportation expense to P150.00, considering that the fare between theairport and the hotel was only P75.00, and they would be picked up by theshuttle bus from the hotel to the airport, while the request for money for tipscould not be justified; and (5)The inadvertent loading of private respondents‘baggage on the replacement flight to Surigao City was at most simple andexcusable negligence due to the numerous flight disruptions and largenumber of baggages on that day.

Petitioner strenuously, and understandably, insists that its employeesdid not lie to private respondents regarding the want of accommodations at

the latter‘s hotel of preference. The only reason why Cebu Plaza Hotel wasnot initially offered to them by PAL was because of the earlier advice of thehotel personnel that not all the stranded PAL passengers could beaccommodated therein. It claimed that it was in accordance with the airline‘spolicy of housing all affected passengers in one location for easycommunication and transportation, which accommodations in this instancecould be provided by Magellan Hotel. However, upon insistence of theMirandas on their preference for Cebu Plaza Hotel, Jeremias Tumulak, PAL‘spassenger relations officer, told them that they could use the office phone

and that if they could arrange for such accommodation PAL would shoulder the expenses. This concession, so petitioner avers, negates any maliciousintent on its part.

Crucial to the determination of the propriety of the award of damages inthis case is the lower court‘s findings on the matter of bad faith, whichdeserves to be quoted at length:

―These claims were reasonable and appeared to be supported by theevidence. Thus it cannot be denied that plaintiffs had to undergo somepersonal inconveniences in Manila for lack of their baggage. It is also highlyprobable that plaintiffs‘ scheduled return to Surigao City was upset because

of their having to wait for one day for their missing things. Consequently, itwas quite evident that the off-loading of plaintiffs‘ baggage in Honolulu wasthe proximate cause of plaintiffs‘ subsequent inconveniences for which theyclaimed to have suffered social humiliation, wounded feelings, frustration andmental anguish.

xxx xxx xxx

―In the present case there was a breach of contract committed in bad faith bythe defendant airlines. As previously noted, plaintiffs had a confirmedbooking on PAL Flight PR 101 from San Francisco to Manila. Thereforeplaintiffs were entitled to an assured passage not only for themselves but for their baggage as well. They had a legal right to rely on this.

―The evidence showed that plaintiffs‘ baggage were properly loaded andstowed in the plane when it left San Francisco for Honolulu. The off-loadingor bumping off by defendant airlines of plaintiffs‘ baggage to give way toother passengers or cargo was an arbitrary and oppressive act which clearlyamounted to a breach of contract committed in bad faith and with malice. Inthe aforecited case, the Supreme Court defined bad faith as a breach of aknown duty through some motive of interest or ill will. Self-enrichment or fraternal interest, and not personal ill will, may have been the motive, but it ismalice nevertheless (infra).



















―As correctly pointed out in the Memorandum for Plaintiffs dated June 18,1990 (pp. 4-5), the following excerpt from the testimony of Edgar Mondejar clearly demonstrated the act of discrimination perpetrated by defendant onthe herein plaintiffs (TSN, Edgar Mondejar, Feb. 28, 1990, pp. 26-28), thus:

Q: Before a plane departs, your office will see to it the plane loadsthe exact weight limitation insofar as the cargoes (sic) andpassengers are concerned, is that correct?

A: Yes.

Q: And so with the PR 101 flight starting mainland USA, itcomplied with the weight limitation, passengers and baggages(sic) limitation, is that correct?

A: Yes.

Q: In other words the trip from the mainland USA startedin Hawaii to off-load cargoes (sic), you complied with theweight limitation and so on?

A: Yes.

Q: But you are saying upon arriving in Honolulu certain containerswere off-loaded?

A: Yes.

Q: That would be therefore some containers were off-loaded togive way to some other containers startingfrom Honolulu towards Manila?

A: Yes.

Q: In other words Mr. Mondejar, preference was given to cargoes(sic) newly loaded at Honolulu instead of the cargoes (sic)already from mainland USA, is that correct?

A: Yes.

―The aforesaid testimony constituted a clear admission in defendant‘sevidence of facts amounting to a breach of contract in bad faith. This beingso, defendant must be held liable in damages for the consequences of itsaction.‖

7(Corrections indicated in original text.)

The trial court further found that the situation was aggravated by thefollowing incidents: the poor treatment of the Mirandas by the PALemployees during the stopover at Mactan Airport in Cebu; the cavalier anddubious response of petitioner‘s personnel to the Miranda spouses‘ requestto be billeted at the Cebu Plaza Hotel by denying the same allegedly

because it was fully booked, which claim was belied by the fact that Dr.Miranda was easily able to arrange for accommodations thereat; and, thePAL employees‘ negligent, almost malicious, act of sending off the baggageof private respondents to Surigao City, while they were still in Cebu, withoutany explanation for this gross oversight.

8

The Court of Appeals affirmed these findings of the trial court by statingthat –

‖While we recognize an airline‘s prerogative to off-load baggag(e) to conformwith weight limitations for the purpose of ensuring the safety of passengers,We, however, cannot sanction the motion (sic) and manner it was carried outin this case.

―It is uncontroverted that appellees‘ baggag(e) were properly weighed andloaded in the plane when it left San Francisco for Honolulu. When theyreached Honolulu, they were not informed that their baggag(e) would be off-loaded. Ironically, if the purpose of the off-loading was to conform with theweight limitations, why were other containers loaded in Honolulu? The realreason was revealed by Edgar Mondejar, baggage service representative of the appellant. x x x

9

xxx xxx xxx

―As earlier noted, the off -loading of appellees‘ baggag(e) was done in badfaith because it was not really for the purpose of complying with weightlimitations but to give undue preference to newly-loaded baggag(e)in Honolulu. This was followed by another mishandling of said baggag(e) inthe twice-cancelled connecting flight from Cebu to Surigao. Appellees‘ sadexperience was further aggravated by the misconduct of appellant‘spersonnel in Cebu, who lied to appellees in denying their request to bebilleted at Cebu Plaza Hotel.‖

10

The Court has time and again ruled, and it cannot be over-emphasized,that a contract of air carriage generates a relation attended with a public dutyand any discourteous conduct on the part of a carrier‘s employee toward apassenger gives the latter an action for damages and, more so, where thereis bad faith.

11

It is settled that bad faith must be duly proved and not merely presumed.The existence of bad faith, being a factual question, and the Supreme Courtnot being a trier of facts, the findings thereon of the trial court as well as of the Court of Appeals shall not be disturbed on appeal and are entitled togreat weight and respect.

12 Said findings are final and conclusive upon the

Supreme Court except, inter alia, where the findings of the Court of Appeals

and the trial court are contrary to each other .13






























It is evident that the issues raised in this petition are the correctness of the factual findings of the Court of Appeals of bad faith on the part of petitioner and the award of damages against it. This Court has consistentlyheld that the findings of the Court of Appeals and the other lower courts areas a rule binding upon it, subject to certain exceptions created by case law.

As nothing in the record indicates any of such exceptions, the factualconclusions of the appellate court must be affirmed.

14

It is now firmly settled that moral damages are recoverable in suits

predicated on breach of a contract of carriage where it is proved that thecarrier was guilty of fraud or bad faith.15

Inattention to and lack of care for theinterests of its passengers who are entitled to its utmost consideration,particularly as to their convenience, amount to bad faith which entitles thepassenger to an award of moral damages. What the law considers as badfaith which may furnish the ground for an award of moral damages would bebad faith in securing the contract and in the execution thereof, as well as inthe enforcement of its terms, or any other kind of deceit.

16 Such

unprofessional and proscribed conduct is attributable to petitioner airline inthe case at bar and the adverse doctrinal rule is accordingly applicable to it.

In Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al.,17

a casewhich is virtually on all fours with the present controversy, we stated:

―In the case at bar, both the trial court and the appellate court found thatCATHAY was grossly negligent and reckless when it failed to deliver theluggage of petitioner at the appointed place and time. We agree. x x x. Whilethe mere failure of CATHAY to deliver respondent‘s luggage at the agreedplace and time did not ipso facto amount to willful misconduct since theluggage was eventually delivered to private respondent, albeit belatedly, Weare persuaded that the employees of CATHAY acted in bad faith. x x x

―x x x if the defendant airline is shown to have acted fraudulently or in badfaith, the award of moral and exemplary damages is proper.‖

It must, of course, be borne in mind that moral damages are notawarded to penalize the defendant but to compensate the plaintiff for theinjuries he may have suffered.

18 In a contractual or quasi-contractual

relationship, exemplary damages, on the other hand, may be awarded only if the defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent manner .

19 Attorney‘s fees in the concept of damages may

be awarded where there is a finding of bad faith.20

The evidence on recordamply sustains, and we correspondingly find, that the awards assessedagainst petitioner on the aforestated items of damages are justified andreasonable.

At this juncture, it may also be pointed out that it is PAL‘s duty to provideassistance to private respondents and, for that matter, any other passenger

similarly inconvenienced due to delay in the completion of the transport andthe receipt of their baggage. Therefore, its unilateral and voluntary act of providing cash assistance is deemed part of its obligation as an air carrier,and is hardly anything to rave about. Likewise, arrangements for andverification of requested hotel accommodations for private respondents couldand should have been done by PAL employees themselves, and not by Dr.Miranda. It was rather patronizing of PAL to make much of the fact that theyallowed Dr. Miranda to use its office telephone in order to get a hotel room.

While it may be true that there was no direct evidence on record of blatant rudeness on the part of PAL employees towards the Mirandas, thefact that private respondents were practically compelled to haggle for accommodations, a situation unbefitting persons of their stature, is rather demeaning and it partakes of discourtesy magnified by PAL‘s condescendingattitude. Moreover, it cannot be denied that the PAL employees hereinconcerned were definitely less than candid, to put it mildly, when theywithheld information from private respondents that they could actually beaccommodated in a hotel of their choice.

Indeed, the flambuoyant testimony of Oscar Jereza,* as PAL‘s duty

manager, merely pays lip-service to, without putting into reality, the avowedcompany policy of invariably making available and always granting therequests for the kind and standard of accommodations demanded by andappropriate for its passengers.

21 Certainly, a more efficient service, and not a

lackadaisical and disorganized system, is expected of the nations‘ flagcarrier, especially on an international flight.

For, on the picayune matter of transportation expenses, PAL wasobviously and unduly scrimping even on the small amount to be given to theMirandas. PAL failed to consider that they were making arrangements for twopaying round-trip passengers, not penny-ante freeloaders, who had beeninconvenienced by the numerous delays in flight services and carelesshandling of their belongings by PAL. The niggardly attitude of its personnel inthis unfortunate incident, as well as their hair-splitting attempts at justification,

is a disservice to the image which our national airline seeks to project in itscostly advertisements.

We agree with the findings of the lower court that the request of privaterespondents for monetary assistance of P300.00 for taxi fare was indeed

justified, considering that there were two of them and they had several piecesof luggage which had to be ferried between the airport and the hotel. Also,the request for a small additional sum for tips is equally reasonable sincetipping, especially in a first-rate hotel, is an accepted practice, of which theCourt can take judicial notice. This is aside from the fact that privaterespondents, having just arrived from an extended trip abroad, had alreadyrun out of Philippine currency, which predicament was exacerbated by their additional stay in Maniladue to the off-loading of their baggage. All theseinconveniences should have warranted a commonsensical and more







































understanding treatment from PAL, considering that private respondentsfound themselves in this unpleasant situation through no fault of theirs.

2. On its second issue, petitioner avers that the express provisions onprivate respondents‘ tickets stipulating that liability for delay in delivery of baggage shall be limited to US$20.00 per kilo of baggage delayed, unlessthe passenger declares a higher valuation, constitutes the contract of carriage between PAL and private respondents.

It further contends that these express provisions are in compliance withthe provisions of the Warsaw Convention for the Unification of Rules Relatingto International Carrier by Air, to which the Philippines is a signatory.Thereunder, it is asserted that PAL flight PR 101 from SanFrancisco, U.S.A. to Manila, Philippines is an ―international transportation‖well within the coverage of the Warsaw Convention.

Petitioner obstinately insists on the applicability of the provisions of theWarsaw Convention regarding the carrier‘s limited liability since the off -loading was supposedly justified and not attended by bad faith. Neither wasthere any claim for loss of baggage as in fact private respondents‘ baggagewere, albeit delayed, received by them in good condition.

22

The court a quo debunked petitioner‘s arguments by this holding:

―The defense raised by defendant airlines that it can be held liable only under the terms of the Warsaw Convention (Answer, Special and AffirmativeDefenses, dated October 26, 1988) is of no moment. For it has also beenheld that Articles 17, 18 and 19 of the Warsaw Convention of 1929 merelydeclare the air carriers liable for damages in the cases enumerated therein, if the conditions specified are present. Neither the provisions of said articlesnor others regulate or exclude liability for other breaches of contract by air carriers (Northwest Airlines, Inc. vs. Nicolas Cuenca, et al., 14 SCRA1063).‖

23

This ruling of the trial court was affirmed by respondent Court of Appeals, thus:

―We are not persuaded. Appellees do not seek payment for loss of anybaggage. They are claiming damages arising from the discriminatory off-loading of their baggag(e). That cannot be limited by the printed conditions inthe tickets and baggage checks. Neither can the Warsaw Conventionexclude nor regulate the liability for other breaches of contract by air carriers.

A recognition of the Warsaw Convention does not preclude the operation of our Civil Code and related laws in determining the extent of liability of common carriers in breach of contract of carriage, particularly for willfulmisconduct of their employees.‖

24

The congruent finding of both the trial court and respondent court thatthere was discriminatory off-loading being a factual question is, as statedearlier, binding upon and can no longer be passed upon by this Court,especially in view of and in deference to the affirmance of the same byrespondent appellate court.

There was no error on the part of the Court of Appeals when it refusedto apply the provisions of the Warsaw Convention, for in the words of thisCourt in the aforequoted Cathay Pacific case:

―x x x although the Warsaw Convention has the force and effect of law in thiscountry, being a treaty commitment assumed by the Philippine government,said convention does not operate as an exclusive enumeration of theinstances for declaring a carrier liable for breach of contract of carriage or asan absolute limit of the extent of that liability. The Warsaw Conventiondeclares the carrier liable in the enumerated cases and under certainlimitations. However, it must not be construed to preclude the operation of the Civil Code and pertinent laws. It does not regulate, much less exempt,the carrier from liability for damages for violating the rights of its passengersunder the contract of carriage, especially if willful misconduct on the part of the carrier‘s

employees is found or established, which is the case before Us. x x x‖

ACCORDINGLY, finding no reversible error, the challenged judgment of respondent Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.













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