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CHAPTER 9: CHARTER PARTIES (ARTICLES 652-718, CODE OF COMMERCE)G.R. No. L-51910 August 10, 1989LITONJUA SHIPPING COMPANY INC., petitioner vs.NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.Estratonico S. Anano for private respondent. FELICIANO, J.:In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks to annul and set aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB") in NSB Case No. 1331-77 affirming the decision dated 17 February 1977 of the NSB hearing officer which adjudged petitioner Litonjua liable to private respondent for violation of the latter's contract of employment and which ordered petitioner to pay damages.Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping Corporation ('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign registry owned by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the Dufton Bay was in the port of Cebu and while under charter by Fairwind, the vessel's master contracted the services of, among others, private respondent Gregorio Candongo to serve as Third Engineer for a period of twelve (12) months with a monthly wage of US$500.00. This agreement was executed before the Cebu Area Manning Unit of the NSB. Thereafter, private respondent boarded the vessel. On 28 December 1976, before expiration of his contract, private respondent was required to disembark at Port Kelang, Malaysia, and was returned to the Philippines on 5 January 1977. The cause of the discharge was described in his Seaman's Book as 'by owner's arrange". 1

Shortly after returning to the Philippines, private respondent filed a complaint before public respondent NSB, which complaint was docketed as NSB-1331-77, for violation of contract, against Mullion as the shipping company and petitioner Litonjua as agent of the shipowner and of the charterer of the vessel.At the initial hearing, the NSB hearing officer held a conference with the parties, at which conference petitioner Litonjua was represented by one of its supercargos, Edmond Cruz. Edmond Cruz asked, in writing, that the hearing be postponed for a month upon the ground that the employee of Litonjua in charge of the case was out of town. The hearing officer denied this request and then declared petitioner Litonjua in default. At the hearing, private respondent testified that when he was recruited by the Captain of the Dufton Bay, the latter was accompanied to the NSB Cebu Area Manning Unit by two (2) supercargos sent by petitioner Litonjua to Cebu, and that the two (2) supercargos Edmond Cruz and Renato Litonjua assisted private respondent in the procurement of his National Investigation and Security Agency (NISA) clearance. Messrs. Cruz and Litonjua were also present during private respondent's interview by Captain Ho King Yiu of the Dufton Bay.On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, 2 the dispositive portion of which read:

Wherefore, premises considered, judgment is hereby rendered ordering the respondents R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc., jointly and solidarily to pay the complainant the sum of four thousand six hundred fifty seven dollars and sixty three cents ($4,657.63) or its equivalent in the Phil. currency within 10 days from receipt of the copy of this Decision the payment of which to be coursed through the then NSB.

The above conclusion was rationalized in the following terms:From the evidence on record it clearly appears that there was no sufficient or valid cause for the respondents to terminate the services of complainant prior to 17 September 1977, which is the expiry date of the contract. For this reason the respondents have violated the conditions of the contract of employment which is a sufficient justification for this Board to render award in favor of the complainant of the unpaid salaries due the latter as damages corresponding to the unexpired portion of the contract including the accrued leave pay computed on the basis of five [51 days pay for every month of service based at $500.00 monthly salary. Complainant's wages account further show that he has an undrawn wage amounting to US$13.19 to be paid by the respondents Philippine agency together with his accrued leave pay. 3

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Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the motion was denied. Petitioner next filed an "Appeal and/or Motion for Reconsideration of the Default Judgment dated 9 August 1977" with the central office of the NSB. NSB then suspended its hearing officer's decision and lifted the order of default against petitioner Litonjua, thereby allowing the latter to adduce evidence in its own behalf The NSB hearing officer, on 26 April 1978, made the following findings:

While it appears that in the preparation of the employment papers of the complainant, what was indicated therein was R.D. Mullion Co. (HK) Ltd. referring to Exhibit "B" (Standard Format of a Service Agreement) and Exhibit "C" (Affidavit of Undertaking), as thecompany whom Captain Ho King Yiu, the Master of the vessel Dufton Bay, was representing to be the shipowner, the fact remains that at the time of the recruitment of the complainant, as duly verified by the National Seamen Board, Cebu Area Manning Unit, the Litonjua Shipping Company was the authorized agent of the vessel's charterer, the Fairwind Shipping Corporation, and that in the recruitment process, the Litonjua Shipping Company through its supercargos in the persons of Edmund Cruz and Renato Litonjua, had knowledge thereof and in fact assisted in the interviews conducted by the Master of the crew applicants as admitted by Renato Litonjua including the acts of facilitating the crew's NISA clearances as testified to by complainant. Moreover, the participation of the Litonjua Shipping Corporation in the recruitment of complainant, together with the other crewmembers, in Cebu in September 1976 can be traced to the contents of the letter of April 5, 1976 by the Fairwind Shipping Limited, thru its Director David H.L. Wu addressed to the National Seamen Board, copy of which is on file with Contracts and Licensing Division, quote:This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local crewing Managing Office to attend on our Crew requirements as well as attend to our ship's requirements when in Philippine ports.We further authorized Litonjua Shipping Co., Inc. to act as local representative who can sue and be sued, and to bind and sign contracts for our behalf. 4

The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public respondent NSB rendered a decision 5 which affirmed its hearing offices decision of 17 February 1977 and which read in part as follows:

It is clear that respondent Litonjua Shipping Co., Inc. is the authorized Philippine agent of Fairwind Shipping Corporation, charterer of the vessel 'Dufton Bay, wherein complainant, served as 3rd Engineer from 17 September until disembarkation on December 28, 1976. It is also clear from the complainant's wages account bearing the heading 'Fairwind Shipping Corporation', signed by the Master of the vessel that the Philippine agency referred to herein directed to pay the said withdrawn wages of $13.19 is no other than Litonjua Shipping Company, Inc.From this observation, it can be reasonably inferred that the master of the vessel acted for and in behalf of Fairwind Shipping Corporation who had the obligation to pay the salary of the complainant. It necessarily follows that Fairwind Shipping Corporation is the employer of said complainant. Moreover, it had been established by complainant that Litonjua Shipping Company, Inc., had knowledge of and participated, through its employee, in the recruitment of herein complainant.xxx xxx xxxIn view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the Philippines, which provides that, 'The state shall afford protection to labor . . .' as well as the provisions of Art. 4 thereof, that 'all doubts in the implementation and interpretation of the provisions of the Code, including its implementing rules and regulations, shall be resolved in favor of labor', it is our conclusion, that the decision dated February 17, 1977, is based on evidence formally offered and presented during the hearing and that there was no grave abuse of discretion committed by the hearing officer in finding respondent Litonjua Shipping Company, Inc., liable to complainant. (Emphasis supplied)

In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent NSB declaring the charterer Fairwind as employer of private respondent, and for whose liability petitioner was made responsible, as constituting a grave abuse of discretion amounting to lack of jurisdiction. The

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principal if not the sole issue to be resolved here is whether or not the charterer Fairwind was properly regarded as the employer of private respondent Candongo.Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit:

1) As a general rule, admiralty law as embodied in the Philippine Code of Commerce fastens liability for payment of the crew's wages upon the ship owner, and not the charterer; and2) The evidence of record is grossly inadequate to shift such liability from the shipowner to the petitioner. 6

Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private respondent; and that liability for damages cannot be imposed upon petitioner which was a mere agent of the charterer. It is insisted that private respondent's contract of employment and affidavit of undertaking clearly showed that the party with whom he had contracted was none other than Mullion, the shipowner, represented by the ship's master. 7Petitioner also argues that its supercargos merely assisted Captain Ho King Yiu of the Dufton Bay in being private respondent as Third Engineer. Petitioner also points to the circumstance that the discharge and the repatriation of private respondent was specified in his Seaman's Book as having been "by owner's arrange." Petitioner Litonjua thus argues that being the agent of the charterer and not of the shipowner, it accordingly should not have been held liable on the contract of employment of private respondent.We are not persuaded by petitioner's argument. We believe that there are two (2) grounds upon which petitioner Litonjua may be held liable to the private respondent on the contract of employment.The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the charterer. In modern maritime law and usage, there are three (3) distinguishable types of charter parties: (a) the "bareboat" or "demise" charter; (b) the "time" charter; and (c) the "voyage" or "trip" charter. A bareboat or demise charter is a demise of a vessel, much as a lease of an unfurnished house is a demise of real property. The shipowner turns over possession of his vessel to the charterer, who then undertakes to provide a crew and victuals and supplies and fuel for her during the term of the charter. The shipowner is not normally required by the terms of a demise charter to provide a crew, and so the charterer gets the "bare boat", i.e., without a crew. 8 Sometimes, of course, the demise charter might provide that the shipowner is to furnish a master and crew to man the vessel under the charterer's direction, such that the master and crew provided by the shipowner become the agents and servants or employees of the charterer, and the charterer (and not the owner) through the agency of the master, has possession and control of the vessel during the charter period. A time charter, upon the other hand, like a demise charter, is a contract for the use of a vessel for a specified period of time or for the duration of one or more specified voyages. In this case, however, the owner of a time-chartered vessel (unlike the owner of a vessel under a demise or bare-boat charter), retains possession and control through the master and crew who remain his employees. What the time charterer acquires is the right to utilize the carrying capacity and facilities of the vessel and to designate her destinations during the term of the charter. A voyage charter, or trip charter, is simply a contract of affreightment, that is, a contract for the carriage of goods, from one or more ports of loading to one or more ports of unloading, on one or on a series of voyages. In a voyage charter, master and crew remain in the employ of the owner of the vessel. 9

It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of the vessel, the charterer assuming in large measure the customary rights and liabilities of the shipowner in relation to third persons who have dealt with him or with the vessel. 10 In such case, the Master of the vessel is the agent of the charterer and not of the shipowner. 11 The charterer or owner pro hac vice, and not the general owner of the vessel, is held liable for the expenses of the voyage including the wages of the seamen. 12

It is important to note that petitioner Litonjua did not place into the record of this case a copy of the charter party covering the M/V Dufton Bay. We must assume that petitioner Litonjua was aware of the nature of a bareboat or demise charter and that if petitioner did not see fit to include in the record a copy of the charter party, which had been entered into by its principal, it was because the charter party and the provisions thereof were not supportive of the position adopted by petitioner Litonjua in the present case, a position diametrically opposed to the legal consequence of a bareboat charter. 13 Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed to show that it was not such, we believe and so hold that petitioner Litonjua, as Philippine agent of the charterer, may be held liable on the contract of employment between the ship captain and the private respondent.

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There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the contract of employment of private respondent. The charterer of the vessel, Fairwind, clearly benefitted from the employment of private respondent as Third Engineer of the Dufton Bay, along with the ten (10) other Filipino crewmembers recruited by Captain Ho in Cebu at the same occasion. 14 If private respondent had not agreed to serve as such Third Engineer, the ship would not have been able to proceed with its voyage. The equitable consequence of this benefit to the charterer is, moreover, reinforced by convergence of other circumstances of which the Court must take account. There is the circumstance that only the charterer, through the petitioner, was present in the Philippines. Secondly, the scope of authority or the responsibility of petitioner Litonjua was not clearly delimited. Petitioner as noted, took the position that its commission was limited to taking care of vessels owned by Fairwind. But the documentary authorization read into the record of this case does not make that clear at all. The words "our ships" may well be read to refer both to vessels registered in the name of Fairwind and vessels owned by others but chartered by Fairwind. Indeed the commercial, operating requirements of a vessel for crew members and for supplies and provisions have no relationship to the technical characterization of the vessel as owned by or as merely chartered by Fairwind. In any case, it is not clear from the authorization given by Fairwind to petitioner Litonjua that vessels chartered by Fairwind (and owned by some other companies) were not to be taken care of by petitioner Litonjua should such vessels put into a Philippine port. The statement of account which the Dufton Bay's Master had signed and which pertained to the salary of private respondent had referred to a Philippine agency which would take care of disbursing or paying such account. 'there is no question that Philippine agency was the Philippine agent of the charterer Fairwind. Moreover, there is also no question that petitioner Litonjua did assist the Master of the vessel in locating and recruiting private respondent as Third Engineer of the vessel as well as ten (10) other Filipino seamen as crew members. In so doing, petitioner Litonjua certainly in effect represented that it was taking care of the crewing and other requirements of a vessel chartered by its principal, Fairwind. 15

Last, but certainly not least, there is the circumstance that extreme hardship would result for the private respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to private respondent upon the contract of employment. Clearly, the private respondent, and the other Filipino crew members of the vessel, would be defenseless against a breach of their respective contracts. While wages of crew members constitute a maritime lien upon the vessel, private respondent is in no position to enforce that lien. If only because the vessel, being one of foreign registry and not ordinarily doing business in the Philippines or making regular calls on Philippine ports cannot be effectively held to answer for such claims in a Philippine forum. Upon the other hand, it seems quite clear that petitioner Litonjua, should it be held liable to private respondent for the latter's claims, would be better placed to secure reimbursement from its principal Fairwind. In turn, Fairwind would be in an indefinitely better position (than private respondent) to seek and obtain recourse from Mullion, the foreign shipowner, should Fairwind feel entitled to reimbursement of the amounts paid to private respondent through petitioner Litonjua.We conclude that private respondent was properly regarded as an employee of the charterer Fairwind and that petitioner Litonjua may be held to answer to private respondent for the latter's claims as the agent in the Philippines of Fairwind. We think this result, which public respondent reached, far from constituting a grave abuse of discretion, is compelled by equitable principles and by the demands of substantial justice. To hold otherwise would be to leave private respondent (and others who may find themselves in his position) without any effective recourse for the unjust dismissal and for the breach of his contract of employment.WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National Seamen Board dated 31 May 1979 is hereby AFFIRMED. No pronouncement as to costs.SO ORDERED.

[G.R. No. 131166.  September 30, 1999]CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO,

EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAÑEZAL AND SOTERA E. CAÑEZAL, respondents.

D E C I S I O NPARDO, J.:

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Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel and a passenger ship?

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV Doña Paz, killing almost all the passengers and crew members of both ships, and thus resulting in one of the country’s worst maritime disasters.

The petition before us seeks to reverse the Court of Appeals decision [1]holding petitioner jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.’s passenger ship MV Doña Paz.

The facts are as follows:On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to

Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. [2] MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil.  During that particular voyage, the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract between them.[3]

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the port of Tacloban headed for Manila with a complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. [4] The MV Doña Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental Mindoro.  All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident.

The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest.  Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls.[5] Among those who perished were public school teacher Sebastian Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested passengers but proved to be on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz.[6]

On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal’s wife and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for “Damages Arising from Breach of Contract of Carriage” against Sulpicio Lines, Inc. (hereafter Sulpicio).  Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed against MV Doña Paz in the open sea setting MT Vector’s highly flammable cargo ablaze.

On September 15, 1992, the trial court rendered decision dismissing the third party complaint against petitioner.  The dispositive portion reads:“WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:“1.  For the death of Sebastian E. Cañezal and his 11-year old daughter Corazon G. Cañezal, including loss of future earnings of said Sebastian, moral and exemplary damages, attorney’s fees, in the total amount of P 1,241,287.44 and finally;“2.  The statutory costs of the proceedings.“Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against the 3rd party plaintiff.“IT IS SO ORDERED.“DONE IN MANILA, this 15th day of September 1992.

“ARSENIO M. GONONG“Judge”[7]                                    

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On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of Appeal modified the trial court’s ruling and included petitioner Caltex as one of the those liable for damages.  Thus:“WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby MODIFIED as follows:“WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Cañezal and Corazon Cañezal:“1.  Compensatory damages for the death of Sebastian E.Cañezal and Corazon Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);“2.  Compensatory damages representing the unearned income of Sebastian E. Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS;“3.  Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00);“4.  Attorney’s fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P 50,000.00);“5.  Costs of the suit.“Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorney’s fees and costs which the latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of combustible cargo aboard an unseaworthy vessel).“SO ORDERED.“JORGE S. IMPERIAL“Associate Justice“WE CONCUR:“RAMON U. MABUTAS. JR.      PORTIA ALIÑO HERMACHUELOS“Associate Justice                                      Associate Justice”[8]

Hence, this petition.We find the petition meritorious.First:  The charterer has no liability for damages under Philippine Maritime laws.The respective rights and duties of a shipper and the carrier depends not on whether the carrier is

public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the one hand, or a charter party or similar contract on the other.[9]

Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter.[10]

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.[11]

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage.  In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship’s store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship.[12]

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner.  The charterer is free from liability to third persons in respect of the ship.[13]

Second :  MT Vector is a common carrierCharter parties fall into three main categories:  (1) Demise or bareboat, (2) time charter, (3) voyage

charter.  Does a charter party agreement turn the common carrier into a private one?  We need to answer this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private carrier.  The parties entered into a voyage charter, which retains the character of the vessel as a common carrier.

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In Planters Products, Inc. vs. Court of Appeals,[14] we said:“It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage charter.  It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned.  Indubitably, a ship-owner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer.”

Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]

“Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment xxx”

A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons who may choose to employ and to remunerate him. [16] MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code.  In Guzman vs. Court of Appeals,[17] we ruled:

“The Civil Code defines “common carriers” in the following terms:“Article 1732.  Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers for passengers or goods or both, by land, water, or air for compensation, offering their services to the public.”“The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a sideline”).  Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such services on a an occasional, episodic or unscheduled basis.  Neither does Article 1732 distinguish between a carrier offering its services to the “general public,” i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population.  We think that Article 1733 deliberately refrained from making such distinctions.“It appears to the Court that private respondent is properly characterized as a common carrier even though he merely “back-hauled” goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic, occasional rather than regular or scheduled manner, and even though respondent’s principal occupation was not the carriage of goods for others.  There is no dispute that private respondent charged his customers a fee for hauling their goods; that the fee frequently fell below commercial freight rates is not relevant here.”

Under the Carriage of Goods by Sea Act :Sec. 3.  (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to -

(a) Make the ship seaworthy;(b) Properly man, equip, and supply the ship;

xxx                               xxx                                    xxxThus, the carriers are deemed to warrant impliedly the seaworthiness of the ship.  For a vessel to

be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew.  The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.[18]

The provisions owed their conception to the nature of the business of common carriers.  This business is impressed with a special public duty.  The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modern development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous.[19] For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.Third:  Is Caltex liable for damages under the Civil Code?We rule that it is not.Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an

unseaworthy vessel such as the MT Vector when Caltex:

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1.  Did not take steps to have M/T Vector’s certificate of inspection and coastwise license renewed;

2.  Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;

3.  Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.

Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:1.  The master of M/T Vector did not posses the required Chief Mate license to command and

navigate the vessel;2.  The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate

only in bays and rivers when the subject collision occurred in the open sea;3.  The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;4.  The vessel did not have a Third Mate, a radio operator and a lookout; and5.  The vessel had a defective main engine.[20]

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code, which provide:“Article 20. - Every person who contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.“Article 2176. - Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.  Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.”

And what is negligence?The Civil Code provides:

“Article 1173.  The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.  When negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply.If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.”

In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others.  It may be the failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand, or the omission to do something which ordinarily regulate the conduct of human affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal requirements.  The duty rests upon the common carrier simply for being engaged in “public service.”[22] The Civil Code demands diligence which is required by the nature of the obligation and that which corresponds with the circumstances of the persons, the time and the place.  Hence, considering the nature of the obligation between Caltex and MT Vector, the liability as found by the Court of Appeals is without basis.

The relationship between the parties in this case is governed by special laws.  Because of the implied warranty of seaworthiness,[23] shippers of goods, when transacting with common carriers, are not expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all maritime laws.  To demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in general is concerned.   By the same token, we cannot expect passengers to inquire every time they board a common carrier, whether the carrier possesses the necessary papers or that all the carrier’s employees are qualified.  Such a practice would be an absurdity in a business where time is always of the essence.  Considering the nature of transportation business, passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could legally transport cargo that time of the year.

“Atty. Poblador:  Mr. Witness, I direct your attention to this portion here containing the entries here under “VESSEL’S DOCUMENTS

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1.  Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7, 1987”, Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during the hiring of MT Vector?

          “Apolinar Ng:  At the time when I extended the Contract, I did nothing because the tanker has a valid C.I. which will expire on December 7, 1987 but on the last week of November, I called the attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they will renew the same.

          “Q:  What happened after that?          “A:  On the first week of December, I again made a follow-up from Mr. Abalos, and said they

were going to send me a copy as soon as possible, sir.[24]

xxx                               xxx                                    xxx          “Q:  What did you do with the C.I.?          “A:  We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of

our long business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates that the documents are in order.  xxx”[25]

On cross examination -          “Atty. Sarenas:  This being the case, and this being an admission by you, this Certificate of

Inspection has expired on December 7.  Did it occur to you not to let the vessel sail on that day because of the very approaching date of expiration?

          “Apolinar Ng:  No sir, because as I said before, the operation Manager assured us that they were able to secure a renewal of the Certificate of Inspection and that they will in time submit us a copy.”[26]

Finally, on Mr. Ng’s redirect examination:          “Atty. Poblador:  Mr. Witness, were you aware of the pending expiry of the Certificate of

Inspection in the coastwise license on December 7, 1987.  What was your assurance for the record that this document was renewed by the MT Vector?

          “Atty. Sarenas:  xxx          “Atty. Poblador:  The certificate of Inspection?          “A:  As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly,

those three years, they were allowed to sail by the Coast Guard.  That are some that make me believe that they in fact were able to secure the necessary renewal.

          “Q:  If the Coast Guard clears a vessel to sail, what would that mean?          “Atty. Sarenas:  Objection.          “Court:  He already answered that in the cross examination to the effect that if it was allowed,

referring to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast Guard, it means that it has Certificate of Inspection extended as assured to this witness by Restituto Abalos.  That in no case MV Vector will be allowed to sail if the Certificate of Inspection is, indeed, not to be extended.  That was his repeated explanation to the cross-examination.  So, there is no need to clarify the same in the re-direct examination.”[27]

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic incident occurred in 1987.  Past services rendered showed no reason for Caltex to observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness.  All things considered, we find no legal basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals’ decision, we limit our ruling to the liability of Caltex alone.  However, we maintain the Court of Appeals’ ruling insofar as Vector is concerned .

WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees.  The Court AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and Corazon Cañezal damages as set forth therein.  Third-party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys’ fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.

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No costs in this instance.SO ORDERED.

CHAPTER 10: LOAN ON RESPONDENTS AND BOTTOMRY (ARTICLES 719-736 CODE OF COMMERCE)CHAPTER 11: AVERAGES – PROFF AND LIQUIDATION OF AVERAGES (ARTICLES 846-869, CODE OF COMMERCE)CHAPTER 12: COLLISIONSG.R. No. L-56294 May 20, 1991SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE INSURANCE CO., INC.,petitioners, vs.THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents.Bito, Misa & Lozada for petitioners.Rodriguez, Relova & Associates for private respondent. FELICIANO, J.:pIn the early morning of 3 May 1970—at exactly 0350 hours, on the approaches to the port of Manila near Caballo Island, a collision took place between the M/V "Don Carlos," an inter-island vessel owned and operated by private respondent Carlos A. Go Thong and Company ("Go Thong"), and the M/S "Yotai Maru," a merchant vessel of Japanese registry. The "Don Carlos" was then sailing south bound leaving the port of Manila for Cebu, while the "Yotai Maru" was approaching the port of Manila, coming in from Kobe, Japan. The bow of the "Don Carlos" rammed the portside (left side) of the "Yotai Maru" inflicting a three (3) cm. gaping hole on her portside near Hatch No. 3, through which seawater rushed in and flooded that hatch and her bottom tanks, damaging all the cargo stowed therein.The consignees of the damaged cargo got paid by their insurance companies. The insurance companies in turn, having been subrogated to the interests of the consignees of the damaged cargo, commenced actions against private respondent Go Thong for damages sustained by the various shipments in the then Court of First Instance of Manila.Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case No. 82567, was commenced on 13 March 1971 by petitioner Smith Bell and Company (Philippines), Inc. and Sumitomo Marine and Fire Insurance Company Ltd., against private respondent Go Thong, in Branch 3, which was presided over by Judge Bernardo P. Fernandez. The second case, Civil Case No. 82556, was filed on 15 March 1971 by petitioners Smith Bell and Company (Philippines), Inc. and Tokyo Marine and Fire Insurance Company, Inc. against private respondent Go Thong in Branch 4, which was presided over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas.Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and evidence relating to the collision between the "Don Carlos" and the "Yotai Maru" the parties in both cases having agreed that the evidence on the collision presented in one case would be simply adopted in the other. In both cases, the Manila Court of First Instance held that the officers and crew of the "Don Carlos" had been negligent that such negligence was the proximate cause of the collision and accordingly held respondent Go Thong liable for damages to the plaintiff insurance companies. Judge Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney's fees; while Judge Cuevas awarded the plaintiff insurance companies on two (2) claims US $ 68,640.00 or its equivalent in Philippine currency plus attorney's fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney's fees, respectively.The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go Thong to the Court of Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-R. The decision of Judge Cuevas in Civil Case No. 82556 was also appealed by Go Thong to the Court of Appeals, the appeal being docketed as C.A.-G.R. No. 61206-R. Substantially identical assignments of errors were made by Go Thong in the two (2) appealed cases before the Court of Appeals.In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8 August 1978 affirming the Decision of Judge Fernandez. Private respondent Go Thong moved for reconsideration, without success. Go Thong then went to the Supreme Court on Petition for Review, the Petition being docketed as G.R. No. L-48839 ("Carlos A. Go Thong and Company v. Smith Bell and Company [Philippines], Inc., et al."). In its Resolution dated 6 December 1978, this Court, having considered "the allegations, issues and arguments adduced in the Petition for Review on Certiorari, of the

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Decision of the Court of Appeals as well as respondent's comment", denied the Petition for lack of merit. Go Thong filed a Motion for Reconsideration; the Motion was denied by this Court on 24 January 1979.In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November 1980 (or almost two [2] years after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed by the Supreme Court on Petition for Review) through Sison, P.V., J., reversed the Cuevas Decision and held the officers of the "Yotai Maru" at fault in the collision with the "Don Carlos," and dismissed the insurance companies' complaint. Herein petitioners asked for reconsideration, to no avail.The insurance companies are now before us on Petition for Review on Certiorari, assailing the Decision of Sison, P.V., J., in C.A.-G.R. No. 61206-R. Petitioners' principal contentions are:

a. that the Sison Decision had disregarded the rule of res judicata;b. that Sison P.V., J., was in serious and reversible error in accepting Go Thong's defense that the question of fault on the part of the "Yotai Maru" had been settled by the compromise agreement between the owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos;" andc. that Sison, P. V. J., was in serious and reversible error in holding that the "Yotai Maru" had been negligent and at fault in the collision with the "Don Carlos."

IThe first contention of petitioners is that Sison, P. V. J. in rendering his questioned Decision, failed to apply the rule of res judicata. Petitioners maintain that the Resolution of the Supreme Court dated 6 December 1978 in G.R. No. 48839 which dismissed Go Thong's Petition for Review of the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had effectively settled the question of liability on the part of the "Don Carlos." Under the doctrine of res judicata, petitioners contend, Sison, P. V. J. should have followed the Reyes, L.B., J. Decision since the latter had been affirmed by the Supreme Court and had become final and executory long before the Sison Decision was rendered.Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in rendering its minute Resolution in G.R. No. L- 48839, had merely dismissed Go Thong's Petition for Review of the Reyes, L.B., J. Decision for lack of merit but had not affirmed in toto that Decision. Private respondent, in other words, purports to distinguish between denial of a Petition for Review for lack of merit and affirmance of the Court of Appeals' Decision. Thus, Go Thong concludes, this Court did not hold that the "Don Carlos" had been negligent in the collision.Private respondent's argument must be rejected. That this Court denied Go Thong's Petition for Review in a minute Resolution did not in any way diminish the legal significance of the denial so decreed by this Court. The Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment shall be framed. 1 It has long been settled that this Court has discretion to decide whether a "minute resolution" should be used in lieu of a full-blown decision in any particular case and that a minute Resolution of dismissal of a Petition for Review on certiorari constitutes anadjudication on the merits of the controversy or subject matter of the Petition. 2 It has been stressed by the Court that the grant of due course to a Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is no need to fully explain the Court's denial. For one thing, the facts and law are already mentioned in the Court of Appeals' opinion." 3A minute Resolution denying a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees with or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed and set aside is correct. 4

Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in the instant case whether in respect of the Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme Court in G.R. No. L-48839, for the reason that there was no identity of parties and no identity of cause of action between C.A.-G.R. No. 61206-R and C.A.-G.R. No. 61320-R.The parties in C.A.-G.R. No. 61320-R Where the decision of Judge Fernandez was affirmed, involved Smith Bell and Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the petitioners in the instant case (plaintiffs below) are Smith Bell and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other words, there was a common petitioner in the two (2) cases, although the co-petitioner in one was an insurance company different from the insurance company co-petitioner in the other case. It should be noted, moreover, that the co-petitioner in both cases was an insurance company arid that both petitioners in the two (2) cases represented the same interest, i.e., the cargo owner's interest as against the hull interest or the interest of the shipowner. More importantly, both cases had been brought against the same defendant, private respondent Go Thong, the owner of the

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vessel "Don Carlos." In sum, C.A.-G.R. No. 61320R and C.A-G.R. No. 61206-R exhibited substantial identity of parties.It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense that the cargo which had been damaged in the one case and for which indemnity was sought, was not the very same cargo which had been damaged in the other case indemnity for which was also sought. The cause of action was, however, the same in the two (2) cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been violated by the same casualty, the ramming of the "Yotai Maru" by the "Don Carlos." The judgments in both cases were final judgments on the merits rendered by the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which has not been questioned.Under the circumstances, we believe that the absence of identity of subject matter, there being substantial identity of parties and identity of cause of action, will not preclude the application of res judicata. 5

In Tingson v. Court of Appeals, 6 the Court distinguished one from the other the two (2) concepts embraced in the principle of res judicata, i.e., "bar by former judgment" and "conclusiveness of judgment:"

There is no question that where as between the first case Where the judgment is rendered and the second case where such judgment is invoked, there is identity of parties, subject-matter and cause of action, the judgment on the merits in the first case constitutes an absolute bar to the subsequent action not only as to every matter which was offered and received to sustain or defeat the claim or demand, but also as to any other admissible matter which might have been offered for that purpose and to all matters that could have been adjudged in that case. This is designated as "bar by former judgment."But where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In fine, the previous judgment is conclusive in the second case, only as those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the rule on'conclusiveness of judgment' embodied in subdivision (c) of Section 49 of Rule 39 of the Revised Rules of' Court. 7 (Citations omitted) (Emphases supplied)

In Lopez v. Reyes, 8 the Court elaborated further the distinction between bar by former judgment which bars the prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness of judgment which bars the relitigation of particular facts or issues in another litigation between the same parties on a different claim or cause of action:

The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand or cause of action. The second aspect is that it precludes the relitigation of a particular fact or issues in another action between the same parties on a different claim or cause of action.The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are commonly applied to all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions "necessarily involved in an issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no specific finding may have been made in reference thereto, and although such matters were directly referred to in the pleadings and were not actually or formally presented. Under this rule, if the record of the former trial shows that the judgment could not have been rendered without deciding the particular matter it will be considered as having settled that matter as to all future actions between the parties, and if a judgment necessarily presupposes certain premises, they are as conclusive as the judgment itself. Reasons for the rule are that a judgment is an adjudication on all the matters which are essential to support it, and that every proposition assumed or decided by the court leading up to the final conclusion and upon which such conclusion is based is as effectually passed upon as the ultimate question which is finally solved. 9 (Citations omitted) (Emphases supplied)

In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so negligent as to have proximately caused the collision between them, was an issue that was actually,

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directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the "Don Carlos" to have been negligent rather than the "Yotai Maru" and, as already noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1978. The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two (2) vessels, had long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206- R. Private respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error When it disregarded the Decision of this Court affirming the Reyes Decision. 10

Private respondent Go Thong also argues that a compromise agreement entered into between Sanyo Shipping Company as owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos," under which the former paid P268,000.00 to the latter, effectively settled that the "Yotai Maru" had been at fault. This argument is wanting in both factual basis and legal substance. True it is that by virtue of the compromise agreement, the owner of the "Yotai Maru" paid a sum of money to the owner of the "Don Carlos." Nowhere, however, in the compromise agreement did the owner of the "Yotai Maru " admit or concede that the "Yotai Maru" had been at fault in the collision. The familiar rule is that "an offer of compromise is not an admission that anything is due, and is not admissible in evidence against the person making the offer." 11 A compromise is an agreement between two (2) or more persons who, in order to forestall or put an end to a law suit, adjust their differences by mutual consent, an adjustment which everyone of them prefers to the hope of gaining more, balanced by the danger of losing more. 12 An offer to compromise does not, in legal contemplation, involve an admission on the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further controversy and saving the expenses of litigation. 13 It is of the very nature of an offer of compromise that it is made tentatively, hypothetically and in contemplation of mutual concessions. 14 The above rule on compromises is anchored on public policy of the most insistent and basic kind; that the incidence of litigation should be reduced and its duration shortened to the maximum extent feasible.The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of litigations but also administrative proceedings before the Board of Marine Inquiry ("BMI"). The collision was the subject matter of an investigation by the BMI in BMI Case No. 228. On 12 July 1971, the BMI through Commodore Leovegildo L. Gantioki, found both vessels to have been negligent in the collision.Both parties moved for reconsideration of the BMI's decision. The Motions for Reconsideration were resolved by the Philippine Coast Guard ("PCG") nine (9) years later, in an order dated 19 May 1980 issued by PCG Commandant, Commodore Simeon M. Alejandro. The dispositive portion of the PCG decision read as follows:

Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and amended absolving the officers of "YOTAI MARU" from responsibility for the collision. This Headquarters finds no reason to modify the penalties imposed upon the officers of Don Carlos. (Annex "C", Reply, September 5, 1981). 15

Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order dated September 1980.Go Thong sought to appeal to the then Ministry of National Defense from the orders of the PCG by filing with the PCG on 6 January 1981 a motion for a 30-day extension from 7 January 1981 within which to submit its record on appeal. On 4 February 1981, Go Thong filed a second urgent motion for another extension of thirty (30) days from 7 February 1981. On 12 March 1981, Go Thong filed a motion for a final extension of time and filed its record on appeal on 17 March 1981. The PCG noted that Go Thong's record on appeal was filed late, that is, seven (7) days after the last extension granted by the PCG had expired. Nevertheless, on 1 July 1981 (after the Petition for Review on Certiorari in the case at bar had been filed with this Court), the Ministry of Defense rendered a decision reversing and setting aside the 19 May 1980 decision of the PCGThe owners of the "Yotai Maru" then filed with the Office of the President a Motion for Reconsideration of the Defense Ministry's decision. The Office of the President rendered a decision dated 17 April 1986 denying the Motion for Reconsideration. The decision of the Office of the President correctly recognized that Go Thong had failed to appeal in a seasonable manner:

14

MV "DON CARLOS" filed her Notice of Appeal on January 5, 1981. However, the records also show beyond peradventure of doubt that the PCG Commandant's decision of May 19, 1980, had already become final and executory When MV "DON CARLOS" filed her Record on Appeal on March 17,1981, and When the motion for third extension was filed after the expiry date.Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant Marine Rules and Regulations, decisions of the PCG Commandant shall be final unless, within thirty (30) days after receipt of a copy thereof, an appeal to the Minister of National Defense is filed and perfected by the filing of a notice of appeal and a record on appeal. Such administrative regulation has the force and effect of law, and the failure of MV "DON CARLOS" to comply therewith rendered the PCG Commandant's decision on May 19, 1980, as final and executory, (Antique Sawmills, Inc. vs. Zayco, 17 SCRA 316; Deslata vs. Executive Secretary, 19 SCRA 487; Macailing vs. Andrada, 31 SCRA 126.) (Annex "A", Go Thong's Manifestation and Motion for Early Resolution, November 24, 1986). 16(Emphases supplied)

Nonetheless, acting under the misapprehension that certain "supervening" events had taken place, the Office of the President held that the Minister of National Defense could validly modify or alter the PCG Commandant's decision:

However, the records likewise show that, on November 26, 1980, the Court of Appeals rendered a decision in CA-G.R. No. 61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go Thong & Co.) holding that the proximate cause of the collision between MV "DON CARLOS" AND MS "YOTAI MARU" was the negligence, failure and error of judgment of the officers of MS "YOTAI MARU". Earlier, or on February 27, 1976, the Court of First Instance of Cebu rendered a decision in Civil Case No. R-11973 (Carlos A. Go Thong vs. San-yo Marine Co.) holding that MS "YOTAI MARU" was solely responsible for the collision, which decision was upheld by the Court of Appeals.The foregoing judicial pronouncements rendered after the finality of the PCG Commandant's decision of May 19, 1980, were supervening causes or reasons that rendered the PCG Commandant's decision as no longer enforceable and entitled MV "DON CARLOS" to request the Minister of National Defense to modify or alter the questioned decision to harmonize the same with justice and tile facts. (De la Costa vs. Cleofas, 67 Phil. 686; City of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs. Canizares, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA 244). Under such precise circumstances, the Minister of National Defense may validly modify or alter the PCG commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550, Revised Administrative Code; Province of Pangasinan vs. Secretary of Public Works and Communications, 30 SCRA 134; Estrelia vs. Orendain, 37 SCRA 640). 17(Emphasis supplied)

The multiple misapprehensions under which the Office of the President labored, were the following:It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision that is the subject of review in the Petition at bar and therefore not final. At the same time, the Office of the President either ignored or was unaware of the Reyes, L.B., J., Decision in C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for the collision, and of the fact that that Decision had been affirmed by the Supreme Court and had long ago become final and executory. A third misapprehension of the Office of the President related to a decision in a Cebu Court of First Instance litigation which had been settled by the compromise agreement between the Sanyo Marine Company and Go Thong. The Office of the President mistakenly believed that the Cebu Court of First Instance had rendered a decision holding the "Yotai Maru" solely responsible for the collision, When in truth the Cebu court had rendered a judgment of dismissal on the basis of the compromise agreement. The Cebu decision was not, of course, appealed to the Court of Appeals.It thus appears that the decision of the Office of the President upholding the belated reversal by the Ministry of National Defense of the PCG'S decision holding the "Don Carlos" solely liable for the collision, is so deeply flawed as not to warrant any further examination. Upon the other hand, the basic decision of the PCG holding the "Don Carlos" solely negligent in the collision remains in effect.

IIIn their Petition for Review, petitioners assail the finding and conclusion of the Sison Decision, that the "Yotai Maru" was negligent and at fault in the collision, rather than the "Don Carlos." In view of the

15

conclusions reached in Part I above, it may not be strictly necessary to deal with the issue of the correctness of the Sison Decision in this respect. The Court considers, nonetheless, that in view of the conflicting conclusions reached by Reyes, L.B.,J., on the one hand, and Sison, P.V., J., on the other, and since in affirming the Reyes Decision, the Court did not engage in a detailed written examination of the question of which vessel had been negligent, and in view of the importance of the issues of admiralty law involved, the Court should undertake a careful review of the record of the case at bar and discuss those issues in extenso.The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the evidence concerning the collision. It is worth underscoring that the findings of fact of Judge Fernandez in Civil Case No. 82567 (which was affirmed by the Court of Appeals in the Reyes Decision and by this Court in G.R. No. L-48839) are just about identical with the findings of Judge Cuevas. Examining the facts as found by Judge Cuevas, the Court believes that there are three (3) principal factors which are constitutive of negligence on the part of the "Don Carlos," which negligence was the proximate cause of the collision.The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18 (a) of the International Rules of the Road ("Rules")," which provides as follows

(a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each shall alter her course to starboard, so that each may pass on the port side of the other. This Rule only applies to cases where vessels are meeting end on or nearly end on, in such a manner as to involve risk of collision, and does not apply to two vessels which must, if both keep on their respective course, pass clear of each other. The only cases to which it does apply are when each of two vessels is end on, or nearly end on, to the other; in other words, to cases in which, by day, each vessel sees the masts of the other in a line or nearly in a line with her own; and by night to cases in which each vessel is in such a position as to see both the sidelights of the other. It does not apply, by day, to cases in which a vessel sees another ahead crossing her own course; or, by night, to cases where the red light of one vessel is opposed to the red light of the other or where the green light of one vessel is opposed to the green light of the other or where a red light without a green light or a green light without a red light is seen ahead, or Where both green and red lights are seen anywhere but ahead. (Emphasis supplied)

The evidence on this factor was summarized by Judge Cuevas in the following manner:Plaintiff's and defendant's evidence seem to agree that each vessel made a visual sighting of each other ten minute before the collision which occurred at 0350. German's version of the incident that followed, was that "Don Carlos" was proceeding directly to [a] meeting [on an] "end-on or nearly end-on situation" (Exh. S, page 8). He also testified that "Yotai Maru's' headlights were "nearly in line at 0340 A.M." (t.s.n., June 6, 1974) clearly indicating that both vessels were sailing on exactly opposite paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the International Rules of the Road provides as follows:

xxx xxx xxxAnd yet German altered "Don Carlos" course by five degrees to the left at 0343 hours instead of to the right (t.s.n. June 6, 1974, pages 4445) which maneuver was the error that caused the collision in question. Why German did so is likewise explained by the evidence on record. "Don Carlos" was overtaking another vessel, the "Don Francisco", and was then at the starboard (right side) of the aforesaid vessel at 3:40 a.m. It was in the process of overtaking "Don Francisco" that "Don Carlos' was finally brought into a situation where he was meeting end-on or nearly end-on "Yotai Maru, thus involving risk of collision. Hence, German in his testimony before the Board of Marine inquiry stated:

Atty. Chung:You said in answer to the cross-examination that you took a change of course to the left. Why did you not take a course to the right instead?German:I did not take any course to the right because the other vessel was in my mind at the starboard side following

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me. Besides, I don't want to get risk of the Caballo Island (Exh. 2, pages 209 and 210). 19 (Emphasis supplied)

For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the "Yotai Maru" found herself on an "end-on" or a "nearly end-on" situation vis-a-vis the "Don Carlos, " and as the distance between them was rapidly shrinking, the "Yotai Maru" turned starboard (to its right) and at the same time gave the required signal consisting of one short horn blast. The "Don Carlos" turned to portside (to its left), instead of turning to starboard as demanded by Rule 18 (a). The "Don Carlos" also violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning "I am altering my course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the master of the "Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and stopped her engines; at about 3:46 a.m. the "Yotai Maru" went "full astern engine." 20 The collision occurred at exactly 3:50 a.m.The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to have on board that night a "proper look-out" as required by Rule I (B) Under Rule 29 of the same set of Rules, all consequences arising from the failure of the "Don Carlos" to keep a "proper look-out" must be borne by the "Don Carlos." Judge Cuevas' summary of the evidence said:

The evidence on record likewise discloses very convincingly that "Don Carlos" did not have "look-out" whose sole and only duty is only to act as Such. . . . 21

A "proper look-out" is one who has been trained as such and who is given no other duty save to act as a look-out and who is stationed where he can see and hear best and maintain good communication with the officer in charge of the vessel, and who must, of course, be vigilant. Judge Cuevas wrote:

The "look-out" should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548, 571). He has only one duty, that which its name implies—to keep "look-out". So a deckhand who has other duties, is not a proper "look-out" (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is not a sufficient "look-out" (Larcen B. Myrtle, 44 Fed. 779)—Griffin on Collision, pages 277-278). Neither the captain nor the [helmsman] in the pilothouse can be considered to be a "look-out"within the meaning of the maritime law. Nor should he be stationed in the bridge. He should be as near as practicable to the surface of the water so as to be able to see low-lying lights (Griffin on Collision, page 273).On the strength of the foregoing authorities, which do not appear to be disputed even by the defendant, it is hardly probable that neither German or Leo Enriquez may qualify as "look-out" in the real sense of the word. 22 (Emphasis supplied)

In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision with the "Yotai Maru" coming in from the opposite direction, was at least in part due to the failure of the "Don Carlos" to maintain a proper look-out.The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second Mate Benito German was, immediately before and during the collision, in command of the "Don Carlos." Judge Cuevas summed up the evidence on this point in the following manner:

The evidence on record clearly discloses that "Don Carlos" was, at the time of the collision and immediately prior thereto, under the command of Benito German, a second mate although its captain,Captain Rivera, was very much in the said vessel at the time. The defendant's evidence appears bereft of any explanation as to why second mate German was at the helm of the aforesaid vessel when Captain Rivera did not appear to be under any disability at the time. In this connection, Article [633] of the Code of Commerce provides:

Art. [633] — The second mate shall take command of the vessel in case of the inability or disqualification of the captain and sailing mate, assuming, in such case, their powers and liability.

The fact that second mate German was allowed to be in command of "Don Carlos" and not the chief or the sailing mate in the absence of Captain Rivera, gives rise to no other conclusion except that said vessel [had] no chief mate. Otherwise, the defense evidence should have at least explained why it was German, only a second mate, who was at the helm of the vessel "Don Carlos" at the time of the fatal collision.But that is not all. Worst still, aside from German's being only a second mate, is his apparent lack of sufficient knowledge of the basic and generally established rules of navigation. For instance, he appeared unaware of the necessity of employing a "look-

17

out" (t.s.n. June 6, 1974, page 27) which is manifest even in his testimony before the Board of Marine Inquiry on the same subject (Exh. 2, page 209). There is, therefore, every reasonable ground to believe that his inability to grasp actual situation and the implication brought about by inadequacy of experience and technical know-how was mainly responsible and decidedly accounted for the collision of the vessels involved in this case.. . . 23(Emphasis supplied)

Second Mate German simply did not have the level of experience, judgment and skill essential for recognizing and coping with the risk of collision as it presented itself that early morning when the "Don Carlos," running at maximum speed and having just overtaken the "Don Francisco" then approximately one mile behind to the starboard side of the "Don Carlos," found itself head-on or nearly head on vis-a-vis the "Yotai Maru. " It is essential to point out that this situation was created by the "Don Carlos" itself.The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which contradicted the findings of fact made by Judge Cuevas. What Sison, P.V., J. actually did was to disregard all the facts found by Judge Cuevas, and discussed above and, astonishingly, found a duty on the "Yotai Maru" alone to avoid collision with and to give way to the "Don Carlos ". Sison, P.V., J., wrote:

At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh] and Chonabayashi had ample time to adopt effective precautionary measures to steer away from the Philippine vessel, particularly because both [Katoh] and Chonabayashi also deposed that at the time they had first eyesight of the "Don Carlos" there was still "no danger at all" of a collision. Having sighted the "Don Carlos" at a comparatively safe distance—"no danger at all" of a collision—the Japanese ship should have observed with the highest diligence the course and movements of the Philippine interisland vessel as to enable the former to adopt such precautions as will necessarily present a collision, or give way, and in case of a collision, the former is prima facie at fault. In G.Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632, the Supreme Court held:

Nautical rules require that where a steamship and sailing vessel are approaching each other from opposite directions, or on intersecting lines, the steamship, from the moment the sailing vessel is seen, shall watch with the highest diligence her course and movements so as to enable it to adopt such timely means of precaution as will necessarily prevent the two boats from coming in contact.' (Underscoring in the original)

At 3:44 p.m., or 4 minutes after first sighting the "Don Carlos", or 6 minutes before contact time, Chonabayashi revealed that the "Yotai Maru" gave a one-blast whistle to inform the Philippine vessel that the Japanese ship was turning to starboard or to the right and that there was no blast or a proper signal from the "Don Carlos" (pp. 67-68. Deposition of Chonabayashi, List of Exhibits). The absence of a reply signal from the "Don Carlos" placed the "Yotai Maru" in a situation of doubt as to the course the "Don Carlos" would take. Such being the case, it was the duty of the Japanese officers "to stop,reverse or come to a standstill until the course of the "Don Carlos" has been determined and the risk of a collision removed (The Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum, etc. vs. Cebu Stevedoring, etc., 5 C.A.R. 2d 853, 861-862).. . . . 24 (Emphasis supplied)

The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an exclusive obligation uponone of the vessels, the "Yotai Maru, " to avoid the collision, the Court of Appeals not only chose to overlook all the above facts constitutive of negligence on the part of the "Don Carlos;" it also in effect used the very negligence on the part of the "Don Carlos" to absolve it from responsibility and to shift that responsibility exclusively onto the "Yotai Maru" the vessel which had observed carefully the mandate of Rule 18 (a). Moreover, G. Urrutia and Company v. Baco River Plantation Company 25 invoked by the Court of Appeals seems simply inappropriate and inapplicable. For the collision in the Urrutia case was between a sailing vessel, on the one hand, and a power-driven vessel, on the other; the Rules, of course, imposed a special duty on the power-driven vessel to watch the movements of a sailing vessel, the latter being necessarily much slower and much less maneuverable than the power-driven one. In the case at bar, both the "Don Carlos" and the "Yotai Maru" were power-driven and both were equipped with radar; the maximum speed of the "Yotai Maru" was thirteen (13) knots while that of the "Don Carlos" was eleven (11) knots. Moreover, as already noted, the "Yotai Maru" precisely took last minute measures to avert

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collision as it saw the "Don Carlos" turning to portside: the "Yotai Maru" turned "hard starboard" and stopped its engines and then put its engines "full astern."Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with Judge Fernandez and Nocon, J., 26 that the "Don Carlos" had been negligent and that its negligence was the sole proximate cause of the collision and of the resulting damages.FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in C.A.-G.R. No. 61206-R is hereby REVERSED and SET ASIDE. The decision of the trial court dated 22 September 1975 is hereby REINSTATED and AFFIRMED in its entirety. Costs against private respondent.SO ORDERED.G.R. No. L-49407 August 19, 1988NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, vs.THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.No. L-49469 August 19, 1988MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, vs.THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents- appellees.Balgos & Perez Law Office for private respondent in both cases. PARAS, J.:These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendant-appellants," affirmingin toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for attorney's fee.On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant Maritime Company of the Philippines the total amount that the Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.With costs against the defendant Maritime Company of the Philippines.(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:The evidence before us shows that in accordance with a memorandum agreement entered into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati

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figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC.NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against NDC.MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set aside the decision was denied by the trial court in its order dated February 13,1970.On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.Hence these appeals by certiorari.NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).In its brief, NDC cited the following assignments of error:ITHE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.II

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THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).On its part, MCP assigned the following alleged errors:ITHE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.IITHE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.IIITHE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATIIVTHE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.VTHE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.VITHE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided thereunder.The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both

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NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the consignee as earlier stated.This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by law.It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application.On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering the shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to

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recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in excess of its authority.As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in determining their liability.MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility.Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent Appellate Court is AFFIRMED.SO ORDERED.G.R. No. 100446 January 21, 1993

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ABOITIZ SHIPPING CORPORATION, petitioner, vs.GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD., respondent.Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.Napoleon Rama collaborating counsel for petitioner.Dollete, Blanco, Ejercito & Associates for private respondent. MELO, J.:This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's prayer for execution for the full amount of the judgment award. The trial court in so doing swept aside petitioner's opposition which was grounded on the real and hypothecary nature of petitioner's liability as ship owner. The application of this established principle of maritime law would necessarily result in a probable reduction of the amount to be recovered by private respondent, since it would have to share with a number of other parties similarly situated in the insurance proceeds on the vessel that sank.The basic facts are not disputed.Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage from Hongkong to the Philippines on October 31, 1980. Private respondent General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of several cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid.The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due toforce majeure and that subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding, the trial court in said Civil Case No. 144425 found against the carrier on the basis that the loss subject matter therein did not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the judgment award in said case in the amount of P1,072,611.20 plus legal interest has given rise to the instant petition.On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, et al., August 28, 1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the resulting apparent contrary findings in cases originating out of a single set of facts.It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine of limited liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel M/V P. ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an issue which begs to be resolved considering that a number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result in more confusion than presently attends the instant case.In support of the instant petition, the following arguments are submitted by the petitioner:

1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors' shares;2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)

On the other hand, private respondent opposes the foregoing contentions, arguing that:

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1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587, 590, and 837 of the Code of Commerce in the face of the facts found by the lower court (Civil Case No. 144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case; and2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly situated and the same issues litigated should be decided in conformity therewith following the maximstare decisis et non quieta movere. (pp. 225 to 279, Rollo.)

Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution of this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant petition as argued by respondent GAFLAC.An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the same settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence required by law of common carriers.It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the instant case raises a completely different issue. It appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing other than factual to the instant case.This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited liability enunciated under the appropriate articles of the Code of Commerce. The articles may be ancient, but they are timeless and have remained to be good law. Collaterally, determination of the question of whether execution of judgments which have become final and executory may be stayed is also an issue.We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such shall result in the subverting of substantial justice. The right to an execution after finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that:

. . . It is a truism that every court has the power "to control, in the furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a case before it, in every manner appertaining thereto. It has also been said that:

. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed, and will remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs as may be necessary to carry out the judgment into effect and render it binding and operative, but also to such orders and such writs as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a medium of consummating a wrong the court on proper application can prevent it. (at p. 359)

and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that:

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The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes the imperative in the higher interest of justice to direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)

We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the real and hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative.In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757 upholding private respondent's claims in that particular case, which the Court of Appeals took to mean that this Court has "considered, passed upon and resolved Aboitiz's contention that all claims for the losses should first be determined before GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily negated the application of the limited liability principle" (p. 175, Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered only the circumstances peculiar to that particular case, and was not meant to traverse the larger picture herein brought to fore, the circumstances of which heretofore were not relevant. We must stress that the matter of the Limited Liability Rule as discussed was never in issue in all prior cases, including those before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue before the trial courts referred to the package limitation clauses in the bills of lading and not the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defense in any of the cases a quo, as properly it could not have been made so since it was not relevant in said cases. The only time it could come into play is when any of the cases involving the mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has now been brought before the Court.The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as the guaranty for their settlement. It has its origin by reason of the conditions and risks attending maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and to encourage people and entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if any, which limitation served to induce capitalists into effectively wagering their resources against the consideration of the large profits attainable in the trade.It might be noteworthy to add in passing that despite the modernization of the shipping industry and the development of high-technology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even practically absolute in well-developed maritime countries such as the United States and England where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both international maritime conventions and generally accepted practices relative to maritime trade and travel. This is highlighted by the following excerpts on the limited liability of vessel owners and/or agents;

Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss, or destruction by any person of any person or any property, goods, or merchandise shipped or put on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners shall not exceed the amount or value of the interest of such owner in such vessel, and her freight then pending. (Section 183 of the US Federal Limitation of Liability Act).

—and—1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims arising, from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner;(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on board the ship.

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(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other property or infringement of any rights caused by the act, neglect or default the owner is responsible for, or any person not on board the ship for whose act, neglect or default the owner is responsible: Provided, however, that in regard to the act, neglect or default of this last class of person, the owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers.(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned (including anything which may be on board such ship) and any obligation or liability arising out of damage caused to harbor works, basins and navigable waterways. (Section 1, Article I of the Brussels International Convention of 1957)

In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage.Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587.Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. (Emphasis supplied)

Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837).In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen, the reasons for its being are still apparently much in existence and highly regarded.We now come to its applicability in the instant case. In the few instances when the matter was considered by 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 the part of the vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the owner in the instant case.A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well as the entirety of the records in the instant case will show that there has been no actual finding of negligence on the part of petitioner. In its Decision, the trial court merely held that:

. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were not lost due to fortuitous event or force majeure." (p. 32, Rollo)

The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this Court will add or subtract to such evidence to justify a conclusion to the contrary.The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is underscored by the fact that in the Country Banker's case, supra, arising from the same sinking, the

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Court sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap, absent a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has been ruled to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter since Article 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the BMI's findings, but to the condition it was in at the time of the sinking, which condition was a result of the acts of the captain and the crew.The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while not absolute, must be swept aside only in the established existence of the most compelling of reasons. In the absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights aside on mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely punitive in nature and must never be taken lightly.More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be able to gain access to the assets of the individual shareholders, but must limit their recovery to what is left in the name of the corporation. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We held that:

In the instant case, the stay of execution of judgment is warranted by the fact that the respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or preference over another by an attachment, execution or otherwise. (at p. 261).

In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending freightage for the particular voyage.In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to 183,Rollo), together with the corresponding claims and the pro-rated share of each. We likewise note that some of these cases are still with the Court of Appeals, and some still with the trial courts and which probably are still undergoing trial. It would not, therefore, be entirely correct to preclude the trial courts from making their own findings of fact in those cases and deciding the same by allotting shares for these claims, some of which, after all, might not prevail, depending on the evidence presented in each. We, therefore, rule that the pro-rated share of each claim can only be found after all the cases shall have been decided.

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In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating and settlement thereof.ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby directed to desist from proceeding with the execution of the judgment rendered in Civil Case No. 144425 pending determination of the totality of claims recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15) days from finality of this decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby made permanent.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.D E C I S I O N

BELLOSILLO, J.:This case deals with the liability, if any, of a shipowner for loss of cargo due to 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 rights of 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 be transported  from  Zamboanga  City  to Cebu   City  for  consignee  Coca-Cola  Bottlers  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 the evening of the same day.  At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down 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 it sustained 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 an insurance claim with PHILAMGEN which paid its claim of  P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent 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  was  improperly  manned  and  that  its officers were grossly negligent in failing to take appropriate measures to proceed to a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests and ownership over “MV Asilda”  together with her freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce.[2]

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN.  On appeal the Court of Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits.  FELMAN filed a petition for certiorari with this Court but it was subsequently denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN.[3] It ruled that “MV Asilda”  was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard 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 a fortuitous event, in which case, no

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liability should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.

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 the vessel’s seaworthiness.  Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken payment.  Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit 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 judgment finding “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 certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to the cargo.  Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assured’s implied warranty of seaworthiness was not complied with.  Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of the shipper.  Furthermore, respondent court held that the filing of notice of abandonment  had absolved the shipowner/agent from liability under the limited liability rule.  

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

“MV Asilda”  was unseaworthy when it left the port of Zamboanga.  In a joint statement, the captain as well as the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga.  According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh eggs.  They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck.[4] The ship captain stated that around four o’clock in the morning of 7 July 1983 he was awakened by the officer on duty to inform him that the vessel had hit a floating log.  At that time he noticed that the weather had deteriorated with strong 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 the cargo from starboard to portside until the vessel was balanced.  At about seven o’clock in the morning, the master of the vessel stopped the engine because the vessel was listing dangerously to portside.  He ordered his crew to shift the cargo back to starboard.  The shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move, some of the cargo    on   deck   were   thrown  overboard  and  seawater  entered  the engine room and cargo holds of the vessel.  At that instance, the master of the vessel ordered his crew to abandon ship.  Shortly thereafter, “MV Asilda”   capsized and sank.  He ascribed the sinking  to  the  entry of seawater through a hole in the hull caused by the 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 reasonable explanation for the series of lists experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the vessel may 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 and unseaworthy for that particular voyage.In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel x x x x and it was not designed to carry a substantial amount or quantity of cargo on deck.  Therefore, we believe strongly that had her cargo been confined to those that could have been accommodated under deck, her stability would not have been affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions at that time of sinking.But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessel’s metacentric height as to cause it to become unstable.Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely designed to be able to navigate safely even during heavy weather and frequently we

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hear of ships safely and successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable and unseaworthy  x  x  x  xWe 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-heavy  when  she  departed  from  the Port of Zamboanga.  Her having capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence (underscoring 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 being top-heavy.  Contrary to the ship captain’s allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck.  Several days after “MV Asilda”  sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking.  Considering that the ship’s hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessel’s deck cargo.  It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown 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 not designed to carry substantial amount of cargo on deck.  The inordinate loading of cargo deck resulted in the decrease of the vessel’s metacentric height[7] thus making it unstable.  The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.[8] Simply 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 and freightage as provided in Art. 587.  Nonetheless, there are exceptional circumstances wherein  the  ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the captain.[9] 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 to cases where the injury or average was occasioned by the shipowner’s own fault.[10] It must be stressed at this point that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain.  Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier.[11]

It was already established at the outset that the sinking of “MV Asilda”  was due 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 loaded on deck.  Closer supervision on the part of the shipowner could have prevented 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 extraordinary diligence in the vigilance over the goods and  for the safety of the passengers  transported  by  them,  according  to  all  the circumstances of each case x x x x" In the event of loss of goods, common carriers are presumed to have acted negligently.  FELMAN, the shipowner, was not able to rebut this presumption.

In relation to the question of subrogation, respondent appellate court found “MV Asilda”   unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to the payment of is claim under the policy.  Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a “voluntary payment” and no right of subrogation accrued in its favor.  In other words, when PHILAMGEN paid it did so at its own risk. 

It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy.[12] Thus Sec. 113 of the Insurance Code provides that “(i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy.”  Under Sec. 114, a ship is “seaworthy when reasonably fit to perform the service, and to encounter   the   ordinary  perils  of  the  voyage,  contemplated  by  the parties to the policy.”  Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its  vessels  in seaworthy condition.  He may have no control over  the  vessel  but  he has full control in the selection of the common carrier that will transport his goods.  He also has full discretion in the choice of assurer that will underwrite a particular venture.

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We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by FELMAN to stress that subrogation will not work in this case.  In policies where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language.[13] And where the policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, 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 at least two (2) instances has dispensed with the usual warranty of worthiness.  Paragraph 15 of the Marine Open Policy No. 100367-PAG reads “(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the  Company  shall  not  prejudice  the insurance.  The seaworthiness of the vessel as between 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 x x x x"[16]

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things:  (a) that the warranty of the seaworthiness is to be 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 control the 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 ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is 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 he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.  If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that payment by the assurer to the assured operates as an equitable assignment to the assurer  of all the remedies which  the  assured  may have against the third party whose negligence  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 insurance claim.

The doctrine of subrogation has its roots in equity.  It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.[19] Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN.  Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED.  Respondent FELMAN SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN  GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two  Hundred  and  Fifty  Pesos  (P755,250.00)  plus legal interest thereon counted from 29 November 1983, the date of  judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.[20]

SO ORDERED.[G.R. No. 150751.  September 20, 2004]

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

D E C I S I O NPANGANIBAN, 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 the sole 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 to prevent or minimize the loss.  In the present case, the weather condition encountered by petitioner’s vessel was not a “storm” or a natural disaster comprehended in the law.  Given the known weather condition prevailing during the voyage, the manner of stowage employed by the carrier was insufficient to

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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 CaseBefore the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to reverse

and set aside the March 23, 2001 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 48915.  The assailed Decision disposed as follows:“WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is hereby MODIFIED in so far as the award of attorney’s fees is DELETED.  The decision is AFFIRMEDin all other respects.”[3]

The CA denied petitioner’s Motion for Reconsideration in its November 7, 2001 Resolution.[4]

The FactsThe factual antecedents, summarized by the trial court and adopted by the appellate 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 said shipment 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, the vessel left Palawan and commenced the voyage to Manila.“At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel 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 to 15 degrees, the ship captain ordered his men to abandon ship and at about 0130 hours of the same day the vessel completely sank.  Due to the sinking of the vessel, the cargo was totally lost.“[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and its captain and as direct consequence thereof the consignee suffered damage in the sum ofP3,000,000.00.“The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against the [petitioner].“[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully equipped and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessel’s master exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the storm.“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 natural disaster, 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 been caused 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, the trial court held petitioner liable for the loss of the cargo.  Thus, the RTC deducted the salvage value of the logs in the amount of P200,000 from the principal claim of respondent and found that the latter  was entitled to be subrogated to the rights of the insured.  The court a quo disposed as follows:“WHEREFORE, premises considered, judgment is hereby rendered in 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 is fully paid;

2)      P80,000.00 as and for attorney’s fees;3)      Plus costs of suit.”[6]

Ruling of the Court of AppealsThe CA affirmed the trial court’s finding that the southwestern monsoon encountered by the vessel

was not unforeseeable.  Given the season of rains and monsoons, the ship captain and his crew should have anticipated the perils of the sea.  The appellate court further held that the weather disturbance was

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not the sole and proximate cause of the sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted only from improper stowage.  Thus, the carrier was held responsible for the consequent loss of or damage to the cargo, because its 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 conclusive proofs thereof.  In order to consider a vessel to be seaworthy, it must be fit to meet the perils of the sea.

Found untenable was petitioner’s insistence that the trial court should have given 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 had presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during the course of the proceedings before the BMI, not the actual findings and conclusions of the agency.  Citing Arada v. CA,[7] it 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 the cargo 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, in view of petitioner’s negligence -- particularly its improper stowage of the logs.

Hence, this Petition.[8]

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

“(i)        Whether or not the weather disturbance which caused the sinking of 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, Rule 130 of the Rules of Court.“(iii)      Whether or not the finding of the Court of Appeals that ‘the logs in 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 credence to the factual finding of the Board of Marine Inquiry (BMI), an independent government agency tasked to conduct inquiries on maritime accidents.“(vi)      Whether or not the Doctrine of Limited Liability is applicable to the 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.  These issues involve a determination of factual questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so, whether its sole 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 RulingThe Petition is devoid of merit.

First Issue:Liability for Lost Cargo

From the nature of their business and for reasons of public policy, common carriers 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 are responsible; 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.”[11] In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.[12]

In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a “storm” under Article 1734(1). It attributes 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 law [13] may be raised in 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,[14] for “[t]he Supreme Court is not a trier of facts.”[15] Factual findings of the CA may be reviewed on appeal[16] only under exceptional circumstances such as, among others, when the inference is manifestly mistaken,[17] the judgment is based on a misapprehension of facts,[18] or the CA manifestly

34

overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion.[19]

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that the weather encountered by the vessel was not a “storm” as contemplated by Article 1734(1).  Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course 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 monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on 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 be allowed to retreat and claim that the southwestern monsoon was a “storm.”

The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a southwestern monsoon at the time.  Normally expected on sea voyages, however, were such monsoons, during which 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 the midst of a southwest monsoon.  According to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA 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 in the 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 55 knots, [24] equivalent 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 blowing around force 7 to 8 on the Beaufort Scale.[25] Consequently, 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 natural disaster under Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the loss.  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 the presence of human participation.[27] The defense of fortuitous event or natural disaster cannot be successfully made when the injury could have been avoided by human precaution.[28]

Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of the particular case demand -- to prevent or minimize the loss before, during and after the occurrence of the natural disaster, 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 Article 1734(1).[29]

We also find no reason to disturb the CA’s finding that the loss of the vessel was 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 the first southwestern monsoon at about 1[0]:00 in the evening.  The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught.  The second monsoon attack occurred at about 12:00 midnight.  During this occasion, the master ‘felt’ that the logs in the hold shifted, prompting him to order second mate Percival Dayanan to look at the bodega.  Complying with the captain’s order, 2nd mate Percival Dayanan found that there was seawater 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 sa barkong M/V Central Bohol?‘S – Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 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 Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-

35

tuloy ang pagtatagilid 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 ang alon at nang ako ay lumingon sa barko ito ay di ko na nakita.’“Additionally, [petitioner’s] own witnesses, boatswain Eduardo Viñas Castro and oiler Frederick Perena, are one in saying that the vessel encountered two weather disturbances, one at around 10 o’clock to 11 o’clock in the evening and the other at around 12 o’clock midnight.  Both disturbances were coupled with waves and heavy rains, 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 were already seawater that seeped inside.”[30]

The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon without any mishap, and that it began to list only during the second monsoon immediately after the logs had shifted 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 at least the port of El Nido.  In fact, there was another motor launch that had been buffeted by the same weather condition within the same area, yet it was able to arrive safely at El Nido.[31]

In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latter’s Complaint “[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V ‘Central Bohol’ listed about 10 degrees starboardside, due to the shifting of logs in the hold.”  Further, petitioner averred that “[t]he vessel, while navigating through this second southwestern monsoon, was under extreme stress.  At about 0125 hours, 26 July 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) degrees starboardside.”[32]

Yet, petitioner now claims that the CA’s conclusion was grounded on mere speculations and conjectures.  It alleges that it was impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the starboard side.

After carefully studying the records, we are inclined to believe that the logs did 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 captain testified that out of the 376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling.  However, while they were placed side by side, there were unavoidable clearances between them owing to their round shape. Those loaded on deck were lashed together several times across by cable wire, which had a diameter of 60 millimeters, and were secured from starboard to port.[34]

It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure the logs in the event the ship should 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 logs should 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 the wire fastened to the side of the hold.  Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule out the possibility of their shifting.  By force of gravity, those on top of the pile would naturally roll towards the bottom of the ship.

The adjuster’s Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not shifted, stated that “the logs were still properly lashed by steel chains on deck.”  Parenthetically, this statement referred only to those loaded on deck and did not mention anything about the condition 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 common occurrences during the month of July.  Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas.  They should then have taken extra precaution in stowing the logs in the hold, in consonance with their duty of observing extraordinary diligence in safeguarding the goods.  But the carrier took a calculated risk in improperly securing the cargo.  Having lost that risk, it cannot now escape responsibility for the loss.

Second Issue:Doctrine of Limited Liability

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The doctrine of limited liability under Article 587 of the Code of Commerce [36] is 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 negligence of the shipowner and the captain.[37] It 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 the cargo of logs.  “Closer supervision on the part of the shipowner could have prevented 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 and Resolution AFFIRMED.  Costs against petitioner.

SO ORDERED.

CHAPTER 13: ARRIVAL UNDER STREET AND SHIPWRECKS (WALANG CASE NA NILAGAY)CHAPTER 14: SALVAGEG.R. No. L-10051            March 9, 1916ERLANGER & GALINGER, plaintiffs-appellants, vs.THE SWEDISH EAST ASIATIC CO., (LTD.) ET AL., defendants. THE "OELWERKE TEUTONIA" and NEW ZEALAND INSURANCE CO. (LTD.), appellants.Gilbert, Haussermann, Cohn and Fisher for plaintiff-appellant.Rohde and Wright and Lawrence, Ross and Block for defendant-appellants.PER CURIAM:The facts in this case are as follows:First. The steamship Nippon loaded principally with copra and with some other general merchandise sailed from Manila on May 7, 1913, bound for Singapore. Second. The steamship Nippon went aground on Scarborough Reef about 4.30 in the afternoon of May 8, 1913. Third. Scarborough Reef is about 120 to 130 miles from the nearest point on the Island of Luzon. Fourth. On May 9, 1913, the chief officer, Weston, and nine members of the crew left the Nippon and succeeded in reaching the coast of Luzon at Santa Cruz, Zambales, on the morning of May 12, 1913. Fifth. On May 12, 1913, the chief officer sent a telegram to Helm, the Director of the Bureau of Navigation, at Manila, which was as follows:

SANTA CRUZ, ZAMBALES,

May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew — boats gone. 12.15 p. m.

(Sgd.) WESTON.

Sixth. On the same day (May 12) at 1.30 p. m., the Government of the Philippine Islands ordered the coast guard cutter Mindoro with life-saving appliances to the scene of the wreck of the Nippon . Seventh. On the same day (May 12) at 3 p. m. the steamship Manchuria sailed from Manila for Hongkong and was requested to pass by Scarborough Reef. Eighth. The Manchuria arrived at Scarborough Reef some time before the arrival of theMindoro on May 13, 1913, and took on board the captain and the remainder of the crew. Ninth. The Manchuriawas still near Scarborough Reef when the Mindoro arrived. The captain of the Manchuria informed the captain of the Mindoro that the captain and crew of the Nippon were on board the Manchuria and were proceeding to Hongkong. Tenth. The captain of the Mindoro offered to render assistance to the captain and crew of the Nippon , which assistance was declined The Mindoro proceeded to the Nippon and removed the balance of the baggage of the officers and crew, which was found upon the deck. Eleventh. The Mindoro proceeded to Santa Cruz, Zambales, where the chief officer, Weston, and the nine members of the crew were taken on board and brought to Manila, arriving there on May 14, 1913. Twelfth. On May 13, 1913, Dixon, captain of the Manchuria sent the following message:

S. S. `MANCHURIA', May 13, 1913.

All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel stranded May 9. She is full of water fore and aft and is badly ashore. Ship abandoned. Proceed Hongkong.

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(Sgd.) "DIXON.

The captain of the Nippon saw the above message before it was sent. Thirteenth. On May 14, 1913, the plaintiff applied to the Director of Navigation for a charter of a coast guard cutter, for the purpose of proceeding to "the stranded and abandoned steamer Nippon ." Fourteenth. The coast guard cutter Mindoro was chartered to the plaintiffs and started on its return to the S. S. Nippon on May 14, 1913. Fifteenth. The plaintiffs took possession of the Nippon on or about May 17, 1913, and continued in possession until about the 1st of July, when the last of the cargo was shipped to Manila. Sixteenth. The Nippon was floated and towed to Olongapo, where temporary repairs were made, and then brought to Manila. Seventeenth. The Manchuria arrived at Hongkong on the evening of May 14, 1913. When the captain and crew left the Nippon and went on board of Manchuria, they took with them the chronometer, the ship's register, the ship's articles, the ship's log, and as much of the crew's baggage as a small boat could carry. The balance of the baggage of the crew was packed and left on the deck of the Nippon and was later removed to the Mindoro, without protest on the part of the captain of the Nippon , as above indicated. Eighteenth. The cargo was brought to the port of Manila and the following values were fixed:

Copra (approximately 1317 tons) valued at, less cost of sale by Collector of Customs

P142,657.05

General cargo — sold at customhouse 5,939.68

Agar-agar 5,635.00

Camphor 1,850.00

Curios       150.00

Total 156,231.73

Nineteenth. The ship was valued at P250.000. The plaintiffs' claim against the ship was settled for L15,000 or about P145,800.The plaintiffs brought the present action (August 5, 1913; amended complaint, September 23, 1913) against the insurance companies and underwriters, who represented the cargo salved from the Nippon, to have the amount of salvage, to which the plaintiffs were entitled, determined.The case came on for trial before the Honorable A. S. Crossfield. The Oelwerke Teutonia, a corporation, appeared as claimant of the copra. The New Zealand Insurance Company appeared as insurer and assignee of the owners of 33 crates of agar-agar; The Tokio Marine Insurance Company appeared as the insurer and assignee of 1,000 cases of bean oil and two cases of bamboo lacquer work; and The Thames and Mersey Marine Insurance Company appeared as a reinsurer to the extent of P6,500 on the cargo of copra. The court found that the plaintiffs were "entitled to recover one-half of the net proceeds from the property salved and sold (which has nothing to do with the steamship itself), and one-half the value of the property delivered to the claimants."Judgment was entered as follows:

In favor of the plaintiffs, Erlanger & Galinger for one-half of the net proceeds of sales amounting to P47,298.36 and one-half of the interest accruing thereon, and against Carl Maeckler for the sum of P925, and against the New Zealand Insurance Company (Ltd.) for the sum of P2,800, and against whomever the two cases marked R — W, Copenhagen, were delivered to, and for the sum of P2,370.68, out of the proceeds of the sale of 1,000 cases of vegetable oil, and in favor of the 'Oelwerke Teutonia' for the sum of P71,328.53, now deposited with the Hongkong & Shanghai Banking Corporation, together with one-half of the interest thereon.

No costs were taxed.The Oelwerke Teutonia, The New Zealand Insurance Company (Ltd.), and Erlanger & Galinger appealed from this decision. The Oelwerke Teutonia made the following assignments of error: "

(I) The court below erred in finding that the plaintiffs are salvors of the copra in question. (II) The court erred in holding that the plaintiffs are entitled to recover one-half of the proceeds of the copra. (III) The court erred in rendering judgment in favor of the plaintiffs for half of the proceeds

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of the copra. (IV) The court erred in disallowing the defendants' counterclaim. (V) The court erred in overruling defendant's motion for a new trial."

The New Zealand Insurance Company (Ltd.) made the following assignments of error:Now comes the New Zealand Insurance Company (Ltd.), defendant and appellant in the above-entitled cause, and avers that in the proceedings in the said cause, in the Court of First Instance of Manila, there was manifest error to the prejudice of this appellant, in this, to wit:(I) That said court found that the plaintiffs are entitled to one-half of the value of thirty crates of agar-agar delivered to his appellant; (II) That the said court ordered judgment in favor of the plaintiffs and against this appellant for the sum of P2,800; (III) That the said court denied the motion of this appellant for a new trial.

The appellants, Erlanger & Galinger, made the following assignments of error:Error No. 1. The court erred in ruling that the plaintiffs were not entitled to a reimbursement of their expenses, out of the gross value of the salved property, before the division of the remainder into moieties between the salvors and the claimants. Error No. 2. The court erred in holding that the cargo and the vessel are equally chargeable with the expense of salvage. Error No. 3. The court erred in refusing to award the plaintiffs, out of the proceeds of the sale of the cargo, the sum of P28,755.86 as compensation and the sum of P98,720 as reimbursement of expenses, or a total of P127,475.08. Error No. 4. The court erred in awarding into the claimaint 'Oelwerke Teutonia' the sum of P17,328.53, or any part thereof out of the proceeds of the salved cargo. Error No. 5. The court erred in denying the motion of the plaintiffs for a new trial."

The assignments of error and the briefs of all of the appellants raised by three questions: (1) Was the ship abandoned? (2) Was the salvage conducted with skill, diligence, and efficiency? (3) Was the award justified?The general rules and principles governing salvage services and salvage awards are well settled. This branch of the law of the sea dates back to the early history of navigation. We find the recorded in the Laws of Oleron, which were promulgated sometime before the year 1266, at article IV:

If a vessel, departing with her lading from Bordeaux, or any other place, happens in the course of her voyage, to be rendered unfit to proceed therein, and the mariners save as much of the lading as possibly they can; if the merchants require their goods of the master, he may deliver them if he pleases, they paying the freight in proportion to the part of the voyage that is performed, and the costs of the salvage. But if the master can readily repair his vessel, he may do it; of if he pleases, he may freight another ship to perform his voyage. And if he has promised the people who help him to save the ship the third, or the half part of the goods saved for the danger they ran, the judicatures of the country should consider the pains and trouble they have been at, and reward them accordingly, without any regard to the promises made them by the parties concerned in the time of their distress. (See 30 Fed. Cas., at page 1172).

The courts of the United States and England have, in a long line of adjudicated cases, discussed the various phases of this important subject. In general, salvage may be defined as a service which one person renders to the owner of a ship or goods, by his own labor, preserving the goods or the ship which the owner or those entrusted with the care of them have either abandoned in distress at sea, or are unable to protect and secure. The Supreme Court of the United States and the other Federal Courts of the United States have had occasion numerous times to quote with approval the following definition from Flanders on Maritime Law:

Salvage is founded on the equity of remunerating private and individual services performed in saving, in whole or in part, a ship or its cargo from impending peril, or recovering them after actual loss. It is a compensation for actual services rendered to the property charged with it, and is allowed for meritorious conduct of the salvor, and in consideration of a benefit conferred upon the person whose property he has saved. A claim for salvage rests on the principle that, unless the property be in fact saved by those who claim the compensation, it can not be allowed, however benevolent their intention and however heroic their conduct. (The Job H. Jackson, 161 Fed. Rep., 1015, 1017; The Amelia, 1 Cranch, 1; The Alberta, 9 Cranch, 369; Clarke vs. Dodge Healy, 4 Wash. C. C., 651; Fed. Cas. No. 2849.)

In the case of Williamson vs. The Alphonso (Fed. Cas., No. 17749; 30 Fed. Cas. 4, 5), the court laid down practically the same rule.

The relief of property from an impending peril of the sea, by the voluntary exertions of those who are under no legal obligation to render assistance, and the consequent ultimate safety of the

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property, constitute a case of salvage. It may be a case of more or less merit, according to the degree of peril in which the property was, and the danger and difficulty of relieving it; but these circumstances affect the degree of the service and not its nature.

In Blackwall vs. Saucelito Tug Company (10 Wall., 1, 12), the court said:Salvage is the compensation allowed to persons by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture.

It will be noticed from the above definitions that there are certain definite conditions which must always exist in a case of pure salvage. The Supreme Court of the United States, speaking through Mr. Justice Clifford, in the case of The Mayflower vs. The Sabine (101 U. S., 384) makes those conditions three (p. 384).

Three elements are necessary to a valid salvage claim: (1) A marine peril. (2) Service voluntarily rendered when not required as an existing duty or from a special contract. (3) Success, in whole or in part, or that the service rendered contributed to such success.

These are the general principles governing salvage.The question whether or not a particular ship and her cargo is a fit object of salvage depends upon her condition at the time the salvage services are performed. In the present case the plaintiff-appellant claims that the Nipponwas a derelict or quasi-derelict and that their claim should be adjudged upon this cases. A derelict is defined as "A ship or her cargo which is abandoned and deserted at sea by those who were in charge of it, without any hope of recovering it (sine spe recuperandi), or without any intention of returning to it (sine animo revertendi). Whether property is to be adjudged derelict is determimed by ascertaining what was the intention and expectation of those in charge of it when they quitted it. If those in charge left with the intention of returning, or of procuring assistance, the property is not derelict, but if they quitted the property with the intention of finally leaving it, it is derelict, and a change of their intention and an attempt to return will not change its nature." (Abbott's Law of Merchant Ships and Seamen, Fourteenth Edition, p. 994.)This contention of the plaintiffs raises the first question: (1) Was the ship abandoned?The defendant-appellant Oelwerke Teutonia contends that the captain and the crew did not leave the ship sine animo revertendi, but that it was their intention to go to Hongkong and procure assistance with which to save the ship and her cargo. Whether the intention to return exists in a particular case is always difficult to determine. It is indeed a rare case when the master of the ship will leave without the intention of returning, if there is the slightest hope of saving his vessel. In the case of The Coromandel (1 Swab., 208) Dr. Lushington said:

It may be perfectly true that the master and these fifteen men, when they had got on board The Young Frederick, and were sailing away to Yarmouth, intended, if possible, to employ steamers to go and rescue the vessel, which was at no great distance. But is not that the case every day? A master and crew abandon a vessel for the safety of their lives; he does not contemplate returning to use his own exertions, but the master hardly ever abandons a vessel on the coast without the intention, if he can obtain assistance, to save his vessel. That does not take away the legal character of derelict. (Norcross vs. The Laura, 14 Wall., 336.)

Judge Crossfield found that:At the time the plaintiff commenced the attempt to salve what was possible of the S. S. Nippon and cargo, it was justified, from all the conditions existing, in believing that it had been abandoned and in taking possession, even though the master of the vessel intended when he left it, to return and attempt salvage.Such intention, if it existed, does not appear to have been very firmly fixed, considering the leisurely manner in which the master proceeded after he reached the Port of Hongkong.

The evidence amply supports this finding. The chief officer, Weston, upon reaching the coast of Zambales, on May 12, 1913, sent the following telegram to the Director of the Bureau of Navigation:

SANTA CRUZ, ZAMBALES,             May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone — 12.15 p. m.

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(Sgd.) R. WESTON.

On the evening of the same day Weston sent the following telegram:

SANTA CRUZ, ZAMBALES,             May 12, 1913.

DIRECTOR OF BUREAU OF NAVIGATION, Manila.Left with nine hands at noon, 9th, 26 men still on board, ship well on reef, stern part afloat, about ten feed of water in holds, starboard list, heavy swell breaking over, little hope of saving ship — 6.27 p. m.

(Sgd.) WESTON.

On May 13, 1913, Captain Dixon of the S. S. Manchuria, after rescuing the remainder of the crew, left on board the Nippon , sent the following telegram to the Director of Navigation.

S. S. `MANCHURIA,' May 13, 1913.

All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel stranded May 9th. She is full of water fore and aft, and is badly ashore. Ship abandoned. Proceeding Hongkong — 9.40 a. m.

(Sgd.) DIXON, Master.

On May 14, 1913, after the members of the crew who came ashore with Weston had reached Manila, they made the following signed statement:

MANILA, P. I., May 14, 1913.

We, the undersigned officers and part of the crew of the Swedish steamer Nippon, do hereby declare that the S. S. Nippon struck on Scarborough Reef, about 4.30 on the afternoon on Thursday May 8 1913. Two of her boats were lost after we struck the reef, leaving only two on board and those damaged. The ship was filled with water and pounding on the reef and we considered her a wreck. In company with the chief officer, we left the ship about noon on Friday, May 9, 1913, in a small boat and reached Sta. Cruz Zambales, a distance of 130 miles on the morning of Monday, May 12, 1913, and immediately the chief officer wired the Director of Navigation at Manila for assistance to rescue the balance of the crew left aboard the Nippon, as we considered their lives in danger and the ship a wreck, with little hope of saving her.

(Signed.)

F. Carman A.G. Erickson

G.E. Johansson F. Palm

W. Bratt J. Karlberg

B. Nyolram E. Thulin

E. Petterson

On May 16, 1913, Captain Anderson of the Coast Guard cutter Mindoro made the following report to the Director of Navigation.

S.S. Mindoro             Manila, P.I., May 16, 1913

SirI have the honor to make he following report of voyage made to Scarborough Reef, May 12 to 14, 1913 for officers and crew of S.S. Nippon.May 13, 1913, being 2 1/2 miles sought of reef, I observed S. S. Nippon stranded on the N. E. edge of reef. I immediately steered northward around the western edge of reef and arrived of stranded ship at 9.30 a. m. S. S. Manchuria was laying to about 1 1/2 miles northward of reef,

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making signals for me to come alongside. I immediately proceeded out to the Manchuria; upon arrival alongside the Manchuria the captain of the same ship informed me that the S. S. Nippon was abandoned and that he had the captain and crew on board for Hongkong. I then asked the captain of the Manchuria if the captain of the Nippon cared to go to Hongkong, as I was there to bring him and the crew to Manila if he desired to go. The captain of theManchuria again informed me that the captain of the Nippon intended to go to Hongkong. I answered `All right, I will then go and have a look at the Nippon and see how badly she is wrecked.' The captain of theManchuria made the remark that she was half full of water and that she was very badly wrecked, but that there was still some baggage left on broad. He also informed me that he had a wire from the Director of Navigation ordering me to proceed to Santa Cruz to pick up boat's crew from Nippon . I said, `All right. I will go and get baggage and have a look at the wreck.' I then left the Manchuria and steamed over to the wreck. On arrival alongside of the wreck I took on board all baggage packed standing on deck and sounded around the ship, fore and aft, finding 11 feet of water forward at low water and 20 feet aft in board, gradually decreasing from forward to aft and I found in holds about 8 feet of water and the cargo as far as I could see, on top, was nice and dry, and it is my opinion that with the position the ship is laying in and with the Southwest monsoon blowing the ship and most of the cargo can be salved, if work is started before the heavy typhoon season sets in. After leaving the wreck, I proceeded to Santa Cruz and picked up the first officer and crew of nine men and brought them to Manila.On my second trip to the wreck, May 15th, I examined Nippon more fully and I believe that if the cargo is taken out the ship can be saved after the holes are pathed up, if this is done before the heavy weather sets in.Very respectfully,

(Sgd.) GEO. ANDERSON,             Captain, 'Mindoro.'

THE DIRECTOR OF NAVIGATION, Manila.Copy sent Struckman & Company, May 16, 1913.(Sgd.) "A. S. Thompson, chief clerk.

The testimony of Captain Eggert of the Nippon regarding the circumstances of the wreck, is as follows: (2d part of record, p. 327). "(P. 334.)

Q.       When the Manchuria visited the scene of the wreck on May 13, how many of you went on board? —A.       We all went on board.Q.       By 'all' you mean yourself, passenger, and all the members of the crew that remained? —A.       Yes.Q.       What did you take with you? —A.       Just personal luggage, not all, what you could carry in a small boat, it could not be very much considering that the boat was broken and there were 27 men, the ship's chronometer and ship's papers.Q.       What do you mean by `ship's papers'? —A.       Register, articles.Q.       Did you take the ship's log? —A.       Yes; that is the first thing I take.Q.       That is the first thing you take under what circumstances? —A.       Under any circumstances of accidents to the ship; because it is the official record up to the time an accident happens.Q.       Do you mean to state, captain, that in the event of any accident to a ship, no matter how slight, that the ship's log and register and articles are taken ashore? —A.       The ship's log on any occasion has to be brought before the Swedish Consul.Q.       How about the register and articles? —A.       Of course not.Q.       Under what circumstances do you take ashore the ship's articles and register? —A.       When I leave the ship myself I have, of course, to take those papers with me.Q.       Every time you leave the ship? —

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A.       No. Every time when I leave it stranded as she was. If I go on shore and try to get means for taking my ship off the ground, I have to prove what ship it is and all that. In the meantime a gale may come up and the ship be torn off the rock and destroyed and the papers lost."(P. 336.) Q.    What were the conditions prevailing aboard the ship from the time that she stranded until theManchuria arrived? —A.       The first night there was very bad sea and high wind. The ship was came so much better than we could send the boat off about 11 o'clock in the forenoon by using precautions, oil, etc. The third and fourth day the weather was fine.(P. 337.) Q.    And do you now admit that you were mighty glad to get off the Nippon ? —A.       We were all mighty glad.Q.       Why were you mighty glad? —A.       Chiefly because the crew had insisted on leaving the ship in some way, by building rafts, or in that boat of ours. And secondly because of the uncertainty. We did not know if our boat had reached shore. The scene of the accident was quite out of the track of any vessel, so it was quite natural when we saw that ship coming up we were glad to get into communication with the outside world.Q.       You say that the crew had insisted on leaving the ship? —A.       They were not insisting on it because they can not insist against the master of a ship. But they would like to get off.Q.       Why were they discussing the question? —A.       Because they considered it better to leave the ship and reach land rather than stay on the ship, not knowing if the boat had reached land or not.Q.       They considered it better for what purpose? —A.       Being safe.Q.       You mean better from the standpoint of safety of their life and limb? —A.       Yes. To their lives.(P. 343.) Q. Captain, if your purpose in leaving the Nippon was to go to Hongkong for the purpose of arranging for her salvage, why did you not leave some of the crew on board? —A.       How could I leave some of the crew on board when there was no attendant? There could be a gale at any time and the ship would have slipped off and broken to pieces. I first of all was responsible for their lives."(P. 348.) Q. (By Mr. Rohde.) Captain, did you or did you not leave the Nippon , with the intention of returning and the hope of recovering your ship and cargo? —A.       I left the Nippon with the full intention of returning to the ship and try to recover her, and I discussed that matter during the three days we were on the reef with every member I could see in the crew, and with the passenger. Everybody knew as soon as I put my foot on the Manchuria it was for the purpose of getting assistance. Captain Dixon knew, his officers knew it, and his crew knew it.(Mr. Cohn.) You have not fully replied to the question asked you by counsel for the defendant, which is whether you had the hope of recovering the ship. —A.       I had hope if the weather continued fine.(Mr. Cohn.) If you had that hope why didn't you leave some of your crew on board? —A.       Because the hope would not justify me leaving any of the crew on the ship.(Mr. Cohn.) Your hope was so slight it did not warrant your leaving anybody on board? —A.       A hope is always slight. I mean to say your hope will never justify you to risk another man's life, even if you have a very good foundation for your hope. Life comes before property.(Mr. Cohn.) Just what do you mean by "hope"? —A.       I mean to say that if the weather continues fine there is no risk, but if there is a typhoon or gale we will be worse off and the ship will be smashed and the crew perish. That is what I mean by a "hope" in this occasion.(Mr. Cohn.) What you mean, Captain, is that you were going to Hongkong and if you could find some one that was willing to go out and look for your ship, and if your ship was still there, that you would undertake to salve her if you could. —A.       Of course.

Chief Engineer Emil Gohde was asked why the crew wanted to get ashore.(P. 353.) Q. Why did they want to get to shore? —

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A.       They wanted to save their lives. We didn't know the weather in the China Sea. We could have expected a typhoon in a couple of days and very likely the ship would have gone into the sea.Captain Eggert sent the following cablegram to the owners of the Nippon , after reaching Hongkong on May 14, 1913:(P. 360.) Nippon wrecked during typhoon eight May Scarborough Shoal latitude 15 longitude 118 probably total wreck bottom seriously damaged ship full of water chief officer and nine men took to boat for rescue landed twelfth Luzon mailsteamer Manchuria saved captain and remaining crew morning thirteenth. Arrived Hongkong tonight. Wreck on edge of reef, will probably slip off and sink by first gale captain arranging to visit wreck and attempt salvage.

EGGERT.

Captain Eggert did not make any determined effort to arrange for the salvage of the Nippon, as will be seen from the testimony.

(P. 330. Captain Eggert testifying).Q.       What did you do upon your arrival in Hongkong? —A.       The first thing I did — it was about 5 o'clock in the afternoon — I went to the office of our agents — my owners' agents. It was then close up so I had to proceed to the private residence of the manager. From there I dispatched a telegram to the owners.

xxx           xxx           xxxQ.       What date was this telegram sent? —A.       On the evening of the 14th.Q.       Of what month? —A.       Of May.Q.       Did you enter into any negotiations with persons or firms? —A.       Yes. The first thing in the morning of the 15th I visited together with the Swedish Consul the Tykoo dockyard people, the Hongkong dockyard people, and went to the Mitsui Bussan Kaisha branch office, and those people sent a wire to their home office in Nagasaki.Q.       What, if anything, interrupted your negotiations with the firms and persons in Hongkong relative to the salvage of the Nippon and her cargo? —A.       A wire from my owners.

xxx           xxx           xxxQ.       When was this telegram received by you, Captain? —A.       On the 17th.Q.       What did you do then? —A.       I tried to find out when the next steamer was leaving for Manila and there was none leaving before the 20th, the steamer I took and proceeded here.

From the above it will be seen that Capt. Eggert had over two days in which to arrange for salvage operations and he did nothing, while the plaintiffs, who were strangers and had no interest, sent out a salvage expedition in twenty-four hours after they discovered that the ship was wrecked.The evidence proves that the Nippon was in peril; that the captain left in order to protect his life and the lives of the crew; that the animo revertendi was slight. The argument of the defendant-appellant to the effect that the ship was in no danger is a bit out of place in view of the statement of the captain that she would sink with the first gale, coupled with the fact that a typhoon was the cause of her stranding.The Federal Courts have, a number of times, had presented to them cases in which the facts were very similar to the facts in the present case. The claim for salvage was allowed in each of these cases. In The Bee (Fed. Cas. No. 1219; 3 Fed. Cas., 41), the facts were as follows: The Bee sailed from Boston to Nova Scotia. Three days after leaving port a gale was encountered which forced her to run into a cove on the north side of Grand Manan Island, where an anchor was let out. The ship was somewhat injured from the force of the storm. The master and the crew stayed on board for 24 hours and then went ashore to procure assistance. The island was very sparsely settled. They met on shore a number of men (the libelants) to whom they explained the predicament and position of the ship. These men immediately went to the ship, boarded her, and took possession. After the master had been ashore about five hours he returned to the ship and found the libelants in possession. The owners contended that the master was excluded from the ship wrongfully and therefore the libelants could not claim salvage. The court stated the law as follows (p. 44):

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When a vessel is found at sea, deserted, and has been abandoned by the master and crew without the intention of returning and resuming the possession, she is, in the sense of the law, derelict, and the finder who takes the possession with the intention of saving her, gains a right of possession, which he can maintain against the true owner. The owner does not, indeed, renounce his right of property. This is not presumed to be his intention, nor does the finder acquire any such right. But the owner does abandon temporarily his right of possession, which is transferred to the finder, who becomes bound to preserve the property with good faith, and bring it to a place of safety for the owner's use; and he acquired a right to be paid for his services a reasonable and proper compensation, out of the property itself. He is not bound to part with the possession until this is paid, or it is taken into the custody of the law, preparatory to the amount of salvage being legally ascertained. Should be salvors meet with the owner after an abandonment, and he should tender his assistance in saving and securing the property, surely this ought not, without good reasons, to be refused, as this would be no bar to the right of salvage, and should it be unreasonably rejected it might affect the judgment of a court materially, as to the amount proper to be allowed. Still, as I understand the law, the right of possession is in the salvor. But when the owner, or the master and crew who represent him, leave a vessel temporarily, without any intention of a final abandonment, but with the intent to return and resume the possession, she is not considered as a legal derelict, nor is the right of possession lost by such temporary absence for the purpose of obtaining assistance, although no individual may be remaining on board for the purpose of retaining the possession. Property is not, in the sense of the law, derelict and the possession left vacant for the finder, until the spes recuperandi is gone, and the animus revertendi is finally given up. (The Aquila, 1 C. Rob. Adm., 41.) But when a man finds property thus temporarily left to the mercy of the elements, whether from necessity or any other cause, though not finally abandoned and legally derelict, and he takes possession of it with the bona fide intention of saving it for the owner, he will not be treated as a trespasser. On the contrary, if by his exertions he contributes materially to the preservation of the property, he will entitle himself to a remuneration according to the merits of his service as a salvor.

The court allowed salvage in this case. They held that the master had taken insufficient precautions to protect his vessel and although the ship was not a legal derelict, the libelants were salvors and entitled to salvage.In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the ship John Gilpin, in attempting to leave New York harbor in a winter storm, was driven ashore. The ship's crew sent for help and in the meantime put forth every effort to get her off. Help arrived toward evening, but accomplished nothing. The master and crew went ashore. The same night the libelants went out to the ship with equipment and started working. It was contended that the master had gone ashore for assistance. He returned the next morning with a tug and some men and demanded possession, which was refused. Salvage was allowed. The court said (p. 676):

The libelants, in the exercise of their calling as wreckers, coming to a vessel in that plight, would be guilty of a dereliction of duty if they failed to employ all their means for the instantaneous preservation of property so circumstanced. This may not be strictly and technically a case of derelict (Clarke vs. The Dodge Healy, Case No. 2849), if really the master of the brig had gone to the city to obtain the necessary help to save the cargo and brig, intending at the time, to return with all practicable dispatch. It appears he came to the wreck by 8 or 9 a. m. the following day, in a steam-tug, with men to assist in saving the cargo. The animus revertendi et recuperandi may thus far have continued with the master, but this mental hope or purpose must be regarded inoperative and unavailing as an actual occupancy of the vessel, or manifestation to others of a continuing possession. She was absolutely deserted for 12 or 14 hours in a condition when her instant destruction was menaced, and the lives of those who should attempt to remain by her would be considered in highest jeopardy. She was quite derelict; and being thus found (The Boston, Case no. 1673; Rowe vs. The Brig, Case no. 12093; 1 Sir Lionel Jenkins, 89) by the libelants, the possession they took of her was lawful. (The Emulous, Case No. 4480.)Possession being thus taken when the vessel was, in fact, abandoned and quite derelict, under peril of instant destruction, the libelants had a right to retain it until the salvage was completed, and no other person could interfere against them forcibly, provided they were able to effect the purpose, and were conducting the business with fidelity and vigor.

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In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the following facts: The four-masted schooner Myrtle Tunnel sailed from Brunswick bound for New York. The first day out a hurricane struck her and tore the sails away and carried off the deck load. She was badly damaged and leaking. The master of the Myrtle Tunnel requested towage by the steamship Mae to the port of Charleston. The Mae, on account of her own damaged condition, was unable to tow but she took the master and crew of the Myrtle Tunnel off and landed them at Charleston. The owners were notified and they started an expedition out in search. Before this expedition reached her, the steamship Shawmut sighted the Myrtle Tunnel, and, finding that she was abandoned and waterlogged, took her in two and succeeded in taking her to Charleston. The owners of the Myrtle Tunnelcontended that she was not derelict, because the master had gone ashore to procure assistance. With reference to this question, the court said (p. 478):

The first question that arises is whether the Myrtle Tunnel is a derelict. Prima facie a vessel found at sea in a situation of peril, with no one aboard of her, is a derelict; but where the master and crew leave such vessel temporarily, without any intention of final abandonment, for the purpose of obtaining assistance, and with the intent to return and resume possession, she is not technically a derelict. It is not of substantial importance to decide that question. She was what may be called a quasi-derelict; abandoned, helpless, her sails gone, entirely without power in herself to save herself from a situation not of imminent, but of considerable peril; lying about midway between the Gulf Stream and the shore, and about 30 miles from either. An east wind would have driven her upon one, and a west wind into the other, where she should have become a total loss. Lying in the pathway of commence, with nothing aboard to indicate an intention to return and resume possession, it was a highly meritorious act upon the part of the Shawmut to take possession of her, and the award must be governed by the rules which govern in case of derelicts; the amount of it to be modified in some degree in the interest of the owners in consideration of their prompt, intelligent, and praiseworthy efforts to resume possession of her, wherein they incurred considerable expense.

The first of these cases was decided in 1836 and the last in 1907. The indicate that the abandonment of a vessel by all on board, when the vessel is in peril, will justify third parties in taking possession with the bona fide intention of saving the vessel and its cargo for its owners. The mental hope of the master and the crew will in no way affect the possession nor the right to salvage. See also The Hyderabad (11 Fed. Rep., 749), The Cairnsmore (20 Fed. Rep., 519), Pearce vs. The Ann L. Lockwood (37 Fed. Rep., 233).This brings us to the second question raised by the assignments of error: (2) Was the salvage conducted with skill, diligence, and efficiency? The court found:

While the plaintiff entered upon the salvage proceedings without proper means and not being adapted by their business to conduct their work, and while it may appear that possibly the salvage might have been conducted in a better manner and have accomplished somewhat better results in the saving of the copra cargo, yet it appears that they quickly remedied their lack of means and corrected the conduct of the work so that it accomplished fairly good results.It does not appear from the evidence that anyone then or subsequently suggested or found any other course which might have been pursued and which would have brought better results.

There was some dispute whether Manila or Hongkong should be used as a base for operations. Capt. Robinson, who was the only one of the experts who had had any experience in handling wet copra, unqualifiedly approved Manila as a base for operations. (P. 437, 3d part of record):

Q.       Assuming that you had been asked to undertake the work of salving the steamer Nippon and her cargo, please state whether you would have undertaken that work with the men and material available in Manila, or whether you would have gone to Hongkong and used Hongkong men and material and made Hongkong your base on operations. —A.       Certainly not. I would have made Manila my base, which I always have done.

Lebreton, a stevedore, testified that he would have gotten some of his materials from Hongkong but that he would have freighted the salved cargo to Manila. All other things being equal, the fact that Hongkong is forty sailing hours from Scarborough Reef while Manila is less than twenty-four sailing hours would make Manila by far the more logical base.The plaintiffs sent men into the hold of the ship and sacked the copra and brought it to Manila where it was sold. Some of the witnesses contended that other methods should have been used. They testified that "grabs" or "claim shells" would have brought better results, but none of these witnesses had had any experience in unloading wet copra. Capt. Robinson was the only witness called who had had any experience in this class of work. He testified that the only way all the copra could be gotten out was by

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sacks or by canvas slights; that "grabs" would be of no use because of the inability to work with them between decks. The copra was in three layers. The top layer was dry, the middle layer was submerged every time the tide rose, and the lower layer was submerged all of the time. It was manifestly impossible to keep these layers separate by using "grabs" or "clam shells." The fact that wet copra is exceedingly difficult to handle, on account of the gases which arise from it, is also of prime importance in weighing the testimony of defendant's witnesses, because none of them had ever had experience with wet copra.The plaintiffs commenced the actual work of salving the ship and cargo on May 18, 1913. The last of the cargo was a brought to Manila the latter part of June. The last of the dry copra was brought to Manila on June 5. The estimates of the experts with regard to the time necessary to remove the cargo ranged from eight to twenty days. The greater portion of the cargo was brought in by the plaintiffs within fifteen days. The delay after June 5 was due to the difficulty in inducing laborers to work with wet copra. This difficulty would have arisen with any set of salvors and cannot be attributed to a lack of care or diligence on the part of the plaintiffs.The plaintiffs were diligent in commencing the work and were careful and efficient in its pursuit and conclusion.The third and last question is with regard to the amount of the award — (3) Was the award justified?

Compensation as salvage is not viewed by the admiralty courts merely as pay on the principle of quantum meruit or as a remuneration pro opere et labore, but as a reward given for perilous services, voluntarily rendered, and as an inducement to mariners to embark in such dangerous enterprises to save life and property. (The Mayflower vs. The Sabine, 101 U. S., 384.)

The plaintiff-appellant contends that the expenses incurred should be deducted from the entire amount of the salved property and the remainder be divided as a reward for the services rendered. This contention has no basis in the law of salvage compensation. The expenses incurred by the plaintiffs must be borne by them. It is true that the award should be liberal enough to cover the expenses and give an extra amount as a reward for the services rendered but the expenses are used in no other way as a basis for the final award. A part of the risk that the plaintiffs incurred was that the goods salved would not pay them for the amount expended in salving them. The plaintiffs knew this risk and they should not have spent more money than their reasonable share of the proceeds would amount to under any circumstances.In the case of The Carl Schurz (Case No. 2414; 5 Fed. Cas., 84) the actual expenditure by the libelant in salving the vessel in question was $568.95. The ship when sold brought $792. The libelant wanted the court to first deduct the expenses. The court refused to do this but decreed a moiety. The court said (p. 86):

A salvor, in the view of the maritime law, has an interest in the property; it is called a lien, but it never goes, in the absence of a contract expressly made, upon the idea of a debt due by the owner to the salvor for services rendered, as at common law, but upon the principle that the service creates a property in the thing saved. He is, to all intents and purposes, a joint owner, and if the property is lost he must bear his share like other joint owners.This is the governing principle here. The libelant and the owners must mutually bear their respective share of the loss in value by the sale. If the libelant has been unfortunate and has spent his time and money in saving a property not worth the expenditure he made, or if, having saved enough to compensate him, it is lost by the uncertainties of a judicial sale for partition, so to speak, it is a misfortune not uncommon to all who seek gain by adventurous speculations in values. The libelant says in his testimony that he relied entirely on his rights as a salvor. This being so he knew the risk he ran and it was his own folly to expend more money in the service than his reasonable share would have been worth under all circumstances and contingencies. He can rely neither on the common law idea of an implied contract to pay for work on and about one's property what the work is reasonably worth with alien attached by possession for satisfaction, nor upon any notion of an implied maritime contract for the service, with a maritime lien to secure it, as in the case of repairs, or supplies furnished a needy vessel, or the like. In such a case the owner would lose all if the property did not satisfy the debt, when fairly sold. But this doctrine has no place in the maritime law of salvage. It does not proceed upon any theory of an implied obligation, either of the owner or the res, to pay a quantum meruit, nor actual expenses incurred, but rather on that of a reasonable compensation or reward, as the case may be, to one who has rescued the res from danger of total loss. If he gets the whole, the property had as well been lost entirely, so far as the owner is concerned. (Smith vs. The Joseph Stewart, Fed. Cas. No. 13070.) I think the public policy of encouragement for such service does not, of

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itself, furnish sufficient support for a rule which would exclude the owner from all benefit to be derived from the service.

In Williams vs. The Adolphe (Fed. Cas. No. 17712; 29 Fed. Cas., 1350) the court said (p. 1353):The claim of the libelants is for salvage, the services rendered were salvage services and the owners are to receive their property again, after paying salvage for the services rendered them. What service would it be to them to take their property under circumstances calling for the whole of it by way of indemnity? The mistake of the captain and the supercargo, and part owner of the Triton as to the value of the property on board the Adolphe, should not operate to the injury of the owners thereof; the salvors must bear the consequences of their own mistake, taking such a proportion only of the property salved, as by the law of the admiralty should be awarded them.

In The Edwards (12 Fed. Rep., 508, 509), the court said:It is true that in rendering a salvage service the salvor assumes the risks of failure, and his salvage depends upon his success and the amount of property saved; yet when there is enough to fully compensate him for time and labor, and leave a reasonable proportion for the owner, he should certainly be awarded that, if the amount will allow no more.

In The L. W. Perry (71 Fed. Rep., 745, 746), the court said:Without regard to the element of reward which is intended by the salvage allowance, it is manifest that remuneration pro opere et labore would be placed in excess of the fund here, if such basis were allowable. Therefore, it is contended on behalf of the libelant that the entire sum remaining should be awarded for the salvage service;. . . .While salvage is of the nature of a reward of meritorious service, and for determination of its amount the interests of the public and the encouragement of others to undertake like service are taken into consideration, as well as the risk incurred, and the value of the property saved, and where the proceeds for division are small, the proportion of allowance to the salvor may be enlarged to answer these purposes, nevertheless, the doctrine of salvage requires, as a prerequisite to any allowance, that the service `must be productive of some benefit to the owners of the property salved; for, however meritorious the exertions of alleged salvors may be, if they are not attended with benefit to the owners, they can not be compensated as such.' (Abb. Shipp. [London Ed., 1892], 722.) The claim of the libelant can only be supported as one for salvage. It does not constitute a personal demand, upon quantum meruit, against the owners, but gives an interest in the property saved, which entitles the salvor to a liberal share of the proceeds. . . .(P. 747.) One of the grounds for liberality in salvage awards is the risk assumed by the salvor, — that he can have no recompense for service or expense unless he is successful in the rescue of property, and that his reward must be within the measure of his success. He obtains an interest in the property, and in its proceeds when sold, but accompanied by the same risk of any misfortune or depreciation which may occur to reduce its value. In other words, he can only have a portion, in any event; and the fact that his exertions were meritorious and that their actual value, or the expense actually incurred, exceeded the amount produced by the service, cannot operate to absorb the entire proceeds against the established rules of salvage. (The Carl Schurz, Fed. Cas. No. 2414).

The plaintiff-appellants contends that the award of the lower court of one-half is the established rule in cases of derelicts and should not be disturbed. It is well established now that the courts have a wide discretion in settling the award. The award is now determined by the particular facts and the degree of merit. In The Job H. Jackson(161 Fed. Rep., 1015, 1018), the court said:

There is no fixed rule for salvage allowance. The old rule in cases of a derelict was 50 per cent of the property salved; but under modern decisions and practice, it may be less, or it may be more. The allowance rests in the sound discretion of the court or judge, who hears the case, hears the witnesses testify, looks into their eyes, and is acquainted with the environments of the rescue. . . . An allowance for salvage should not be weighed in golden scales, but should be made as a reward for meritorious voluntary services, rendered at a time when danger of loss is imminent, as a reward for such services so rendered, and for the purpose of encouraging others in like services.

In The Lamington (86 Fed. Rep., 675, 678), the court said:While it appears most clearly that, since the old hard and fast rule of `50 per cent of a derelict' was abandoned, the award is determined by a consideration of the peculiar facts of each case, it is none the less true that the admiralty courts have always been careful not only to encourage

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salving enterprises by liberality, when possible, but also to recognize the fact that it is, after all, a speculation in which desert and reward will not always balance.

The award is largely in the discretion of the trial court and it is rare that the appellate court will disturb the findings.

Appellate courts rarely reduce salvage awards, unless there has been some violation of just principles, or some clear or palpable mistake. They are reluctant to disturb such award, solely on the ground that the subordinate court gave too large a sum, unless they are clearly satisfied that the court below made an exorbitant estimate of the services. It is equally true that, when the law gives a party a right to appeal, he has the right to demand the conscientious judgment of the appellate court on every question arising in the case, and the allowance of salvage originally decreased has, in many cases, been increased or diminished in the appellate court, even where it did not violate any of the just principles which should regulate the subject, but was unreasonably excessive or inadequate. (Post vs. Jones, 19 How., 161). Although the amount to be awarded as salvage rests, as it is said, in the discretion of the court awarding it, appellate courts will look to see if that discretion has been exercised by the court of first instance in the spirit of those decisions which higher tribunals have recognized and enforced, and will readjust the amount if the decree below does not follow in the path of authority, even though no principle has been violated or mistake made.

The property of the defendant-appellants which was salved was forced to pay the same proportion of the award without distinction. The day copra and the agar-agar was salved with much more ease than the wet copra. The courts have, almost universally, made a distinction in this regard. In The America (1 Fed. Cas., 596), decided in 1836, the award was as follows: 25 per cent on cargo salved dry; 50 per cent on cargo salved damaged; 60 per cent on cargo salved by diving.In The Ajax (1 Fed. Cas., 252(, decided in 1836, the award was as follows: 33 per cent on the dry; 50 per cent on the wet; 50 per cent on ship's materials. In The Nathaniel Kimball (Fed. Cas. No. 10033), decided in 1853, the award was as follows: 30 per cent on dry cargo; 50 per cent on wet, salved by diving and working under water.In The Brewster (Fed. Cas. No. 1852), decided in 1848, the award was as follows: 33 per cent, and as to some cargo where diving was necessary, 60 per cent.In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the award was as follows: 25 per cent salving dry deck cotton; 45 per cent salving cotton submerged between decks; 55 per cent salving cotton by diving.In The John Wesley (Fed. Cas. No. 7433), decided in 1866, the award was as follows: 15 per cent; on damaged cotton a slightly higher per cent.In The Northwester (Fed. Cas. No. 10333), decided in 1873, the award was as follows: 20 per cent on cotton dry; 33 1/3 per cent on cotton wet and burnt; 40 per cent on materials; 50 per cent on property salved by diving.In Baker vs. Cargo etc. of The Slobodna (35 Fed. Rep., 537), decided in 1887, the award was as follows: 25 per cent on dry cotton; 33 1/3 per cent on wet cotton; 45 per cent on materials.In the cases in which the full award of 50 per cent was allowed the court usually made the comment: "services highly meritorious," "meritorious service," "with great labor and difficulty," or similar remarks.In the salvage operations conducted by the plaintiff, the following property was involved:

First, the steamship Nippon , valued at P250,000.00

Second, copra, net value, salved 142,657.05

Third, agar-agar, net value, salved 5,635.00

Fourth, general cargo 5,939.68

Fifth, camphor, net value, salved 1,850.00

Sixth, curios, net value, salved 150.00

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The plaintiff and the owners of the ship have heretofore, by mutual agreement, settled the question of the amount of salvage of the ship. The plaintiff received for that part of their services the sum of L15,000 or about P145,800.No appeal was taken from the judgment of the lower court concerning the amount of salvage allowed by it for the general cargo, the camphor, nor the curios salved.The only question raised by the appellants is as to the amount of salvage which should be awarded to the plaintiff-appellants for the copra and the agar-agar. After a careful study of the entire record and taking into account the amount which the plaintiffs has heretofore received, we have arrived at the conclusion that in equity and justice the plaintiff-appellants should receive for their services the following amounts:(a) 40 per cent of the net value of the wet copra salved.(b) 25 per cent of the net value of the dry copra salved.(c) 20 per cent of the net value of the agar-agar salved.The net value of the wet copra salved amounted to P40,381.94; 40 per cent of that amount would be P16,152.78. The net value of the dry copra salved amounted to P102,272.11; 25 per cent of that amount would be P25,568.77.In ascertaining the net value of the copra salved, the expenses incurred by the Collector of Customs in the sale of the copra, amounting to P4,080.01, has been deducted from the total amount of the copra salved in the proportion of 2.5 to 1. Dividing the expense in that proportion we have deducted from the amount of the dry copra salved the sum of P2,914.39, and from the amount of the wet copra salved, the sum of P1,165.62.The net value of the agar-agar salved amounted to P5,636; 20 per cent of that amount would be P1,127.In view of all of the foregoing, it is hereby ordered and decreed that the judgment of the lower court be modified, and that a judgment be entered against the defendant-appellants and in favor of the plaintiff-appellant, as follows: First, it is hereby ordered and decreed that a judgment be entered against the defendant, the Oelwerke Teutonia, and in favor of the plaintiff in the sum of P41,721.55. Second, it is further ordered and decreed that a judgment be entered against the defendant, the New Zealand Insurance Company (Ltd.), and in favor of the plaintiff, in the sum of P1,127. Third, it is further ordered and decreed that the amount of the judgment hereinbefore rendered in favor of the plaintiff be paid out of the money which is now under the control of the Court of First Instance of the city of Manila. And without any finding as to costs, it is so ordered.G.R. No. L-17192             March 30, 1963HONORIO M. BARRIOS, plaintiff-appellant, vs.CARLOS A. GO THONG & COMPANY, defendant-appellee.Laput & Jardiel for plaintiff-appellant.Quisumbing & Quisumbing for defendant-appellee.BARRERA, J.:From the decision of the Court of First Instance of Manila (in Civil Case No. 37219) dismissing with costs his case against defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios, interposed the present appeal.The facts of the case, as found by the trial court, are briefly stated in its decision, to wit:The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of the William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other southern cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about 8:00 o'clock on the evening of May 1, 1958, plaintiff in his capacity as such captain and/or master of the aforesaid MV Henry I, received or otherwise intercepted an S.O.S. or distress signal by blinkers from the MV Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong & Company. Acting on and/or answering the S.O.S. call, the plaintiff Honorio M. Barrios, also in his capacity as captain and/or master of the MV Henry I, which was then sailing or navigating from Dumaguete City, altered the course of said vessel, and steered and headed towards the beckoning MV Don Alfredo, which plaintiff found to be in trouble, due to engine failure and the loss of her propeller, for which reason, it was drifting slowly southward from Negros Island towards Borneo in the open China Sea, at the mercy of a moderate easterly wind. At about 8:25 p.m. on the same day, May 1, 1958, the MV Henry I, under the command of the plaintiff, succeeded in getting near the MV Don Alfredo — in fact as near as about seven meters from the latter ship — and with the consent and knowledge of the captain and/or master of the MV Don Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and connected with two lines

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from the MV Henry I; and in that manner, position and situation, the latter had the MV Don Alfredo in tow and proceeded towards the direction of Dumaguete City, as evidenced by a written certificate to this effect executed and accomplished by the Master, the Chief Engineer, the Chief Officer, and the Second Engineer, of the MV Don Alfredo, who were then on board the latter ship at the time of the occurrence stated above (Exh. A). At about 5:10 o'clock the following morning, May 2, 1958, or after almost nine hours during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were approaching the vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of the MV Don Alfredo, was sighted heading towards the direction of the aforesaid two vessels, reaching then fifteen minutes later, or at about 5:25 o'clock on that same morning. Thereupon, at the request and instance of the captain and/or master of the MV Don Alfredo, the plaintiff caused the tow lines to be released, thereby also releasing the MV Don Alfredo.These are the main facts of the present case as to which plaintiff and defendant quite agree with each other. As was manifested in its memorandum presented in this case on August 22, 1958, defendant thru counsel said that there is, indeed, between the parties, no dispute as to the factual circumstances, but counsel adds that where plaintiff concludes that they establish an impending sea peril from which salvage of a ship worth more than P100,000.00, plus life and cargo was done, the defendant insists that the facts made out no such case, but that what merely happened was only mere towage from which plaintiff cannot claim any compensation or remuneration independently of the shipping company that owned the vessel commanded by him.On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating:

Plaintiff bases his claim upon the provisions of the Salvage Law, Act No. 2616, .....In accordance with the Salvage Law, a ship which is lost or abandoned at sea is considered a derelict and, therefore, proper subject of salvage. A ship in a desperate condition, where persons on board are incapable, by reason of their mental and physical condition, of doing anything for their own safety, is a quasi-derelict and may, likewise, be the proper subject of salvage. Was the MV Don Alfredo, on May 1, 1958, when her engine failed and, for that reason, was left drifting without power on the high seas, a derelict or a quasi-derelict? In other words, was it a ship that was lost or abandoned, or in a desperate condition, which could not be saved by reason of incapacity or incapacity of its crew or the persons on board thereof? From all appearances and from the evidence extant in the records, there can be no doubt, for it seems clear enough, that the MV Don Alfredo was not a lost ship, nor was it abandoned. Can it be said that the said ship was in a desperate condition, simply because S.O.S. signals were sent from it?.From the testimony of the captain of the MV Don Alfredo, the engine failed and the ship already lost power as early as 8:00 o'clock on the morning of May 1, 1958; although it was helpless, in the sense that it could not move, it did not drift too far from the place where it was, at the time it had an engine failure. The weather was fair — in fact, as described by witnesses, the weather was clear and good. The waves were small, too slight — there were only ripples on the sea, and the sea was quite smooth. And, during the night, while towing was going on, there was a moonlight. Inasmuch as the MV Don Alfredo was drifting towards the open sea, there was no danger of floundering. As testified to by one of the witnesses, it would take days or even weeks before the ship could as much as approach an island. And, even then, upon the least indication, the anchor could always be weighed down, in order to prevent the ship from striking against the rocks."There was no danger of the vessel capsizing, in view of the fairness of the sea, and the condition of the weather, as described above. As a matter of fact, although the MV Don Alfredo had a motor launch, and two lifeboats, there was no attempt, much less, was there occasion or necessity, to lower anyone or all of them, in order to evacuate the persons on board; nor did the conditions then obtaining require an order to jettison the cargo.But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from aboard the MV Don Alfredo, which was enough to establish the fact that it was exposed to imminent peril at sea. It is admitted by the defendant that such S.O.S. signal was, in fact, sent by blinkers. However, defendant's evidence shows that Captain Loresto of the MV Don Alfredo, did not authorize the radio operator of the aforesaid ship to send an S.O.S. or distress signal, for the ship was never in distress, nor was it exposed to a great imminent peril of the sea. What the aforesaid Captain told the radio operator to transmit was a general call; for, at any rate, message had been sent to defendant's office at Cebu City, which the latter had acknowledged, by sending back a reply stating that help was on the way. However, as explained by the said radio operator, in spite of his

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efforts to send a general call by radio, he did not receive any response. For this reason, the Captain instructed him to send the general call by blinkers from the deck of the ship; but the call by blinkers, which follows the dots and dashes method of sending messages, could not be easily understood by deck officers who ordinarily are not radio operators. Hence, the only way by which the attention of general officers on deck could be called, was to send an S.O.S. signal which can be understood by all and sundry.Be it as it may, the evidence further shows that when the two ships were already within hearing distance (barely seven meters) of each other, there was a sustained conversation between Masters and complement of the two vessels, by means of loud speakers and the radio; and, the plaintiff must have learned of the exact nature and extent of the disability from which the MV Don Alfredo had suffered — that is, that the only trouble that the said vessel had developed was an engine failure, due to the loss of its propellers..It can thus be said that the MV Don Alfredo was not in a perilous condition wherein the members of its crew would be incapable of doing anything to save passengers and cargo, and, for this reason, it cannot be duly considered as a quasi-derelict; hence, it was not the proper subject of salvage, and the Salvage Law, Act No. 2616, is not applicable.Plaintiff, likewise, predicates his action upon the provisions of Article 2142 of the New Civil Code, which reads as follows:

Certain lawful, voluntary and unilateral acts give to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.

This does not find clear application to the case at bar, for the reason that it is not the William Lines, Inc., owners of the MV Henry I which is claiming for damages or remuneration, because it has waived all such claims, but the plaintiff herein is the Captain of the salvaging ship, who has not shown that, in his voluntary act done towards and which benefited the MV Don Alfredo, he had been unduly prejudiced by his employers, the said William Lines, Incorporated.What about equity? Does not equity permit plaintiff to recover for his services rendered and sacrifices made? In this jurisdiction, equity may only be taken into account when the circumstances warrant its application, and in the absence of any provision of law governing the matter under litigation. That is not so in the present case.In view of the foregoing, judgment is hereby rendered dismissing the case with costs against the plaintiff; and inasmuch as the plaintiff has not been found to have brought the case maliciously, the counterclaim of the defendant is, likewise, dismissed, without pronouncement as to costs.SO ORDERED.

The main issue to be resolved in this appeal is, whether under the facts of the case, the service rendered by plaintiff to defendant constituted "salvage" or "towage", and if so, whether plaintiff may recover from defendant compensation for such service.The pertinent provision of the Salvage Law (Act No. 2616), provides:SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage.Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be entitled to a like reward.According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be entitled to a reward (salvage). "Salvage" has been defined as "the compensation allowed to persons by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture." (Blackwall v. Saucelito Tug Company, 10 Wall. 1, 12, cited in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178.) In the Erlanger & Galingercase, it was held that three elements are necessary to a valid salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when not required as an existing duty or from a special contract, and (3) success in whole or in part, or that the service rendered contributed to such success.1

Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant? Like the trial court, we do not think there was. It appears that although the defendant's vessel in question was, on the night of May 1, 1958, in a helpless condition due to engine failure, it did not drift too far from the place where it was. As found by the court a quo the weather was fair, clear, and good. The waves were small and too slight, so much so, that there were only ripples on the sea, which was quite smooth.

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During the towing of the vessel on the same night, there was moonlight. Although said vessel was drifting towards the open sea, there was no danger of it floundering or being stranded, as it was far from any island or rocks. In case of danger of stranding, its anchor could released, to prevent such occurrence. There was no danger that defendant's vessel would sink, in view of the smoothness of the sea and the fairness of the weather. That there was absence of danger is shown by the fact that said vessel or its crew did not even find it necessary to lower its launch and two motor boats, in order to evacuate its passengers aboard. Neither did they find occasion to jettison the vessel's cargo as a safety measure. Neither the passengers nor the cargo were in danger of perishing. All that the vessel's crew members could not do was to move the vessel on its own power. That did not make the vessel a quasi-derelict, considering that even before the appellant extended the help to the distressed ship, a sister vessel was known to be on its way to succor it.If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law, can it be considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer seems to incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant (through the captain of its vessel MV Don Alfredo) thereby impliedly entered into a juridical relation of "towage" with the owner of the vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated.

Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its engine speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by while ship proceeded to dock under own power, was entitled, in absence of written agreement as to amount to be paid for services, to payment for towage services, and not for salvage services. (Sause, et al. v. United States, et al., 107 F. Supp. 489)

If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to the exclusion of the crew of the said vessel, may be entitled to remuneration.It often becomes material too, for courts to draw a distinct line between salvage and towage, for the reason that a reward ought sometimes to be given to the crew of the salvage vessel and to other participants in salvage services; and such reward should not be given if the services were held to be merely towage. (The Rebecca Shepherd, 148 F. 731.)The master and members of the crew of a tug were not entitled to participate in payment by liberty ship for services rendered by tug which were towage services and not salvage services. (Sause, et al. v. United States, et al., supra.)"The distinction between salvage and towage is of importance to the crew of the salvaging ship, for the following reasons: If the contract for towage is in fact towage, then the crew does not have any interest or rights in the remuneration pursuant to the contract. But if the owners of the respective vessels are of a salvage nature, the crew of the salvaging ship is entitled to salvage, and can look to the salvaged vessel for its share. (I Norris, The Law of Seamen, Sec. 222.)And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation for the towage service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon and not separate from the interest of his employer, is not entitled to payment for such towage service.Neither may plaintiff invoke equity in support of his claim for compensation against defendant. There being an express provision of law (Art. 2142, Civil Code) applicable to the relationship created in this case, that is, that of a quasi-contract of towage where the crew is not entitled to compensation separate from that of the vessel, there is no occasion to resort to equitable considerations.WHEREFORE, finding no reversible error in the decision of the court a quo appealed from, the same is hereby affirmed in all respects, with costs against the plaintiff-appellant. So ordered.CHAPTER 15: CARRIAGE OF GOODS BY SEA ACTG.R. No. L-6517            November 29, 1954E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE COMPANY, petitioners, vs.COURT OF APPEALS, INTERNATIONAL HARVESTER COMPANY OF THE PHILIPPINES and ISTHMIAN STEAMSHIP COMPANY, respondents.Gibbs and Chuidian for petitioners.J. A. Wolfson for respondents.BAUTISTA ANGELO, J.:This is a petition for review of a decision of the Court of Appeals which affirms that of court as origin dismissing the complaint without pronouncement as to costs..The facts, as found by the Court of Appeals, are:.

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It appears that in the month of December, 1945 the goods specified in the Bill of Lading marked as Annex A, were shipped on the 'S.S. Sea Hydra,' of Isthmian Steamship Company, from New York to Manila, and were received by the consignee 'Udharam Bazar and Co.', except one case of vanishing cream valued at P159.78. The goods were insured against damage or loss by the 'Atlantic Mutual Insurance Co.' `Udharam Bazar and Co.' Inc., who denied having received the goods for custody, and the 'International Harvester Co. of the Philippines,' as agent for the shipping company, who answer that the goods were landed and delivered to the Customs authorities. Finally, 'Udaharam Bazar and Co.' claimed for indemnity of the loss from the insurer, 'Atlantic Mutual Insurance Co.', and was paid by the latter's agent 'E. E. Elser Inc.' the amount involved, that is, P159.78..

As may be noted, the Court of Appeals held that petitioners have already lost their right to press their claim against respondent because of their failure to serve notice thereof upon the carrier within 30 days after receipt of the notice of loss or damage as required by clause 18 of the bill of lading which was issued concerning the shipment of the merchandise which had allegedly disappeared. In this respect, the court said that, "appellant unwittingly admitted that they were late in claiming the indemnity for the loss of the case of the vanishing cream as their written claim was made on April 25, 1946, or more than 30 days after they had been fully aware of said loss," and because of this failure, the Court said the action of petitioners should, and must, fall. Petitioners now contend that this finding is erroneous in the light of the provisions of the Carriage of Goods by Sea Act of 1936, which apply to this case, the same having been made an integral part of the covenants agreed upon in the bill of lading.There is merit in this contention. If this case were to be governed by clause 18 of the bill of lading regardless of the provisions of the Carriage of Goods by Sea Act of 1936, the conclusion reached by the Court of Appeals would indeed the correct, but in our opinion this Act cannot be ignored or disregard in determining the equities of the parties it appearing that the same was made an integral part of the bill of lading by express stipulation. It should be noted, in this connection, that the Carriage of Goods by Sea Act of 1936 was accepted and adopted by our government by the enactment of Commonwealth Act No. 65 making said Act "applicable to all contracts for the carriage in foreign trade." And the pertinent provisions of the Carriage of the Goods by Sea Act of 1936 are:

6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier of his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facieevidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.xxx xxx xxxIn any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: PROVIDED, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. (Section 3; Emphasis supplied.).

It would therefore appear from the above that a carrier can only be discharged from liability in respect of loss or damage if the suit is not brought within one year after the delivery of the goods or the date when the goods should have been delivered, and that, even if a notice of loss or damage is not given as required, "that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods." In other words, regardless of whether the notice of loss or damage has been given, the shipper can still bring an action to recover said loss or damage within one year after the delivery of the goods, and, as we have stated above, this is contrary to the provisions of clause 18 of the bill of lading. The question that now rises is: Which of these two provisions should prevail? Is it that contained in clause 18 of the bill of lading, or that appearing in the Carriage of Goods by Sea Act?.The answer is not difficult to surmise. That clause 18 must of necessity yields to the provisions of the Carriage of Goods by Sea Act in view of the proviso contained in the same Act which says: "any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods . . . or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect." (section 3.) This means that a carrier cannot limit its liability in a manner contrary to what is provided for in said act. and so clause 18 of the bill of lading must

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of necessity be null and void. This interpretation finds no support in a number of cases recently decided by the American courts. Thus, in Balfour, Guthrie and Co., Ltd., et al., vs. American-West African Line, Inc. and American-West African Line, Inc. vs. Balfour, Guthrie & Co., Ltd., et al., 136 F. 2d. 320, wherein the bill of lading provided that the owner should not be liable for loss of cargo unless written notice thereof was given within 30 days after the goods should have been delivered and unless written claim therefor was given within six months after giving such written notice, the United States Circuit Court of Appeals, Second Circuit, in a decision promulgated on August 2, 1943, made the following ruling:.

But the Act, section 3 (6), 45 U.S.A. section 1303 (6) provides that failure to give 'notice of loss or damages' shall not prejudice the right of the shipper to bring suit within one year after the date when the goods should have been delivered. to enforce a bill of lading provision conditioning a ship owner's liability upon the filing of written claim of loss, which in turn requires and depends upon the filing of a prior notice of loss, certainly would do violence to section 3(6) is that failure to file written claim of loss in no event may prejudice right of suit within a year of the scheduled date for cargo delivery. This is also to be concluded from section 3(8) 46 U.S. C. A. Section 1303 (8),that any clause in a bill of lading lessening the liability of the carrier otherwise than as provided in the Act shall be null and void. A similar provision in the British Carriage of Goods by Sea Act, 14 and 15 Geo. V. c.22, has been interpreted to nullify any requirement of written claim as a condition to suit at any time. CF. Australian United Steam Navigation Co., Ltd., vs. Hunt (1921) 2 A. C. 351; Conventry Sheppard and Co., vs. Larrinaga S. S. Co., 73 ll. L. Rep. 256.1

But respondents contend that while the United States Carriage of Goods by Sea Act of 1936 was accepted and adopted by our government by virtue of Commonwealth Act No. 65, however, said Act does not have any application to the present case because the shipment in question was made in December, 1945, and arrived in Manila in February, 1946 and at that time the Philippines was still a territory or possession of the United States and, therefore it may be said that the trade then between the Philippines and the United States was not a "foreign trade". In other words, it is contended that the Carriage of Goods by Sea Act as adopted by our government is only applicable "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade," and, therefore, it does not apply to the shipment in question..Granting arguendo that the Philippines was a territory or possession of the United States for the purposes of said Act and that the trade between the Philippines and the United States before the advent of independence was notforeign trade or can only be considered in a domestic sense, still we are of the opinion that the Carriage of Goods by Sea Act of 1936 may have application to the present case it appearing that the parties have expressly agreed to make and incorporate the provisions of said Act as integral part of their contract of carriage. This is an exception to the rule regarding the applicability of said Act. This is expressly recognized by section 13 of said Act which contains the following proviso:

Nothing in this Act shall be held to apply to contracts for carriage of gods by sea between any port of the United States or its possessions, and any other port of the United States or its possessions: Provided, however, That any bill of lading or similar document of title which evidence of a contract for the carriage of goods by sea between such ports, containing an express statement that it shall be subject to the provisions of this Act, shall be subjected hereto as fully as if subject hereto by the express provisions of this Act. (Emphasis supplied.).

This is also recognized by the very authority cited by counsel for respondents, who, on this matter, has made the following comment:

The Philippine Act of 1936 like the U.S. Act of 1936, applies propio vigore only to foreign commerce to all contracts for the carriage of goods by sea and from Philippine ports in foreign trade.Prior to Philippine Independence on July 4, 1946, trade between the Philippines and other ports and places under the American Flag, was not, by an ordinary definition, foreign commerce. Hence, the U. S. and Philippine Acts did not apply to such trades, even though conducted under foreign bottoms and under foreign flag, unless the carrier expressly exercised the option given by section 13 of the U.S. Act to carry under the provisions of that Act. The fact that the U.S. coastwise flag monopoly did not extend to the Philippine trade did not alter the fact that the U.S. Trade with the Islands is domestic. (knaught, Ocean Bills of Lading, 1947 ed. p. 250 (Emphasis supplied.).

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Having reached the foregoing conclusion, it would appear clear that action of petitioners has not yet lapsed or prescribed, as erroneously held by the Court of Appeals, it appearing that the present action was brought within one year after the delivery of the shipment in question..As regards the contention of respondents that petitioners have the burden of showing that the loss complained of did not take place under after the goods left the possession or custody of the carrier because they failed to give notice of their loss or damage as required by law, which failures gives rise to the presumption that the goods were delivered in the bill of lading, suffice it to state that, according to the Court of Appeals, the required notice was given by the petitioners to the carrier or its agent on April 25, 1946. That notice is sufficient to overcome the above presumption within the meaning of the law..Wherefore the decision appealed from is reversed. Respondents, other than the Court of Appeals, are hereby sentenced to pay to the petitioners the sum of P159.78, with legal interest thereon from the date of the filing of the complaint, plus the costs of action.G.R. No. L-30805 December 26, 1984DOMINGO ANG, plaintiff-appellant, vs.COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L. DIOKNO, defendants-appellees. AQUINO, J.:This case involves the recovery of damages by the consignee from the carrier in case of misdelivery of the cargo which action was dismissed by the trial court on the grounds of lack of cause of action and prescription.It should be noted that that legal point is already res judicata. In 1967 it was decided in favor of plaintiff-appellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125 Phil. 543 and 125 Phil. 1040, three cases. As observed by Ang's counsel, the facts of those cases and the instant case are the same mutatis mutandis. It was held that Ang has a cause of action against the carrier which has not prescribedIn the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the Philippines and C.L. Diokno. He prayed that the defendants be ordered to pay him solidarily the sum of US$130,539.68 with interest from February 9, 1963 plus attorney's fees and damages.Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by the defendants, to be transported to Manila and consigned "to order" of the shipper, Tokyo Boeki, Ltd., which indorsed the bill of lading issued by Compania Maritima to the order of Yau Yue Commercial Bank.Ang further alleged that the defendants, by means of a permit to deliver imported articles, authorized the delivery of the cargo to Teves who obtained delivery from the Bureau of Customs without the surrender of the bill of lading and in violation of the terms thereof. Teves dishonored the draft drawn by Yau Yue against him.The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft's dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang.The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of action. Ang opposed the motion. As already stated, the trial court on May 22, 1964 dismissed the complaint on the grounds of lack of cause of action and prescription since the action was filed beyond the one-year period provided in the Carriage of Goods by Sea Act.In the American Steamship Agencies cases, it was held that the action of Ang is based on misdelivery of the cargo which should be distinguished from loss thereof. The one-year period provided for in section 3 (6) of the Carriage of Goods by Sea Act refers to loss of the cargo. What is applicable is the four-year period of prescription for quasi-delicts prescribed in article 1146 (2) of the Civil Code or ten years for violation of a written contract as provided for in article 1144 (1) of the same Code.As Ang filed the action less than three years from the date of the alleged misdelivery of the cargo, it has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in interest with a cause of action for damages.WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the trial court for further proceedings. Costs against the defendants.

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SO ORDERED.G.R. No. L-61352 February 27, 1987DOLE PHILIPPINES, INC., plaintiff-appellant, vs.MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee.Domingo E. de Lara & Associates for plaintiff-appellant.Bito, Misa and Lozada Law Office for defendant-appellee. NARVASA, J.:This appeal, which was certified to the Court by the Court of Appeals as involving only questions of law, 1 relates to a claim for loss and/or damage to a shipment of machine parts sought to be enforced by the consignee, appellant Dole Philippines, Inc. (hereinafter caged Dole) against the carrier, Maritime Company of the Philippines (hereinafter called Maritime), under the provisions of the Carriage of Goods by Sea Act. 2

The basic facts are succinctly stated in the order of the Trial Court 3 dated March 16, 1977, the relevant portion of which reads:

xxx xxx xxxBefore the plaintiff started presenting evidence at today's trial at the instance of the Court the lawyers entered into the following stipulation of facts:1. The cargo subject of the instant case was discharged in Dadiangas unto the custody of the consignee on December 18, 1971;2. The corresponding claim for the damages sustained by the cargo was filed by the plaintiff with the defendant vessel on May 4, 1972;3. On June 11, 1973 the plaintiff filed a complaint in the Court of First Instance of Manila, docketed therein as Civil Case No. 91043, embodying three (3) causes of action involving three (3) separate and different shipments. The third cause of action therein involved the cargo now subject of this present litigation;4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043 dismissing the first two causes of action in the aforesaid case with prejudice and without pronouncement as to costs because the parties had settled or compromised the claims involved therein. The third cause of action which covered the cargo subject of this case now was likewise dismissed but without prejudice as it was not covered by the settlement. The dismissal of that complaint containing the three causes of action was upon a joint motion to dismiss filed by the parties;5. Because of the dismissal of the (complaint in Civil Case No. 91043 with respect to the third cause of action without prejudice, plaintiff instituted this present complaint on January 6, 1975.xxx xxx xxx 4

To the complaint in the subsequent action Maritime filed an answer pleading inter alia the affirmative defense of prescription under the provisions of the Carriage of Goods by Sea Act, 5 and following pre-trial, moved for a preliminary hearing on said defense. 6 The Trial Court granted the motion, scheduling the preliminary hearing on April 27, 1977. 7 The record before the Court does not show whether or not that hearing was held, but under date of May 6, 1977, Maritime filed a formal motion to dismiss invoking once more the ground of prescription. 8 The motion was opposed by Dole9 and the Trial Court, after due consideration, resolved the matter in favor of Maritime and dismissed the complaint 10 Dole sought a reconsideration, which was denied, 11 and thereafter took the present appeal from the order of dismissal.The pivotal issue is whether or not Article 1155 of the Civil Code providing that the prescription of actions is interrupted by the making of an extrajudicial written demand by the creditor is applicable to actions brought under the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6, provides that:

*** the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered; Provided, That, if a notice of loss or damage, either apparent or conceded, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.xxx xxx xxx

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Dole concedes that its action is subject to the one-year period of limitation prescribe in the above-cited provision.12 The substance of its argument is that since the provisions of the Civil Code are, by express mandate of said Code, suppletory of deficiencies in the Code of Commerce and special laws in matters governed by the latter, 13 and there being "*** a patent deficiency *** with respect to the tolling of the prescriptive period ***" provided for in the Carriage of Goods by Sea Act, 14 prescription under said Act is subject to the provisions of Article 1155 of the Civil Code on tolling and because Dole's claim for loss or damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt prescription under Article 1155, it operated to toll prescription also in actions under the Carriage of Goods by Sea Act. To much the same effect is the further argument based on Article 1176 of the Civil Code which provides that the rights and obligations of common carriers shag be governed by the Code of Commerce and by special laws in all matters not regulated by the Civil Code.These arguments might merit weightier consideration were it not for the fact that the question has already received a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a parallel factual situation, where suit to recover for damage to cargo shipped by vessel from Tokyo to Manila was filed more than two years after the consignee's receipt of the cargo, this Court rejected the contention that an extrajudicial demand toiled the prescriptive period provided for in the Carriage of Goods by Sea Act, viz:

In the second assignment of error plaintiff-appellant argues that it was error for the court a quo not to have considered the action of plaintiff-appellant suspended by the extrajudicial demand which took place, according to defendant's own motion to dismiss on August 22, 1952. We notice that while plaintiff avoids stating any date when the goods arrived in Manila, it relies upon the allegation made in the motion to dismiss that a protest was filed on August 22, 1952 — which goes to show that plaintiff-appellant's counsel has not been laying the facts squarely before the court for the consideration of the merits of the case. We have already decided that in a case governed by the Carriage of Goods by Sea Act, the general provisions of the Code of Civil Procedure on prescription should not be made to apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554, May 27, 1953.) Similarly, we now hold that in such a case the general provisions of the new Civil Code (Art. 1155) cannot be made to apply, as such application would have the effect of extending the one-year period of prescription fixed in the law. It is desirable that matters affecting transportation of goods by sea be decided in as short a time as possible; the application of the provisions of Article 1155 of the new Civil Code would unnecessarily extend the period and permit delays in the settlement of questions affecting transportation, contrary to the clear intent and purpose of the law. * * *

Moreover, no different result would obtain even if the Court were to accept the proposition that a written extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The demand in this instance would be the claim for damage-filed by Dole with Maritime on May 4, 1972. The effect of that demand would have been to renew the one- year prescriptive period from the date of its making. Stated otherwise, under Dole's theory, when its claim was received by Maritime, the one-year prescriptive period was interrupted — "tolled" would be the more precise term — and began to run anew from May 4, 1972, affording Dole another period of one (1) year counted from that date within which to institute action on its claim for damage. Unfortunately, Dole let the new period lapse without filing action. It instituted Civil Case No. 91043 only on June 11, 1973, more than one month after that period has expired and its right of action had prescribed.Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 *** (and that) in legal contemplation *** (the) case (Civil Case No. 96353) was filed on January 6, 1975 *** well within the one-year prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea Act." 16 equates tolling with indefinite suspension. It is clearly fallacious and merits no consideration.WHEREFORE, the order of dismissal appealed from is affirmed, with costs against the appellant, Dole Philippines, Inc.SO ORDERED.

[G.R. No. 124050.  June 19, 1997]MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, respondents.

D E C I S I O N

58

PUNO, J.:This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of

Appeals dated December 14, 1995[1] and its Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation.[3]

In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings.  From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022.[4]

Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter).  The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with respondent Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to examine whether the pipes and fittings are manufactured in accordance with the specifications in the contract.  Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel.  Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance contract.  Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes.  Private respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is a factory defect.

On April 17, 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30.  For their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners because the damage to the goods is due to factory defects which are not covered by the insurance policies.

The trial court ruled in favor of petitioners.  It found that the damage to the goods is not due to manufacturing defects.  It also noted that the insurance contracts executed by petitioner Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage.  The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured.  The dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the plaintiffs the following:

1.            the sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest as of the filing of the complaint;2.            P100,000.00 as and for attorney's fees; and3.            costs of suit.SO ORDERED.[5]

Private respondents elevated the case to respondent Court of Appeals.Respondent court affirmed the finding of the trial court that the damage is not due to factory defect

and that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer.  However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription.  It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the vessel.  Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered."  Respondent court ruled that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. vs. Alejandro.[6]

Hence this petition with the following assignments of error:1.  The respondent Court of Appeals erred in holding that petitioners' cause of action had

already prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and

2.  The respondent Court of Appeals committed an error in dismissing the complaint.[7]

59

The petition is impressed with merit.  Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered.  Under this provision, only the carrier's liability is extinguished if no suit is brought within one year.  But the liability of the insurer is not extinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance.  A close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand.  It defines the obligations of the carrier under the contract of carriage.  It does not, however, affect the relationship between the shipper and the insurer.  The latter case is governed by the Insurance Code.

Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro [8] and the other cases[9] cited therein does not support respondent court's view that the insurer's liability prescribes after one year if no action for indemnity is filed against the carrier or the insurer.  In that case, the shipper filed a complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured goods.  The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the amount it paid to the shipper.  The insurer filed the third-party complaint on January 9, 1978, more than one year after delivery of the goods on December 17, 1977.  The court held that the Insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or the date when the goods should have been delivered.  The court said that "the coverage of the Act includes the insurer of the goods."[10]

The Filipino Merchants case is different from the case at bar.  In Filipino Merchants, it was the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the shipper.   In the case at bar, it was the shipper which filed a claim against the insurer.  The basis of the shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the consignee or the insurer.  When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period provided in the law.  But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract.  An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril.[11] An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured.[12] Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured.  Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.[13]

IN VIEW WHEREOF, the petition is GRANTED.  The Decision of respondent Court of Appeals dated December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial Court is hereby REINSTATED.  No costs.

SO ORDERED.UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC.,

Petitioner,

             - versus -

COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION,

Respondents.

G.R. No. 166250

Present:

CARPIO, J.,      Chairperson,NACHURA,PERALTA,ABAD, andMENDOZA, JJ.

Promulgated:

60

   July 26, 2010

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

DECISION 

NACHURA, J.:                            

  

           For review is the Court of Appeals (CA) Decision[1] dated April 29, 2004 and Resolution[2] dated November 26, 2004. The assailed Decision affirmed the Regional Trial Court (RTC) decision[3] dated February 22, 2001; while the assailed Resolution denied petitioner Unsworth Transport International (Philippines), Inc., American President Lines, Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s) motion for reconsideration.

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          The facts of the case are:           On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of various raw materials for pharmaceutical manufacturing, consisting of:  “1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex Extract.” [4]   UTI issued Bill of Lading No. C320/C15991-2,[5] covering the aforesaid shipment.  The subject shipment was insured with private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all risks in the amount of P1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 92[6] and Open Cargo Policy No. HO-022-RIU.[7]

 On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40

container van, with no. APLU-982012, boarded on APL’s vessel M/V “Pres. Jackson,” Voyage 42, and transshipped to APL’s M/V “Pres. Taft”[8] for delivery to petitioner in favor of the consignee United Laboratories, Inc. (Unilab).

 On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992,

petitioner received the said shipment in its warehouse after it stamped the Permit to Deliver Imported Goods[9] procured by the Champs Customs Brokerage.[10]  Three days thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a stripping survey of the shipment located in petitioner’s warehouse. The survey results stated:

 2-pallets STC 40 bags Dried Yeast, both in good order condition and properly

sealed 19- steel drums STC Vitamin B Complex Extract, all in good order condition and

properly sealed 1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx.

spilling of 1%[11]

            On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate Pass No. 7614[12] which stated that “22 drums[13] Raw Materials for Pharmaceutical Mfg.” were loaded on a truck with Plate No. PCK-434 facilitated by Champs for delivery to Unilab’s warehouse. The materials were noted to be complete and in good order in the gate pass.[14] On the same day, the shipment arrived in Unilab’s warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated: 

1-p/bag torn on side contents partly spilled1-s/drum #7 punctured and retaped on bottom side content lacking5-drums shortship/short delivery[15]

 On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys which yielded the same results. Consequently, Unilab’s quality control representative rejected one paper bag containing dried yeast and one steel drum containing Vitamin B Complex as unfit for the intended purpose.[16]

          On November 7, 1992, Unilab filed a formal claim[17] for the damage against private respondent and UTI. On November 20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that the goods were in complete and good condition; while private respondent paid the claimed amount on March 23, 1993. By virtue of the Loss and Subrogation Receipt[18]  issued by Unilab in favor of private respondent, the latter filed a complaint for Damages against APL, UTI and petitioner with the RTC of Makati.[19]The case was docketed as Civil Case No. 93-3473 and was raffled to Branch 134. 

62

          After the termination of the pre-trial conference, trial on the merits ensued. On February 22, 2001, the RTC decided in favor of private respondent and against APL, UTI and petitioner, the dispositive portion of which reads:

           WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE & SURETY CORPORATION and against the defendants AMERICAN PRESIDENT LINES and UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and severally, the former the following amounts:             1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100 (Php76,231.27) with interest at the legal rate of 6% per annum to be computed starting from September 30, 1993 until fully paid, for and as actual damages;             2. The amount equivalent to 25% of the total sum as attorney’s fees;             3. Cost of this litigation.             SO ORDERED.[20]  

           On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s defense that it was merely a forwarder, declaring instead that it was a common carrier. The appellate court added that by issuing the Bill of Lading, UTI acknowledged receipt of the goods and agreed to transport and deliver them at a specific place to a person named or his order. The court further concluded that upon the delivery of the subject shipment to petitioner’s warehouse, its liability became similar to that of a depositary. As such, it ought to have exercised ordinary diligence in the care of the goods. And as found by the RTC, the CA agreed that petitioner failed to exercise the required diligence. The CA also rejected petitioner’s claim that its liability should be limited to $500 per package pursuant to the Carriage of Goods by Sea Act (COGSA) considering that the value of the shipment was declared pursuant to the letter of credit and the pro forma invoice. As to APL, the court considered it as a common carrier notwithstanding the non-issuance of a bill of lading inasmuch as a bill of lading is not indispensable for the execution of a contract of carriage.[21]

           Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the following issues:

 1.      WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE DECISION OF THE REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS (PHP76,231.27) WITH LEGAL INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S FEES. 2.      WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.

 3.      WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE.

 4.      WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE ALLEGED DAMAGE TO ITS CARGO.[22]

  Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a common

carrier. It also questions the appellate court’s findings that it failed to establish that it exercised extraordinary or ordinary diligence in the vigilance over the subject shipment. As to the damages allegedly

63

suffered by private respondent, petitioner counters that they were not sufficiently proven. Lastly, it insists that its liability, in any event, should be limited to $500 pursuant to the package limitation rule. Indeed, petitioner wants us to review the factual findings of the RTC and the CA and to evaluate anew the evidence presented by the parties.

 The petition is partly meritorious. Well established is the rule that factual questions may not be raised in a petition for review

on certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.: Section 1. Filing of petition with Supreme Court. – A party desiring to appeal

by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.

  Admittedly, petitioner is a freight forwarder. The term “freight forwarder" refers to a firm holding

itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation and, in the ordinary course  of  its business, (1) toassemble and consolidate, or to provide for assembling and consolidating, shipments, and to perform or provide for break-bulk and distribution operations of the shipments; (2) to assume responsibility for the transportation of goods from the place of receipt to the place of destination; and (3) to use for any part of the transportation a carrier subject to the federal law pertaining to common carriers.[23]

 A freight forwarder’s liability is limited to damages arising from its own negligence, including

negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the merchandise itself.[24]

 It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner

undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical manufacturing to the consignee.

 A bill of lading is a written acknowledgement of the receipt of goods and an agreement to

transport and to deliver them at a specified place to a person named or on his or her order.[25] It operates both as a receipt and as a contract.  It is a receipt for the goods shipped and a contract to transport anddeliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks, condition, quality, and value. As a contract, it names the contracting parties, which include the consignee; fixes the route, destination, and freight rate or charges; and stipulates the rights and obligations assumed by the parties.[26]

 Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are

presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence.[27] Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible.[28]

 Though it is not our function to evaluate anew the evidence presented, we refer to the records of

the case to show that, as correctly found by the RTC and the CA, petitioner failed to rebut the prima facie presumption of negligence in the carriage of the subject shipment.

 

64

First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good order and condition in New York, United States of America. Second, theOCMSC Survey Report stated that one steel drum STC Vitamin B Complex Extract was discovered to be with a cut/hole on the side, with approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine, noted that the subject shipment was in good order and condition, it was specifically stated that there were 22 (should be 27 drums per Bill of Lading No. C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G. Bernas’ Survey Report stated that “1-s/drum was punctured and retaped on the bottom side and the content was lacking, and there was a short delivery of 5-drums.” 

All these conclusively prove the fact of shipment in good order and condition, and the consequent damage to one steel drum of Vitamin B Complex Extract while in the possession of petitioner which failed to explain the reason for the damage. Further, petitioner failed to prove that it observed the extraordinary diligence and precaution which the law requires a common carrier to exercise and to follow in order to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.[29]  

 However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to

the RTC and the CA’s findings. It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed

amount per package. In all matters not regulated by the Civil Code, the rights and obligations of common carriers are governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code by establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill of lading.[30] Section 4(5) of the COGSA provides:

 (5) Neither the carrier nor the ship shall in any event be or become liable for any

loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package of lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.

  In the present case, the shipper did not declare a higher valuation of the goods to be shipped.

Contrary to the CA’s conclusion, the insertion of the words “L/C No.  LC No. 1-187-008394/ NY 69867 covering shipment of raw materials for pharmaceutical Mfg. x x x” cannot be the basis of petitioner’s liability.[31]  Furthermore, the insertion of an invoice number does not in itself sufficiently and convincingly show that petitioner had knowledge of the value of the cargo.[32]

 In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In this case,

as there was only one drum lost, private respondent is entitled to receive only $500 as damages for the loss. In addition to said amount, as aptly held by the trial court, an interest rate of 6% per annum should also be imposed, plus 25% of the total sum as attorney’s fees.

 WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of

Appeals Decision dated April 29, 2004 and Resolution dated November 26, 2004 are AFFIRMED with MODIFICATION by reducing the principal amount due private respondent Pioneer Insurance and Surety Corporation from P76,231.27 to $500, with interest of 6% per annum from date of demand, and 25% of the amount due as attorney’s fees.

 The other aspects of the assailed Decision and Resolution STAND.  SO ORDERED.

INSURANCE COMPANY OFNORTH AMERICA, G.R. No. 180784

65

                                        Petitioner,

- versus -

ASIAN TERMINALS, INC.,                                        Respondent.

Present:

CARPIO, * J.,PERALTA, Acting Chairperson,ABAD,PEREZ, ** andMENDOZA, JJ.

Promulgated:      February 15, 2012

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

D E C I S I O N 

 PERALTA, J.:  

This is a petition for review on certiorari[1] of the Decision of the Regional Trial Court (RTC) of Makati City, Branch 138 (trial court) in Civil Case No. 05-809 and its Order dated December 4, 2007 on the ground that the trial court committed reversible error of law.

 The trial court dismissed petitioner’s complaint for actual damages on the ground of prescription

under the Carriage of Goods by Sea Act (COGSA).         The facts are as follows: 

On November 9, 2002, Macro-Lite Korea Corporation  shipped to San Miguel Corporation, through M/V "DIMI P" vessel, one hundred eighty-five (185) packages (231,000 sheets) of electrolytic tin free steel, complete and in good order condition and covered by Bill of Lading No. POBUPOHMAN20638.[2] The shipment had a declared value of US$169,850.35[3] and was insured with petitioner Insurance Company of North America against all risks under Marine Policy No. MOPA-06310.[4]

 The carrying vessel arrived at the port of Manila on November 19, 2002, and when the shipment

was discharged therefrom, it was noted that seven (7) packages thereof were damaged and in bad order.[5] The shipment was then turned over to the custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for storage and safekeeping pending its withdrawal by the consignee's authorized customs broker, R.V. Marzan Brokerage Corp. (Marzan).

 On November 22, 23 and 29, 2002, the subject shipment was withdrawn by Marzan from the

custody of respondent. On November 29, 2002, prior to the last withdrawal of the shipment, a joint inspection of the said cargo was conducted per the Request for Bad Order Survey [6] dated November 29, 2002, and the examination report, which was written on the same request, showed that an additional five (5) packages were found to be damaged and in bad order.

 On January 6, 2003, the consignee, San Miguel Corporation, filed separate claims [7] against

respondent and petitioner for the damage to 11,200 sheets of electrolytic tin free steel. Petitioner engaged the services of an independent adjuster/surveyor, BA McLarens Phils., Inc., to

conduct an investigation and evaluation on the claim and to prepare the necessary report.[8]  BA McLarens Phils., Inc. submitted to petitioner an Survey Report[9]  dated January 22, 2003 and another report[10] dated May 5, 2003 regarding the damaged shipment.  It noted that out of the reported twelve (12) damaged skids, nine (9) of them were rejected and three (3) skids were accepted by the consignee’s representative as good order.  BA McLarens Phils., Inc. evaluated the total cost of damage to the nine (9) rejected skids (11,200 sheets of electrolytic tin free steel) to be P431,592.14.

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  The petitioner, as insurer of the said cargo, paid the consignee the amount of P431,592.14 for

the damage caused to the shipment, as evidenced by the Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally demanded reparation against respondent. As respondent failed to satisfy its demand, petitioner filed an action for damages with the RTC of Makati City.

 The trial court found, thus: 

The Court finds that the subject shipment indeed suffered additional damages. The Request for Bad Order Survey No. 56422 shows that prior to the turn over of the shipment from the custody of ATI  to the consignee, aside from the seven (7) packages which were already damaged upon arrival at the port of Manila, five (5) more packages were found with "dent, cut and crumple" while in the custody of ATI. This document was issued by ATI and was jointly executed by the representatives of ATI, consignee and customs, and the Shed Supervisor. Thus, ATI is now estopped from claiming that there was no additional damage suffered by the shipment. It is, therefore, only logical to conclude that the damage was caused solely by the negligence of defendant ATI. This evidence of the plaintiff was refuted by the defendant by merely alleging that "the damage to the 5 Tin Plates is only in its external packaging.” However, the fact remains that the consignee has rejected the same as total loss for not being suitable for their intended purpose. In addition, the photographs presented by the plaintiff show that the shipment also suffered severe dents and some packages were even critically crumpled.[11]

  

As to the extent of liability, ATI invoked the Contract for Cargo Handling Services executed between the Philippine Ports Authority and Marina Ports Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's liability for damage to cargoes in its custody is limited to P5,000.00 for each package, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing, together with the declared Bill of Lading value and supported by a certified packing list to the contractor by the interested party or parties before the discharge or lading unto vessel of the goods.

 The trial court found that there was compliance by the shipper and consignee with the above

requirement. The Bill of Lading, together with the corresponding invoice and packing list, was shown to ATI prior to the discharge of the goods from the vessel.  Since the shipment was released from the custody of ATI, the trial court found that the same was declared for tax purposes as well as for the assessment of arrastre charges and other fees. For the purpose, the presentation of the invoice, packing list and other shipping documents to ATI for the proper assessment of the arrastre charges and other fees satisfied the condition of declaration of the actual invoices of the value of the goods to overcome the limitation of liability of the arrastre operator.[12]

 Further, the trial court found that there was a valid subrogation between the petitioner and the

assured/consignee San Miguel Corporation. The respondent admitted the existence of Global Marine Policy No. MOPA-06310 with San Miguel Corporation and Marine Risk Note No. 3445, [13] which showed that the cargo was indeed insured with petitioner. The trial court held that petitioner’s claim is compensable because the Subrogation Receipt,16 which was admitted as to its existence by respondent, was sufficient to establish not only the relationship of the insurer and the assured, but also the amount paid to settle the insurance claim.[14]

 However, the trial court dismissed the complaint on the ground that the petitioner’s claim was

already barred by the statute of limitations.  It held that COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case, since the goods were shipped from a foreign port to the Philippines. The trial court stated that under the said law, particularly paragraph 4, Section 3 (6)[15] thereof, the shipper has the right to bring a suit within one year after the delivery of the goods or the date when the goods should have been delivered, in respect of loss or damage thereto.

 

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The trial court held:  

In the case at bar, the records show that the shipment was delivered to the consignee on 22, 23 and 29 of November 2002. The plaintiff took almost a year to approve and pay the claim of its assured, San Miguel, despite the fact that it had initially received the latter's claim as well as the inspection report and survey report of McLarens as early as January 2003. The assured/consignee had only until November of 2003 within which to file a suit against the defendant. However, the instant case was filed only on September 7, 2005 or almost three (3) years from the date the subject shipment was delivered to the consignee. The plaintiff, as insurer of the shipment which has paid the claim of the insured, is subrogated to all the rights of the said insured in relation to the reimbursement of such claim. As such, the plaintiff cannot acquire better rights than that of the insured. Thus, the plaintiff has no one but itself to blame for having acted lackadaisically on San Miguel's claim.             WHEREFORE, the complaint and counterclaim are hereby DISMISSED.[16]

  Petitioner’s motion for reconsideration was denied by the trial court in the

Order[17] dated December 4, 2007. Petitioner filed this petition under Rule 45 of the Rules of Court directly before this Court, alleging

that it is raising a pure question of law:  

THE TRIAL COURT COMMITTED A PURE AND SERIOUS ERROR OF LAW IN APPLYING THE ONE-YEAR PRESCRIPTIVE PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA) TO AN ARRASTRE OPERATOR.[18]

  Petitioner states that while it is in full accord with the trial court in finding respondent liable for the

damaged shipment, it submits that the trial court’s dismissal of the complaint on the ground of prescription under the COGSA is legally erroneous.  It contends that the one-year limitation period for bringing a suit in court under the COGSA is not applicable to this case, because the prescriptive period applies only to the carrier and the ship. It argues that respondent, which is engaged in warehousing, arrastre and stevedoring business, is not a carrier as defined by the COGSA, because it is not engaged in the business of transportation of goods by sea in international trade as a common carrier. Petitioner asserts that since the complaint was filed against respondent arrastre operator only, without impleading the carrier, the prescriptive period under the COGSA is not applicable to this case.

 Moreover, petitioner contends that the term “carriage of goods” in the COGSA covers the period

from the time the goods are loaded to the vessel to the time they are discharged therefrom. It points out that it sued respondent only for the additional five (5) packages of the subject shipment that were found damaged while in respondent’s custody, long after the shipment was discharged from the vessel. The said damage was confirmed by the trial court and proved by the Request for Bad Order Survey No. 56422.[19]

 Petitioner prays that the decision of the trial court be reversed and set aside and a new judgment

be promulgated granting its prayer for actual damages. The main issues are: (1) whether or not the one-year prescriptive period for filing a suit under the

COGSA applies to this action for damages against respondent arrastre operator; and (2) whether or not petitioner is entitled to recover actual damages in the amount of P431,592.14 from respondent.

 

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To reiterate, petitioner came straight to this Court to appeal from the decision of the trial court under Rule 45 of the Rules of Court on the ground that it is raising only a question of law.

   Microsoft Corporation v. Maxicorp, Inc.[20]  explains the difference between questions of law

and questions of fact, thus: 

The distinction between questions of law and questions of fact is settled.  A question of law exists when the doubt or difference centers on what the law is on a certain state of facts.  A question of fact exists if the doubt centers on the truth or falsity of the alleged facts.  Though this delineation    seems simple, determining the true nature and extent of the distinction is sometimes problematic. For example, it is incorrect to presume that all cases where the facts are not in dispute automatically involve purely questions of law.

           There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The resolution of the issue must rest solely on what the law provides on the given set of circumstances.  Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.  If the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation to each other, the issue in that query is factual. x x x[21]

 In this case, although petitioner alleged that it is merely raising a question of law, that is, whether

or not the prescriptive period under the COGSA applies to an action for damages against respondent arrastre operator, yet petitioner prays for the reversal of the decision of the trial court and that it be granted the relief sought, which is the award of actual damages in the amount of P431,592.14. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of them.[22]  However, to resolve the issue of whether or not petitioner is entitled to recover actual damages from respondent requires the Court to evaluate the evidence on record; hence, petitioner is also raising a question of fact.  

Under Section 1, Rule 45, providing for appeals by certiorari before the Supreme Court, it is clearly enunciated that only questions of law may be set forth.[23] The Court may resolve questions of fact only when the case falls under the following exceptions:

  (1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.[24]

  In this case, the fourth exception cited above applies, as the trial court rendered judgment based

on a misapprehension of facts. We first resolve the issue on whether or not the one-year prescriptive period for filing a suit under

the COGSA applies to respondent arrastre operator.The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the 74th US Congress, was

accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by virtue of CA No. 65.

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 Section 1 of CA No. 65 states: 

 Section 1. That the provisions of Public Act Numbered Five hundred and twenty-

one of the Seventy-fourth Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application.

  

Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by Sea, thus: Section 1. When used in this Act - (a) The term "carrier" includes the owner or the charterer who enters into a

contract of carriage with a shipper.(b) The term "contract of carriage" applies only to contracts of carriage covered by

a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.

(c) The term "goods" includes goods, wares, merchandise, and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.

(d) The term "ship" means any vessel used for the carriage of goods by sea.(e) The term "carriage of goods" covers the period from the time when the

goods are loaded to the time when they are discharged from the ship.[25]

 It is noted that the term “carriage of goods” covers the period from the time when the goods are

loaded to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the COGSA.

 The prescriptive period for filing an action for the loss or damage of the goods under the COGSA

is found in paragraph (6), Section 3, thus:  6) Unless notice of loss or damage and the general nature of such loss or

damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.

  Said notice of loss or damage maybe endorsed upon the receipt for the goods

given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of

their receipt been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in

respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if

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a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.[26]

 From the provision above, the carrier and the ship may put up the defense of prescription if the

action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered.  It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the prescriptive period. [27]  However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator. 

Respondent arrastre operator’s responsibility and liability for losses and damages are set forth in Section 7.01 of the Contract for Cargo Handling Services  executed between the Philippine Ports Authority and Marina Ports Services, Inc. (now Asian Terminals, Inc.), thus:

 Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions -

The CONTRACTOR shall, at its own expense, handle all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-like and efficient manner. The CONTRACTOR shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together with the declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the discharge or loading unto vessel of the goods. This amount of Five Thousand Pesos (P5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time. The CONTRACTOR shall not be responsible for the condition or the contents of any package received, nor for the weight nor for any loss, injury or damage to the said cargo before or while the goods are being received or remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure or other causes beyond the CONTRACTOR's control or capacity to prevent or remedy; PROVIDED,  that a formal claim together with the necessary copies of Bill of Lading, Invoice, Certified Packing List and Computation arrived at covering the loss, injury or damage or non-delivery of such goods shall have been filed with the CONTRACTOR within fifteen (15) days from day of issuance by the CONTRACTOR of a certificate of non-delivery;PROVIDED, however, that if said CONTRACTOR fails to issue such certification within fifteen (15) days from receipt of a written request by the shipper/consignee or his duly authorized representative or any interested party, said certification shall be deemed to have been issued, and thereafter, the fifteen (15) day period within which to file the claim commences;PROVIDED, finally, that the request for certification of loss shall be made within thirty (30) days from the date of delivery of the package to the consignee.[28]

  

Based on the Contract above, the consignee has a period of thirty (30) days from the date of delivery of the package to the consignee within which to request a certificate of loss from the arrastre operator. From the date of the request for a certificate of loss, the arrastre operator has a period of fifteen (15) days within which to issue a certificate of non-delivery/loss either actually or constructively. Moreover, from the date of issuance of a certificate of non-delivery/loss, the consignee has fifteen (15) days within which to file a formal claim covering the loss, injury, damage or non-delivery of such goods with all accompanying documentation against the arrastre operator. 

 

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Petitioner clarified that it sued respondent only for the additional five (5) packages of the subject shipment that were found damaged while in respondent’s custody, which fact of damage was sustained by the trial court and proved by the Request for Bad Order Survey No. 56422.[29]

 Petitioner pointed out the importance of the Request for Bad Order Survey by citing New Zealand

Insurance Company Limited v. Navarro.[30] In the said case, the Court ruled that the request for, and the result of, the bad order examination, which were filed and done within fifteen days from the haulage of the goods from the vessel, served the purpose of a claim, which is to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and documents are still available. Hence, even if the consignee therein filed a formal claim beyond the stipulated period of 15 days, the arrastre operator was not relieved of liability as the purpose of a formal claim had already been satisfied by the consignee’s timely request for the bad order examination of the goods shipped and the result of the said bad order examination.    

 To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:

 We took special note of the above pronouncement six (6) years later

in Fireman’s Fund Insurance Co. v. Manila Port Service Co., et al. There, fifteen (15) cases of nylon merchandise had been discharged from the carrying vessel and received by defendant Manila Port Service Co., the arrastre operator, on 7 July 1961. Out of those fifteen (15) cases, however, only twelve (12) had been delivered to the consignee in good condition. Consequently, on 20 July 1961, the consignee's broker requested a bad order examination of the shipment, which was later certified by defendant's own inspector to be short of three (3) cases. On 15 August 1961, a formal claim for indemnity was then filed by the consignee, who was later replaced in the action by plaintiff Fireman's Fund Insurance Co., the insurer of the goods. Defendant, however, refused to honor the claim, arguing that the same had not been filed within fifteen (15) days from the date of discharge of the shipment from the carrying vessel, as required under the arrastre Management Contract then in force between itself and the Bureau of Customs. The trial court upheld this argument and hence dismissed the complaint. On appeal by the consignee, this Court, speaking through Mr. Justice J.B.L. Reyes, reversed the trial court and found the defendant arrastre operator liable for the value of the lost cargo, explaining as follows:

 “However, the trial court has overlooked the significance of the request for,

and the result of, the bad order examination, which were filed and done within fifteen days from the haulage of the goods from the vessel. Said request and result, in effect, served the purpose of a claim, which is –

 ‘to afford the carrier or depositary reasonable opportunity

and facilities to check the validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and documents are still available.’ (Consunji vs. Manila Port Service, L-15551, 29 November 1960)

 Indeed, the examination undertaken by the defendant's own inspector not only gave the defendant an opportunity to check the goods but is itself a verification of its own liability x x x.

 In other words, what the Court considered as the crucial factor in declaring the

defendant arrastre operator liable for the loss occasioned, in the Fireman's Fund case, was the fact that defendant, by virtue of the consignee's request for a bad order examination, had been able formally to verify the existence and extent of its liability within fifteen (15) days from the date of discharge of the shipment from the carrying vessel -- i.e., within the same period stipulated under the Management Contract for the

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consignee to file a formal claim. That a formal claim had been filed by the consignee beyond the stipulated period of fifteen (15) days neither relieved defendant of liability nor excused payment thereof, the purpose of a formal claim, as contemplated in Consunji, having already been fully served and satisfied by the consignee's timely request for, and the eventual result of, the bad order examination of the nylon merchandise shipped.

 Relating the doctrine of Fireman's Fund to the case at bar, the record shows that

delivery to the warehouse of consignee Monterey Farms Corporation of the 5,974 bags of soybean meal, had been completed by respondent Razon (arrastre operator) on 9 July 1974. On that same day, a bad order examination of the goods delivered was requested by the consignee and was, in fact, conducted by respondent Razon's own inspector, in the presence of representatives of both the Bureau of Customs and the consignee. The ensuing bad order examination report — what the trial court considered a "certificate of loss” — confirmed that out of the 5,974 bags of soybean meal loaded on board the M/S "Zamboanga" and shipped to Manila, 173 bags had been damaged in transitu while an additional 111 bags had been damaged after the entire shipment had been discharged from the vessel and placed in the custody of respondent Razon. Hence, as early as 9 July 1974 (the date of last delivery to the consignee's warehouse), respondent Razon had been able to verify and ascertain for itself not only the existence of its liability to the consignee but, more significantly, the exact amount thereof - i.e., P5,746.61, representing the value of 111 bags of soybean meal. We note further that such verification and ascertainment of liability on the part of respondent Razon, had been accomplished "within thirty (30) days from the date of delivery of last package to the consignee, broker or importer" as well as "within fifteen (15) days from the date of issuance by the Contractor [respondent Razon] of a certificate of loss, damage or injury or certificate of non-delivery" — the periods prescribed under Article VI, Section 1 of the Management Contract here involved, within which a request for certificate of loss and a formal claim, respectively, must be filed by the consignee or his agent. Evidently, therefore, the rule laid down by the Court in Fireman's Fundfinds appropriate application in the case at bar.[31]

  

In this case, the records show that the goods were deposited with the arrastre operator on November 21, 2002.  The goods were withdrawn from the arrastre operator on November 22, 23 and 29, 2002.  Prior to the withdrawal on November 29, 2002, the broker of the importer, Marzan, requested for a bad order survey in the presence of a Customs representative and other parties concerned. The joint inspection of cargo was conducted and it was found that an additional five (5) packages were found in bad order as evidenced by the document entitled Request for Bad Order Survey [32] dated November 29, 2002, which document also contained the examination report, signed by the Custom’s representative, Supervisor/Superintendent, consignee’s representative, and the ATI Inspector.

  Thus, as early as November 29, 2002, the date of the last withdrawal of the goods from the

arrastre operator, respondent ATI was able to verify that five (5) packages of the shipment were in bad order while in its custody. The certificate of non-delivery referred to in the Contract is similar to or identical with the examination report on the request for bad order survey.[33]  Like in the case of New Zealand Insurance Company Ltd. v. Navarro, the verification and ascertainment of liability by respondent ATI had been accomplished within thirty (30) days from the date of delivery of the package to the consignee and within fifteen (15) days from the date of issuance by the Contractor (respondent ATI) of the examination report on the request for bad order survey.  Although the formal claim was filed beyond the 15-day period from the issuance of the examination report on the request for bad order survey, the purpose of the time limitations for the filing of claims had already been fully satisfied by the request of the consignee’s broker for a bad order survey and by the examination report of the arrastre operator on the result thereof, as the arrastre operator had become aware of and had verified the facts giving rise to its liability.[34] Hence, the arrastre operator suffered no prejudice by the lack of strict compliance with the 15-day limitation to file the formal complaint.[35]

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 The next factual issue is whether or not petitioner is entitled to actual damages in the amount

of P431,592.14. The payment of the said amount by petitioner to the assured/consignee was based on the Evaluation Report[36] of BA McLarens Phils., Inc., thus:

 x x x x CIRCUMSTANCES OF LOSS As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic Tin Free Steel, JISG 3315SPTFS, MRT-4CA, Matte Finish arrived Manila via Ocean Vessel, M/V “DIMI P” V-075 on November 9, 2002 and subsequently docked alongside Pier No. 9, South Harbor, Manila.  The cargo of Electrolyic Tin Free Steel was discharged ex-vessel complete with seven (7) skids noted in bad order condition by the vessel’[s] representative.  These skids were identified as nos. 2HD804211, 2HD804460, SHD804251, SHD803784, 2HD803763, 2HD803765 and 2HD803783and covered with Bad Order Tally Receipts No. 3709, 3707, 3703 and 3704. Thereafter, the same were stored inside the warehouse of Pier No. 9, South Harbor, Manila, pending delivery to the consignee’s warehouse. On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier by the consignee authorized broker, R. V. Marzan Brokerage Corp. and the same was delivered to the consignee’s final warehouse located at Silangan, Canlubang, Laguna complete with twelve (12) skids in bad order condition. VISUAL INSPECTION We conducted an ocular inspection on the reported damaged Electrolytic Tin Free Steel, Matte Finish at the consignee’s warehouse located at Brgy. Silangan, Canlubang, Laguna and noted that out of the reported twelve (12) damaged skids, nine (9) of them were rejected and three (3) skids were accepted by the consignee’s representative as complete and without exceptions.

 x x x x 

EVALUATION OF INDEMNITY 

We evaluated the loss/damage sustained by the subject shipments and arrived as follows:

  

PRODUCT NOS.       PRODUCTS NAMED      NO. OF SHEETS         NET WT. PER                                                                                                                PACKING LIST

            2HD803763              Electrolytic Tin Free              1,200                 1,908                                              Steel JISG3315                      2HD803783                        -do-                            1,200                  1,908             2HD803784                          -do-                         1,200                 1,908            2HD804460                         -do-                            1,400                  1,698            2HD803765                         -do-                            1,200                 1,908            2HD804522                         -do-                            1,200                 1,987              2HD804461                         -do-                            1,400                 1,698            2HD804540                         -do-                            1,200                 1,987            2HD804549                                                   -do-                                                         1,200                                   1,987             9 SKIDS                           TOTAL                       11,200                16,989 kgs. 

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            P9,878,547.58                                                                                          P478,959.88            ------------------  =  42.7643 x 11,200            231,000            Less:  Deductible 0.50% based on sum insured                               49,392.74            Total                                                                                             P429,567.14            Add:  Surveyor’s Fee                                                                         2,025.00            Sub-Total                                                                                     P431,592.14           

Note:  Above evaluation is Assured’s tentative liability as the salvage proceeds on the damaged stocks has yet to be determined.     

      

RECOVERY ASPECT Prospect of recovery would be feasible against the shipping company and the  Arrastre operator  considering the copies of Bad Order Tally Receipts and Bad Order Certificate issued by the subject parties.[37]

  To clarify, based on the Evaluation Report, seven (7) skids were damaged upon arrival of the

vessel per the Bad Order Cargo Receipts[38] issued by the shipping company, and an additional five (5) skids were damaged in the custody of the arrastre operator per the Bad Order Certificate/Examination Report[39] issued by the arrastre contractor.  The Evaluation Report states that out of the reported twelve damaged skids, only nine were rejected, and three were accepted as good order by the consignee’s representative. Out of the nine skids that were rejected, five skids were damaged upon arrival of the vessel as shown by the product numbers in the Evaluation Report, which product numbers matched those in the Bad Order Cargo Receipts[40] issued by the shipping company.  It can then be safely inferred that the four remaining rejected skids were damaged in the custody of the arrastre operator, as the Bad Order Certificate/Examination Report did not indicate the product numbers thereof.        

 Hence, it should be pointed out that the Evaluation Report shows that the claim for actual

damages in the amount of P431,592.14 covers five (5)[41] out of the seven (7) skids that were found to be damaged upon arrival of the vessel and covered by Bad Order Cargo Receipt Nos. 3704, 3706,  3707 and  3709,[42] which claim should have been filed with the shipping company.  Petitioner must have realized that the claim for the said five (5) skids was already barred under COGSA; hence, petitioner filed the claim for actual damages only against respondent arrastre operator.

As regards the four (4) skids that were damaged in the custody of the arrastre operator, petitioner is still entitled to recover from respondent. The Court has ruled that the Request for Bad Order Survey and the examination report on the said request satisfied the purpose of a formal claim, as respondent was made aware of and was able to verify that five (5) skids were damaged or in bad order while in its custody before the last withdrawal of the shipment on November 29, 2002.  Hence, even if the formal claim was filed beyond the 15-day period stipulated in the Contract, respondent was not prejudiced thereby, since it already knew of the number of skids damaged in its possession per the examination report on the request for bad order survey.    

 Remand of the case to the trial court for the determination of the liability of respondent to petitioner

is not necessary as the Court can resolve the same based on the records before it. [43]  The Court notes that petitioner, who filed this action for damages for the five (5) skids that were damaged while in the custody of respondent, was not forthright in its claim, as it knew that the damages it sought in the amount of P431,592.14, which was based on the Evaluation Report of its adjuster/surveyor, BA McLarens Phils., Inc., covered nine (9) skids. Based on the same Evaluation Report, only four of the nine skids were damaged in the custody of respondent. Petitioner should have been straightforward about its exact

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claim, which is borne out by the evidence on record, as petitioner can be granted only the amount of damages that is due to it.     

 Based on the Evaluation Report[44] of BA McLarens Phils., Inc., dated May 5, 2003, the four (4)

skids damaged while in the custody of the arrastre operator and the amount of actual damages therefore are as follows: 

  PRODUCT NOS.      PRODUCTS NAMED      NO. OF SHEETS        NET WT. PER

   PACKING LIST                2HD804522                   Electrolytic Tin Free          1,200                     1,987                                                          Steel JISG3315       

2HD804461                                  -do-                                       1,400                    1,698                2HD804540                                  -do-                                       1,200                    1,987                2HD804549                                  -do-                                       1,200                    1,987            ----------------------------------------------------------------------------------------------------------                4 SKIDS                                    TOTAL                               5,000

P9,878,547.58 (Insured value)[45]                                                                   P213,821.50                ------------------        =  42.7643 x 5,000                231,000 (Total number of sheets)                Less:  Deductible 0.50% based on sum insured[46]                                        49,392.74                Total                                                                                                                    P164,428.76 

    In view of the foregoing, petitioner is entitled to actual damages in the amount of P164,428.76 for

the four (4) skids damaged while in the custody of respondent. WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court of Makati City,

Branch 138, dated October 17, 2006,  in Civil Case No. 05-809, and its Order dated December 4, 2007, are hereby REVERSED and SET ASIDE.  Respondent Asian Terminals, Inc. is ORDERED to pay petitioner Insurance Company of North America actual damages in the amount of One Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and Seventy-Six Centavos (P164,428.76). Twelve percent (12%) interest per annum shall be imposed on the amount of actual damages from the date the award becomes final and executory until its full satisfaction.

 Costs against petitioner. SO ORDERED.

Cua vs Wallem Phils (YUNG NAKAATTACH NA PDF FILE)PART III PUBLIC UTILITIESCHAPTER 16: PUBLIC SERVICE REGULATIONS

ARTICLE XII OF THE 1987 CONSTITUTIONNATIONAL ECONOMY AND PATRIMONY

Section 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices.In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.

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Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons.The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands and national parks. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof, by purchase, homestead, or grant.Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor.Section 4. The Congress shall, as soon as possible, determine, by law, the specific limits of forest lands and national parks, marking clearly their boundaries on the ground. Thereafter, such forest lands and national parks shall be conserved and may not be increased nor diminished, except by law. The Congress shall provide for such period as it may determine, measures to prohibit logging in endangered forests and watershed areas.Section 5. The State, subject to the provisions of this Constitution and national development policies and programs, shall protect the rights of indigenous cultural communities to their ancestral lands to ensure their economic, social, and cultural well-being.The Congress may provide for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domain.Section 6. The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.Section 8. Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.Section 9. The Congress may establish an independent economic and planning agency headed by the President, which shall, after consultations with the appropriate public agencies, various private sectors, and local government units, recommend to Congress, and implement continuing integrated and coordinated programs and policies for national development.

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Until the Congress provides otherwise, the National Economic and Development Authority shall function as the independent planning agency of the government.Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.Section 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.Section 14. The sustained development of a reservoir of national talents consisting of Filipino scientists, entrepreneurs, professionals, managers, high-level technical manpower and skilled workers and craftsmen in all fields shall be promoted by the State. The State shall encourage appropriate technology and regulate its transfer for the national benefit.The practice of all professions in the Philippines shall be limited to Filipino citizens, save in cases prescribed by law.Section 15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice and economic development.Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest.Section 18. The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government.Section 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.Section 20. The Congress shall establish an independent central monetary authority, the members of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing laws, shall function as the central monetary authority.

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Section 21. Foreign loans may only be incurred in accordance with law and the regulation of the monetary authority. Information on foreign loans obtained or guaranteed by the Government shall be made available to the public.Section 22. Acts which circumvent or negate any of the provisions of this Article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law.

[G.R. No. L-5458. September 16, 1953.]LUZON STEVEDORING CO., INC., and VISAYAN STEVEDORE TRANSPORTATION

CO., Petitioners, vs. THE PUBLIC SERVICE COMMISSION and THE PHILIPPINE SHIPOWNERS ASSOCIATION, Respondents.

D E C I S I O NTUASON, J.:

Petitioners apply for review of a decision of the Public Service Commission restraining them "from further operating their watercraft to transport goods for hire or compensation between points in the Philippines until the rates they propose to charge are approved by this Commission."The facts are summarized by the Commission as follows:

". . . respondents are corporations duly organized and existing under the laws of the Philippines, mainly engaged in the stevedoring or lighterage and harbor towage business. At the same time, they are engaged in interisland service which consists of hauling cargoes such as sugar, oil, fertilizer and other commercial commodities which are loaded in their barges and towed by their tugboats from Manila to various points in the Visayan Islands, particularly in the Provinces of Negros Occidental and Capiz, and from said places to Manila. For this service respondents charge freightage on a unit price with rates ranging from P0.50 to P0.62 1/2 per bag or picul of sugar loaded or on a unit price per ton in the case of fertilizer or sand. There is no fixed route in the transportation of these cargoes, the same being left at the indication of the owner or shipper of the goods. The barge and the tugboats are manned by the crew of respondents and, in case of damage to the goods in transit caused by the negligence of said crews, respondents are liable therefor. The service for which respondents charge freightage covers the hauling or carriage of the goods from the point of embarkation to the point of disembarkation either in Manila or in any point in the Visayan Islands, as the case may be."The evidence also sufficiently establishes that respondents are regularly engaged in this hauling business serving a limited portion of the public. Respondent Luzon Stevedoring Company, Inc., has among its regular customers the San Miguel Glass Factory, PRATRA, Shell Co., of P.I., Ltd., Standard Oil Co., of New York and Philippine-Hawaiian; while respondent Visayan Stevedore Transportation Co., has among its regular customers the Insular Lumber, Shell Company, Ltd., Kim Kee Chua Yu & Co., PRATRA and Luzon Merchandising Corporation. During the period from January, 1949 and up to the present, respondent Luzon Stevedoring Co. Inc., has been rendering to PRATRA regularly and on many occasions such service by carrying fertilizer from Manila to various points in the Provinces of Negros Occidental and Capiz, such as Hinigatan, Silay, Fabrica, Marayo, Mambaquid, Victorias and Pilar, and on the return trip sugar was loaded from said provinces to Manila. For these services, as evidenced by Exhibits A, A-1, A-2, A-3 and A-4, respondent Luzon Stevedoring Company, Inc., charged PRATRA at the rate of P0.60 per picul or bag of sugar and, according to Mr. Mauricio Rodriguez, chief of the division in charge of sugar and fertilizer of the PRATRA, for the transportation of fertilizer, this respondent charged P12 per metric ton. During practically the same period, respondent Visayan Stevedore Transportation Company transported in its barges and towed by its tugboats sugar for Kim Kee Chua Yu & Company coming from Victorias, Marayo and Pilar to Manila, and for Luzon Merchandising Corporation, from Hinigaran, Bacolod, Marayo and Victorias to Manila. For such service respondent Visayan Stevedore Transportation Company charge Kim Kee Chua Yu Company for freightage P0.60 per picul or bag as shown in Exhibits C, C-1, C-2, C-3, C-4, C- 5, C-6, C-7 and C-8, and Luzon Merchandising Corporation was also charged for the same service and at the same rate as shown in Exhibits B, B-1 and B-2."

It was upon these findings that the Commission made the order now sought to be reviewed, upon complaint of the Philippine Shipowners' Association charging that the then respondents were engaged in the transportation of cargo in the Philippines for hire or compensation without authority or approval of the Commission, having adopted, filed and collected freight charges at the rate of P0.60 per bag or picul, particularly sugar, loaded and transported in their lighters and towed by their tugboats between different

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points in the Province of Negros Occidental and Manila, which said rates resulted in ruinous competition with complainant.Section 13 (b) of the Public Service Law (Commonwealth Act No. 146) defines public service thus:

"The term 'public service' includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes any common carrier, railroad, street railway, traction railway, subway, motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and small water craft, engaged in the transportation of passengers and freight, shipyard, marine railway, marine repair shop, warehouse, wharf or dock, ice plant, ice-refrigeretion plant, canal, irrigation system, sewerage, gas, electric light, heat and power, water supply and power, petroleum, sewerage system, telephone, wire or wireless telegraph system and broadcasting radio stations."

It is not necessary, under this definition, that one holds himself out as serving or willing to serve the public in order to be considered public service.In Luzon Brokerage Company vs. Public Service Commission (40 Off. Gaz., 7th Supplement, p. 271), this court declared that "Act 454 is clear in including in the definition of a public service that which is rendered for compensation, although limited exclusively to the customers of the petitioner."In that case, the Luzon Brokerage Company, a customs broker, had been receiving, depositing and delivering goods discharged from ships at the pier to its customers. As here, the Luzon Brokerage was then rendering transportation service for compensation to a limited clientele, not to the public at large.In the United States where, it is said, there is no fixed definition of what constitutes public service or public utility, it is also held that it is not always necessary, in order to be a public service, that an organization be dedicated to public use, i.e., ready and willing to serve the public as a class. It is only necessary that it must in some way be impressed with a public interest; and whether the operation of a given business is a public utility depends upon whether or not the service rendered by it is of a public character and of public consequence and concern. (51 C. J. 5.) Thus, a business may be affected with public interest and regulated for public good although not under any duty to serve the public. (43 Am. Jur., 572.)It can scarcely be denied that the contracts between the owners of the barges and the owners of the cargo at bar were ordinary contracts of transportation and not of lease. Petitioners' watercraft was manned entirely by crews in their employ and payroll, and the operation of the said craft was under their direction and control, the customers assuming no responsibility for the goods handled on the barges. The great preponderance of the evidence contradicts the assertion that there was any physical or symbolic conveyance of the possession of the tugboats and barges to the shippers. Whether the agreements were written or verbal, the manner of payment of freight charges, the question who loaded and unloaded the cargo, the propriety of the admission of certain receipts in evidence, etc., to all of which the parties have given much attention these are matters of form which do not alter the essential nature of the relationship of the parties to the transactions as revealed by the fundamental facts of record.It is contended that "if the Public Service Act were to be construed in such manner as to include private lease contracts, said law would be unconstitutional," seemingly implying that, to prevent the law from being in contravention of the Constitution, it should be so read as to embrace only those persons and companies that are in fact engaged in public service" with its corresponding qualification of an offer to serve indiscriminately the public."It has been already shown that the petitioners' lighters and tugboats were not leased, but used to carry goods for compensation at a fixed rate for a fixed weight. At the very least, they were hired, hired in the sense that the shippers did not have direction, control, and maintenance thereof, which is a characteristic feature of lease.On the second proposition, the Public Service Commission has, in our judgment, interpreted the law in accordance with legislative intent. Commonwealth Act No. 146 declares in unequivocal language that an enterprise of any of the kinds therein enumerated is a public service if conducted for hire or compensation even if the operator deals only with a portion of the public or limited clientele.It has been seen that public utility, even where the term is not defined by statute, is not determined by the number of people actually served. Nor does the mere fact that service is rendered only under contract prevent a company from being a public utility. (43 Am. Jur., 573.) On the other hand, casual or incidental service devoid of public character and interest, it must be admitted, is not brought within the category of

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public utility. The demarkation line is not susceptible of exact description or definitions, each case being governed by its peculiar circumstances.

"It is impossible to lay down any general rule on the subject whether the rendering of incidental service to members of the public by an individual or corporation whose principal business is of a different nature constitute such person a public utility. In the result reached, the cases are in conflict, as the question involved depends on such factors as the extent of service, whether such person or company has held himself or itself out as ready to serve the public or a portion of the public generally, or in other ways conducted himself or itself as a public utility. Tn several cases, it has been held that the incidental service rendered to others constituted such person or corporation a public utility, but in other cases, a contrary decision has been reached." (43 Am. Jur., 573.)

The transportation service which was the subject of complaint was not casual or incidental. It had been carried on regularly for years at almost uniform rates of charges. Although the number of the petitioners' customers was limited, the value of goods transported was not inconsiderable. Petitioners did not have the same customers all the time embraced in the complaint, and there was no reason to believe that they would not accept, and there was nothing to prevent them from accepting, new customers that might be willing to avail of their service to the extent of their capacity. Upon the well-established facts as applied to the plain letter of Commonwealth Act No. 146, we are of the opinion that the Public Service Commission's order does not invade private rights of property or contract.In at least one respect, the business complained of was a matter of public concern. The Public Service Law was enacted not only to protect the public against unreasonable charges and poor, inefficient service, but also to prevent ruinous competition. That, we venture to say, is the main purpose in bringing under the jurisdiction of the Public Service Commission motor vehicles, other means of transportation, ice plants, etc., which cater to a limited portion of the public under private agreements. To the extent that such agreements may tend to wreck or impair the financial stability and efficiency of public utilities who do offer service to the public in general, they are affected with public interest and come within the police power of the state to regulate.Just as the legislature may not "declare a company or enterprise to be a public utility when it is not inherently such," a public utility may not evade control and supervision of its operation by the government by selecting its customers under the guise of private transactions.For the rest, the constitutionality of Commonwealth Act No. 146 was upheld, implicitly in Luzon Brokerage Company vs. Public Service Commission, supra, and explicitly in Pangasinan Transportation Company vs. Public Service Commission (70 Phil., 221).Were there serious doubts, the courts should still be reluctant to invalidate the Public Service Law or any provision thereof. Although the legislature can not, by its mere declaration, make something a public utility which is not in fact such, "the public policy of the state as announced by the legislature will be given due weight, and the determination of the legislature that a particular business is subject to the regulatory power, because the public welfare is dependent upon its proper conduct and regulation, will not lightly be disregarded by the courts." (51 C. J. 5.)The objection to the designation of Attorney Aspillera as commissioner to take the evidence was tardy. It was made for the first time after decision was rendered, following a prolonged hearing in which the petitioners crossexamined the complainant's witnesses and presented their own evidence.The point is procedural, not jurisdictional, and may be waived by express consent or acquiescence. So it was held in Everett Steamship Corporation vs. Chua Hiong, 90 Phil. 64 and La Paz Ice Plant and Cold Storage Company vs. Comision de Utilidades Pblicas et al., 89 Phil., 109.Upon the foregoing considerations, the appealed order of the Public Service Commission is affirmed, with costs against the petitioners.chanroblesvirtualawlibraryG.R. No. L-61461 August 21, 1987EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners, vs.PANTRANCO SOUTH EXPRESS, INC., respondent.CARDINAL SHIPPING CORPORATION, petitioner, vs.HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents. 

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GANCAYCO, J.:The question that is posed in these petitions for review is whether the sea can be considered as a continuation of the highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry service or coastwise or interisland shipping service along its authorized route as an incident to its franchise without the need of filing a separate application for the same.The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in the land transportation business with PUB service for passengers and freight and various certificates for public conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on the basis of the following observations:

1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes where these are adequately serviced by existing/authorized operators.2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel acquisitions intended for operations therein are necessarily limited to those intended for replacement purposes only. 2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation is merely a necessary and incidental service to its main service and obligation of transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for public convenience to operate a ferry service between Allen and Matnog to cater exclusively to its passenger buses and freight trucks. 4

Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should not be suspended or the pending application denied. 6

Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders of the ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC between Pasay City and Tacloban City may still be required to secure another certificate in order to operate a ferry service between two terminals of a small body of water. On October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus operators to secure a separate CPC to operate a ferryboat service holding as follows:

Further, a common carrier which has been granted a certificate of public convenience is expected to provide efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of the public which has accepted the service of a public utility operator to demand that the service should be conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a ferry service to its Pasay Tacloban route, it merely does so in the discharge of its duty under its current certificate of public convenience to provide adequate and convenient service to its riders. Requiring said bus company to obtain another certificate to operate such ferry service when it merely forms a part — and constitutes an improvement — of its existing transportation service would simply be duplicitous and superfluous. 7

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Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise:

Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be amended to embody the grant of authority to operate a private ferry boat service as one of the conditions for the grant of the certificate subject to the condition that the ferryboat shall be for the exclusive use of Pantranco buses, its passengers and freight trucks, and should it offer itself to the public for hire other than its own passengers, it must apply for a separate certificate of public convenience as a public ferry boat service, separate and distinct from its land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July 21, 1981. 9

Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues:

A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON — ALLEN, SAMAR — EVEN AS THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER?B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982?E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:a. the decision did not conform to the procedures laid down by law for an amendment of the original certificate of public convenience, and the authority to operate a private ferry

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boat service to PANTRANCO was issued without ascertaining the established essential requisites for such grant, hence, violative of due process requirements;b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said route contravenes existing government policies relative to the rationalization of operations of all water transport utilities;c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation; d. the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence?e. PANTRANCO is not a private carrier when it operates its ferry service;f. it runs counter to the "old operator" doctrine; andg. the operation by PANTRANCO of the ferry service cnstitutes undue competition.�The foregoing considerations constitutes the substantial errors committed by the respondent Board which would more than amply justify review of the questioned decision by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.The resolution of all said issues raised revolves on the validity of the questioned BOT decision.The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the authority originally granted PANTRANCO in the following manner:

A ferry service, in law, is treated as a continuation of the highway from one side of the water over which passes to the other side for transportation of passengers or of travellers with their teams vehicles and such other property as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a specially constructed boat to carry passengers and property across rivers or bodies of water from a place in one shore to a point conveniently opposite on the other shore and continuation of the highway making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of the respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a private ferry. A public ferry service is one which all the public have the right to resort to and for which a regular fare is established and the ferryman is a common carrier be inbound to take an who apply and bound to keep his ferry in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of the owner and though he may take pay for ferriage, he does not follow it as a business. His ferry is not open to the public at its demand and he may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698).The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used exclusively to transport its own buses, passengers and freight trucks traversing the said route. It will cater exclusively to the needs of its own clientele (passengers on board- Pantranco buses) and will not offer itself indiscriminately for hire or for compensation to the general public. Legally therefore, Pantranco has the right to operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses, passengers and freight trucks without the need of applying for a separate certificate of public convenience or provisional authority. Since its operation is an integral part of its land transport system, its original certificate of public convenience should be amended to include the operation of such ferryboat for its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the connection of highways located on the opposite banks of a stream or other body of water. The term necessarily implies transportation for a short distance, almost invariably between two points, which is unrelated to other transportation .(Emphasis supplied)

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The term "ferry" is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. In this sense it has also been defined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lake or stream or some other body of water, with no essential difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553.A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)The term ferry is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)"Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay.(U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'"Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one vill to another, or to connect a continuous line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is sometimes used to designate very extensive reaches of waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said: "The distinction between rivers navigable and not navigable, that is, where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called arms of the sea, while the latter pass under the denomination of private or inland rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17this Court considered as ferry service such water service that crosses rivers.However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by holding that:

We are not unmindful of the reasons adduced by the Commission in considering the motorboat service between Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of ferry as above quoted we have the impression andwe are inclined to believe that the Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway which is interrupted by the body of water, or in some cases to connect two points on opposite shores of an arm of the sea such as bay or lake which does not involve too great a distance or too long a time to navigate But where the line or service involves crossing the open sea like the body of water between the province of Batangas and the island of Mindoro which the oppositors describe thus "the intervening waters between Calapan and Batangas are wide and dangerous with big waves where small boat barge, or raft are not adapted to the service," then it is more reasonable to regard said line or service as more properly belonging to interisland or coastwise trade. According to the finding of the Commission itself the distance between Calapan is about 24 nautical miles or about 44.5 kilometers. We do not believe that this is the short distance contemplated by the Legislature in referring to ferries whether within the jurisdiction of a single municipality or ferries between two municipalities or provinces. If

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we are to grant that water transportation between Calapan and Batangas is ferry service, then there would be no reason for not considering the same service between the different islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.The Commission makes the distinction between ferry service and motorship in the coastwise trade, thus:A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade in that the latter is intended for the transportation of passengers and/or freight for hire or compensation between ports or places in the Philippines without definite routes or lines of service.We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it may not for that reason be regarded as engaged in ferry service. Again, a vessel of the Compania Maritima makes the trip from Manila to Tacloban and back, twice a week. Certainly, it has a definite route. But that service is not ferry service, but rather interisland or coastwise trade.We believe that it will be more in consonance with the spirit of the law to consider steamboat or motorboat service between the different islands, involving more or less great distance and over more or less turbulent and dangerous waters of the open sea, to be coastwise or inter-island service. Anyway, whether said service between the different islands is regarded as ferry service or coastwise trade service, as long as the water craft used are steamboats, motorboats or motor vessels, the result will be the same as far as the Commission is concerned. " 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by such steamboats or vessels as the MV "Black Double. 19Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service.The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets whenever they board the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What is even more difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its passengers and goods. Nevertheless, considering that the authority granted to

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PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be allowed.What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat service between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for by law for such application for a certificate of public convenience. 23 However when its request was denied as the said routes "are adequately serviced by existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the same. Obviously to go about this obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private ferryboat service across a small body of water for the exclusive use of its buses, trucks and passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City to Tacloban so that it believes it need not secure a separate certificate of public convenience. 25 Based on this representation, no less than the Secretary of Justice was led to render an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned decision of public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a situation.Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the operation of the said service as a common carrier, it must comply with the usual requirements of filing an application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the opportunity to be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void. Respondent PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or coastwise/interisland services between Matnog and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC) in accordance with the requirements of the law, with costs against respondent PANTRANCO.SO ORDERED.G.R. No. L-61461 August 21, 1987EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners, vs.PANTRANCO SOUTH EXPRESS, INC., respondent.CARDINAL SHIPPING CORPORATION, petitioner, vs.HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents. GANCAYCO, J.:The question that is posed in these petitions for review is whether the sea can be considered as a continuation of the highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry service or coastwise or interisland shipping service along its authorized route as an incident to its franchise without the need of filing a separate application for the same.The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in the land transportation business with PUB service for passengers and freight and various certificates for public conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on the basis of the following observations:

1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes where these are adequately serviced by existing/authorized operators.

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2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel acquisitions intended for operations therein are necessarily limited to those intended for replacement purposes only. 2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation is merely a necessary and incidental service to its main service and obligation of transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for public convenience to operate a ferry service between Allen and Matnog to cater exclusively to its passenger buses and freight trucks. 4

Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should not be suspended or the pending application denied. 6

Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders of the ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC between Pasay City and Tacloban City may still be required to secure another certificate in order to operate a ferry service between two terminals of a small body of water. On October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus operators to secure a separate CPC to operate a ferryboat service holding as follows:

Further, a common carrier which has been granted a certificate of public convenience is expected to provide efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of the public which has accepted the service of a public utility operator to demand that the service should be conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a ferry service to its Pasay Tacloban route, it merely does so in the discharge of its duty under its current certificate of public convenience to provide adequate and convenient service to its riders. Requiring said bus company to obtain another certificate to operate such ferry service when it merely forms a part — and constitutes an improvement — of its existing transportation service would simply be duplicitous and superfluous. 7

Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise:

Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be amended to embody the grant of authority to operate a private ferry boat service as one of the conditions for the grant of the certificate subject to the condition that the ferryboat shall be for the exclusive use of Pantranco buses, its passengers and freight trucks, and should it offer itself to the public for hire other than its own passengers, it must apply for a separate certificate of public convenience as a public ferry boat service, separate and distinct from its land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July 21, 1981. 9

Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues:

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A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON — ALLEN, SAMAR — EVEN AS THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER?B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982?E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:a. the decision did not conform to the procedures laid down by law for an amendment of the original certificate of public convenience, and the authority to operate a private ferry boat service to PANTRANCO was issued without ascertaining the established essential requisites for such grant, hence, violative of due process requirements;b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said route contravenes existing government policies relative to the rationalization of operations of all water transport utilities;c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation; d. the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence?e. PANTRANCO is not a private carrier when it operates its ferry service;f. it runs counter to the "old operator" doctrine; andg. the operation by PANTRANCO of the ferry service cnstitutes undue competition.�The foregoing considerations constitutes the substantial errors committed by the respondent Board which would more than amply justify review of the questioned decision by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.The resolution of all said issues raised revolves on the validity of the questioned BOT decision.

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The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the authority originally granted PANTRANCO in the following manner:

A ferry service, in law, is treated as a continuation of the highway from one side of the water over which passes to the other side for transportation of passengers or of travellers with their teams vehicles and such other property as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a specially constructed boat to carry passengers and property across rivers or bodies of water from a place in one shore to a point conveniently opposite on the other shore and continuation of the highway making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of the respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a private ferry. A public ferry service is one which all the public have the right to resort to and for which a regular fare is established and the ferryman is a common carrier be inbound to take an who apply and bound to keep his ferry in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of the owner and though he may take pay for ferriage, he does not follow it as a business. His ferry is not open to the public at its demand and he may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698).The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used exclusively to transport its own buses, passengers and freight trucks traversing the said route. It will cater exclusively to the needs of its own clientele (passengers on board- Pantranco buses) and will not offer itself indiscriminately for hire or for compensation to the general public. Legally therefore, Pantranco has the right to operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses, passengers and freight trucks without the need of applying for a separate certificate of public convenience or provisional authority. Since its operation is an integral part of its land transport system, its original certificate of public convenience should be amended to include the operation of such ferryboat for its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the connection of highways located on the opposite banks of a stream or other body of water. The term necessarily implies transportation for a short distance, almost invariably between two points, which is unrelated to other transportation .(Emphasis supplied)The term "ferry" is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. In this sense it has also been defined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lake or stream or some other body of water, with no essential difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553.A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)The term ferry is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)"Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay.(U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'

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"Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one vill to another, or to connect a continuous line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is sometimes used to designate very extensive reaches of waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said: "The distinction between rivers navigable and not navigable, that is, where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called arms of the sea, while the latter pass under the denomination of private or inland rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17this Court considered as ferry service such water service that crosses rivers.However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by holding that:

We are not unmindful of the reasons adduced by the Commission in considering the motorboat service between Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of ferry as above quoted we have the impression andwe are inclined to believe that the Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway which is interrupted by the body of water, or in some cases to connect two points on opposite shores of an arm of the sea such as bay or lake which does not involve too great a distance or too long a time to navigate But where the line or service involves crossing the open sea like the body of water between the province of Batangas and the island of Mindoro which the oppositors describe thus "the intervening waters between Calapan and Batangas are wide and dangerous with big waves where small boat barge, or raft are not adapted to the service," then it is more reasonable to regard said line or service as more properly belonging to interisland or coastwise trade. According to the finding of the Commission itself the distance between Calapan is about 24 nautical miles or about 44.5 kilometers. We do not believe that this is the short distance contemplated by the Legislature in referring to ferries whether within the jurisdiction of a single municipality or ferries between two municipalities or provinces. If we are to grant that water transportation between Calapan and Batangas is ferry service, then there would be no reason for not considering the same service between the different islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.The Commission makes the distinction between ferry service and motorship in the coastwise trade, thus:A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade in that the latter is intended for the transportation of passengers and/or freight for hire or compensation between ports or places in the Philippines without definite routes or lines of service.We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it may not for that reason be regarded as engaged in ferry service. Again, a vessel of the Compania Maritima makes the trip from Manila to Tacloban and back, twice a week. Certainly, it has

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a definite route. But that service is not ferry service, but rather interisland or coastwise trade.We believe that it will be more in consonance with the spirit of the law to consider steamboat or motorboat service between the different islands, involving more or less great distance and over more or less turbulent and dangerous waters of the open sea, to be coastwise or inter-island service. Anyway, whether said service between the different islands is regarded as ferry service or coastwise trade service, as long as the water craft used are steamboats, motorboats or motor vessels, the result will be the same as far as the Commission is concerned. " 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by such steamboats or vessels as the MV "Black Double. 19Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service.The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets whenever they board the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What is even more difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be allowed.What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat service between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for by law for such application for a certificate of public convenience. 23 However when its request was denied as the said routes "are adequately serviced by existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the same. Obviously to go about this obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private ferryboat service across a small body of water for the exclusive use of its buses, trucks and passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City to Tacloban so that it believes it need not secure a separate certificate of public convenience. 25 Based on this representation, no less than the Secretary of Justice was led to render an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned decision of public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a situation.

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Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the operation of the said service as a common carrier, it must comply with the usual requirements of filing an application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the opportunity to be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void. Respondent PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or coastwise/interisland services between Matnog and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC) in accordance with the requirements of the law, with costs against respondent PANTRANCO.SO ORDERED.STA. CLARA SHIPPING                        G.R. No. 169493CORPORATION,                          

Petitioner,                                                                   Present:                                               

CORONA, J., Chairperson,                   -  v e r s u s  -                          VELASCO, JR.,                                                                    NACHURA,

                                                         PERALTA and                                                          MENDOZA, JJ.

 EUGENIA T. SAN PABLO,                                       Respondent.                  Promulgated:

 March 15, 2010

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

D E C I S I O NCORONA, J.:  

Sta. Clara Shipping Corporation (Sta. Clara) assails the May 31, 2005 decision[1] and July 27, 2005 resolutions[2] of the Court of Appeals (CA) which annulled its certificate of convenience (CPC) to operate MV King Frederick.                    The facts are undisputed.                    Sta. Clara filed an application, docketed as Case No. 2001-033, with Maritime Industry Authority (MARINA) for a CPC  to  operate  MV  King  Frederick  along  the route Matnog, Sorsogon–Allen, Northern Samar and vice versa.[3]  The application was opposed by the pioneering operators Bicolandia Lines, Inc. and Eugenia T. San Pablo/ETabinas Enterprises (San Pablo) on the ground that, with five vessels[4] already plying the route, the entry of a sixth vessel would cause grievous problems in berthing space and time schedule.[5]

                            MARINA granted the application of Sta. Clara in a decision dated January 26, 2004, the dispositive portion of which read: 

            WHEREFORE, for all foregoing considerations and finding that the Applicant is a domestic corporation, legally and financially capable to operate and maintain the existing service; that the approval of the instant application will promote public interest and convenience in a proper and suitable manner, this Authority hereby grants Applicant, Sta. Clara Shipping Corporation, a Certificate of Public Convenience (CPC) to operate the

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ship, MV KING FREDERICK, in the route: Matnog, Sorsogon – Allen, Northern Samar and vice-versa, for the carriage of passengers and cargoes, for a period of FIVE (5) YEARS from date hereof, subject to the following conditions:

 1.          That the terms and conditions set forth in the attached Certificate of Public

Convenience and its Rider thereto shall remain in full force and effect;2.          That the Applicant shall submit the ship's renewed Certificate of Inspection

(CI), Coastwise License (CWL), Radio/Ship Station License, Class Certificate and Safety Management Certificate prior to every expiration thereof, and the ship's Passenger Insurance Coverage fifteen (15) days prior to every expiration thereof, otherwise, this Certificate of Public Convenience (CPC) shall be deemed suspended until compliance/submission thereof;

3.          That the Applicant shall at all times carry on board its ship a copy of the latest authority to operate (CPC/PA/SP), the PMMRR 1997, relevant MARINA/PCG/PPA Circulars/Issuances, the SOLAS 74 as amended, Collision Regulations 1972, STCW Convention 1978/95, among other IMO Conventions;

4.          That the Applicant shall comply with the provisions of MARINA Memorandum Circular No. 154 dated 23 February 2000 on “Reiteration of Safety-Related Policies/Guidelines/Rules and Regulations For Guidance and Strict Compliance”; and

5.          That any violation of the terms and conditions of this Certificate of Public Convenience shall result to the suspension/cancellation and/or revocation thereof.

 (Approved during the 99th Quasi-Judicial Board Meeting held on 22 December 2003.)             SO ORDERED.[6]

                   

Accordingly, a CPC[7] was issued to Sta. Clara to operate MV King Frederick for a period of five (5) years beginning January 26, 2004. 

Counsel for San Pablo received copy of the decision on February 26, 2004.[8] Her authorized representative received another copy on February 27, 2004.[9] However, it was only on May 14, 2004 that San Pablo filed with MARINA a motion for reconsideration. [10]  Consequently, MARINA denied the motion for reconsideration for having been filed out of time, citing Rule 17 of Memorandum Circular No. 74-A which provides that a decision becomes final unless a motion for reconsideration or appeal is filed within 15 days from receipt thereof.[11]

         San Pablo filed a petition for review with the CA.[12]

          The CA granted the petition in a decision dated May 31, 2005, the dispositive portion of which read: 

                        UPON THE VIEW WE TAKE OF THIS CASE, THUS, the petition at bench must be, as it is hereby GRANTED. The decision of the MARINA in Maritime Industry Case No. 2001-033 dated January 26, 2004 and its Resolution dated September 16, 2004 denying petitioner's Motion for Reconsideration are hereby VACATED and SET ASIDE. Without costs in this instance.                         SO ORDERED.[13]

           Meanwhile, two events transpired which altered the state of facts in this case. 

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         First, Republic Act (RA) 9295[14] and its implementing rules and regulations[15] were issued requiring existing operators to apply for CPCs under the new law.[16]  Thus, on May 4, 2005, Sta. Clara filed with the Legaspi Maritime Regional Office (LMRO)   an application, docketed as Case No. LMRO 05-056,  for a new CPC to operate MV King Frederick and two other vessels in several routes including Matnog, Sorsogon–Allen, Northern Samar and vice versa.[17]           Second, on June 6, 2005, LMRO granted the application of Sta. Clara for a new CPC: 

            WHEREFORE, upon the foregoing holdings, and finding that applicant corporation is legally and financially capable to operate and maintain the proposed service; that the approval of the instant application will promote public interest and convenience in proper and suitable manner, this Authority hereby grants applicant corporation STA. CLARA SHIPPING CORPORATION a CERTIFICATE OF PUBLIC CONVENIENCE (CPC) to operate the vessels MV KING FREDERICK, MV NELVIN JULES and MV HANSEL JOBETT for conveyance of passengers and cargoes in the applied route valid for a period of FIFTEEN (15) YEARS from date hereof, subject to the terms and conditions set forth in the attached Certificate of Public Convenience.             This decision takes effect immediately and shall become final, unless an appeal or a timely motion for reconsideration has been filed within fifteen (15) days from receipt hereof.             SO ORDERED.[18]

            

Yet, on June 24, 2005, Sta. Clara filed a motion for reconsideration[19] of the CA decision without disclosing that it had obtained a new CPC for MV King Frederick. It was San Pablo who reported this development to the CA when she filed a motion to hold Sta. Clara in contempt of court and to cancel its new CPC.[20]

                   On July 27, 2005, the CA issued two resolutions, one denying Sta. Clara's motion for reconsideration,[21] and another granting the motion of San Pablo to cancel the new CPC issued to Sta. Clara by the LMRO: 

            WHEREFORE, public respondent Marina's Decision dated June 6, 2005, in so far as it grants private respondent Sta. Clara Shipping Corporation a Certificate of Public Convenience (CPC) to operate the vessel KING FREDERICK is hereby RESCINDED, NULLIFIED and SET ASIDE. The public respondent Legaspi Maritime Regional Office (LMRO), through its Regional Director, Mr. LucitaT. Madarang, is thus ordered to explain why she should not be cited for contempt for rendering the assailed decision in LMRO 05-056.             SO ORDERED.[22]

  Hence, Santa Clara took the present recourse on the following grounds: I.          The honorable Court of Appeals gravely and seriously erred in failing to consider and take judicial notice of the passage of RA 9295 in the resolution of the petition filed before it. II.        The honorable Court of Appeals gravely and seriously erred in reversing the decision of the honorable MARINA [despite] the fact that it has become final and executory. 

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III.       The honorable Court of Appeals gravely and seriously erred in reversing the decision of the honorable MARINA despite the fact that the decision is in perfect accord with law and jurisprudence. IV.       The honorable Court of Appeals gravely and seriously erred in nullifying the CPC issued to petitioner pursuant to RA 9295.[23]

  The petition has merit outside of its arguments.  

          The Court notes that Sta. Clara repeatedly argued in its pleadings that the January 26, 2004 MARINA decision was superseded by the June 6, 2005 LMRO decision, and that the old CPC of MV King Frederick was replaced by a new CPC issued in accordance with RA 9295 and its implementing rules.[24] San Pablo herself agreed that the January 26, 2004 MARINA decision was deemed abandoned when Sta. Clara applied for and obtained a new CPC.[25]

          There is no dispute then that the January 26, 2004 MARINA decision and the old CPC are now defunct.          The January 26, 2004 MARINA decision and the old CPC were the subject matter of the petition of San Pablo before the CA. The reversal of the decision and the revocation of the CPC were the reliefs sought in that petition. However,  the passage of RA 9295 and the filing by Sta. Clara of an application for a new CPC under the new law supervened and rendered the January 26, 2004 MARINA decision and old CPC of no consequence.  There was no more justiciable controversy for the CA to decide, no remedy to grant or deny. The petition before the CA had become purely hypothetical, there being nothing left to act upon.[26]

          Although Sta. Clara filed with the CA a motion for reconsideration of its May 31, 2005 decision without disclosing the foregoing developments, by the time the CA resolved the motion for reconsideration, it was already aware of the changes in the situation of the parties:  specifically, that  Sta. Clara had filed a new application under RA 9295 and that the LMRO had issued Sta. Clara a new CPC.[27] More significantly, the new CPC issued to Sta. Clara was now subject to the rules implementing RA 9295.  Under Rule XV, Sec. 1 thereof, a peculiar process of administrative remedy provides that the MARINA Administrator, and not the CA, is vested with primary jurisdiction over matters relating to the issuance of a CPC.[28]

          Under the altered state of facts, the CA should have refrained from resolving the pending motions before it and should have declared the case mooted by supervening events. [29] Besides, questions on the validity of the new CPC are cognizable by the MARINA Administrator and, consonant with the doctrine of primary administrative jurisdiction, the CA should have referred San Pablo to MARINA for the resolution of her challenge to the validity of the new CPC of Sta. Clara. The CA ought to have given due deference to the exercise by MARINA of its sound administrative discretion in applying its special knowledge, experience and expertise to determine the technical and intricate factual matters relating to the new CPC of Sta. Clara.[30]

          The Court finds no need to resolve the other issues raised by San Pablo for they deal with the merits of the very controversy which supervening events have rendered merely theoretical. The Court must refrain from even expressing an opinion on the remaining issues as the determination thereof would be of no practical use or value, there being no morejusticiable controversy to speak of.[31]

          WHEREFORE, the decision dated May 31, 2005 and resolutions dated July 27, 2005 of the Court of Appeals are hereby ANNULLED and SET ASIDE on the ground of mootness.          No costs.         SO ORDERED.

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G.R. No. 119528 March 26, 1997PHILIPPINE AIRLINES, INC., petitioner, vs.CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents. TORRES, JR., J.:This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's Application for the issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary operating permit issued by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing the same to engage in scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao, and converse routes.The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that GrandAir does not possess a legislative franchise authorizing it to engage in air transportation service within the Philippines or elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of Public Convenience or Necessity by the respondent Board, as mandated under Section 11, Article XII of the Constitution.Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for the issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following the Court's pronouncements in the case of Albano vs. Reyes, 1 as restated by the Court of Appeals in Avia Filipinas International vs. Civil Aeronautics Board 2 and Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil Aeronautics Board. 3

On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with the Board, which application was docketed as CAB Case No. EP-12711. 4 Accordingly, the Chief Hearing Officer of the CAB issued a Notice of Hearing setting the application for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to all scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and requested for the issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an Opposition to the application for a Certificate of Public Convenience and Necessity on December 16, 1995 on the following grounds:

A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to operate from Congress.B. The petitioner's application is deficient in form and substance in that:

1. The application does not indicate a route structure including a computation of trunkline, secondary and rural available seat kilometers (ASK) which shall always be maintained at a monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of operations for rural and secondary, respectively.2. It does not contain a project/feasibility study, projected profit and loss statements, projected balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure, documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars, maintenance, lot) etc.

C. Approval of petitioner's application would violate the equal protection clause of the constitution.D. There is no urgent need and demand for the services applied for.E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of R.A. 776. 5

At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear the application because GrandAir did not possess a legislative franchise.On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition. Pertinent portions of the Order read:

PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to operate from Congress.

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The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs.CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific power and duty.In view thereof, the opposition of PAL on this ground is hereby denied.SO ORDERED.

Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a temporary permit maintaining that:

1. The applicant does not possess the required fitness and capability of operating the services applied for under RA 776; and,2. Applicant has failed to prove that there is clear and urgent public need for the services applied for.6

On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a Temporary Operating Permit in favor of Grand Air 7 for a period of three months, i.e., from December 22, 1994 to March 22, 1994. Petitioner moved for the reconsideration of the issuance of the Temporary Operating Permit on January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. 8 In the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's application.

WHEREAS , the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows:(c) The Board shall have the following specific powers and duties:(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter, modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative, any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however; that in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held that the CAB can even on its own initiative, grant a TOP even before the presentation of evidence;WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30, 1991, held that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative franchise, citing therein as basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:a) Franchises by Congress are not required before each and every public utility may operate when the law has granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public utilities;b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or other form of authorization for the operation of a public utility does not necessarily imply that only Congress has the power to grant such authorization since our statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public utilities.WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently serviced by only one (1) operator shall be open for entry to additional operators.RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways, Inc. alleging among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of the foregoing and considering that the grounds relied upon by the movant are not indubitable.

On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period of six (6) months or up to September 22, 1995.Hence this petition, filed on April 3, 1995.Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of GrandAir's application for the issuance of a Certificate of Public Convenience and Necessity, and in

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issuing a temporary operating permit in the meantime, since GrandAir has not been granted and does not possess a legislative franchise to engage in scheduled domestic air transportation. A legislative franchise is necessary before anyone may engage in air transport services, and a franchise may only be granted by Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII, 9 and Section 1, Article VI, 10 of the Constitution.To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads:

Dr. Arturo C. CoronaExecutive DirectorCivil Aeronautics BoardPPL Building, 1000 U.N. AvenueErmita, ManilaSir:This has reference to your request for opinion on the necessity of a legislative franchise before the Civil Aeronautics Board ("CAB") may issue a Certificate of Public Convenience and Necessity and/or permit to engage in air commerce or air transportation to an individual or entity.You state that during the hearing on the application of Cebu Air for a congressional franchise, the House Committee on Corporations and Franchises contended that under the present Constitution, the CAB may not issue the abovestated certificate or permit, unless the individual or entity concerned possesses a legislative franchise. You believe otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly empowered to issue operating permits or certificates of public convenience and necessity and that this statutory provision is not inconsistent with the current charter.We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion rendered in favor of your predecessor-in-office, this Department observed that, —. . . it is useful to note the distinction between the franchise to operate and a permit to commence operation. The former is sovereign and legislative in nature; it can be conferred only by the lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and regulatory in character (In re Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted by an administrative agency, such as the Public Service Commission [now Board of Transportation], in the case of land transportation, and the Civil Aeronautics Board, in case of air services. While a legislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity to an airline company, such franchise alone cannot constitute the authority to commence operations, inasmuch as there are still matters relevant to such operations which are not determined in the franchise, like rates, schedules and routes, and which matters are resolved in the process of issuance of permit by the administrative. (Secretary of Justice opn No. 45, s. 1981)Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization issued by the appropriate governmental agency for the operation of public services for which a franchise is required by law (Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business activity or enterprise of a public nature, whereas a certificate of public convenience and necessity is a regulatory measure which constitutes the franchise's authority to commence operations. It is thus logical that the grant of the former should precede the latter.Please be guided accordingly.

(SGD.) SEDFREY A. ORDONEZ

Secreta

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ry of Justice

Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776, which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, andSilangan Airways, Inc. vs. Grand International Airways (supra).In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate of Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport operator who does not possess a legislative franchise to operate as such. Relying on the Court's pronouncement in Albano vs.Reyes (supra), the Court of Appeals upheld the authority of the Board to issue such authority, even in the absence of a legislative franchise, which authority is derived from Section 10 of Republic Act 776, as amended by P.D. 1462. 11

The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968. 12 The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity, and nothing contained in the said law negates the power to issue said permit before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit.The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since Congress is that branch of government vested with plenary powers of legislation.

The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly, the act of the state. 13

The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the authority to authorize the operation of domestic air transport services to the respondent Board, such that Congressional mandate for the approval of such authority is no longer necessary.Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. 14 It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. 15 In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature. 16

The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control the operation of public services under reasonable rules and regulations, and as a general rule, courts will not interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right. 17

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent issuances governing the Philippine Ports Authority, 18 proves that the PPA is empowered to undertake by itself the operation and management of the Manila International Container Terminal, or to authorize its operation and management by another by contract or other means, at its option. The latter power having been delegated to the to PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary.Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such requirements were enumerated in Section 21 of R.A. 776.There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress' control over any franchise, certificate or authority to operate a

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public utility, it does not mean Congress has exclusive authority to issue the same. Franchises issued by Congress are not required before each and every public utility may operate. 19 In many instances, Congress has seen it fit to delegate this function to government agencies, specialized particularly in their respective areas of public service.A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to regulate the issuance of a license to operate domestic air transport services:

Sec. 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the power to regulate the economic aspect of air transportation, and shall have general supervision and regulation of, the jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as well as their property rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act.

In support of the Board's authority as stated above, it is given the following specific powers and duties:(C) The Board shall have the following specific powers and duties:(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public Convenience and Necessity", this, according to petitioner, means that a legislative franchise is an absolute requirement. It cites a number of authorities supporting the view that a Certificate of Public Convenience and Necessity is issued to a public service for which a franchise is required by law, as distinguished from a "Certificate of Public Convenience" which is an authorization issued for the operation of public services for which no franchise, either municipal or legislative, is required by law. 20

This submission relies on the premise that the authority to issue a certificate of public convenience and necessity is a regulatory measure separate and distinct from the authority to grant a franchise for the operation of the public utility subject of this particular case, which is exclusively lodged by petitioner in Congress.We do not agree with the petitioner.Many and varied are the definitions of certificates of public convenience which courts and legal writers have drafted. Some statutes use the terms "convenience and necessity" while others use only the words "public convenience." The terms "convenience and necessity", if used together in a statute, are usually held not to be separable, but are construed together. Both words modify each other and must be construed together. The word 'necessity' is so connected, not as an additional requirement but to modify and qualify what might otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable thing. 21

The terms "convenience" and "necessity" are to be construed together, although they are not synonymous, and effect must be given both. The convenience of the public must not be circumscribed by according to the word "necessity" its strict meaning or an essential requisites. 22

The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a public service entity to operate, does not in any way modify the nature of such certification, or the requirements for the issuance of the same. It is the law which determines the requisites for the issuance of such certification, and not the title indicating the certificate.Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport services, has delegated to the said body the authority to determine the capability and competence of a prospective domestic air transport operator to engage in such venture. This is not an instance of transforming the respondent Board into a mini-legislative body, with unbridled authority to choose who should be given authority to operate domestic air transport services.

To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving commission" that will give the delegate unlimited legislative authority. It must not be a delegation "running riot" and "not canalized with banks that keep it from

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overflowing." Otherwise, the delegation is in legal effect an abdication of legislative authority, a total surrender by the legislature of its prerogatives in favor of the delegate. 23

Congress, in this instance, has set specific limitations on how such authority should be exercised.Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:

Sec. 4. Declaration of policies. In the exercise and performance of its powers and duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among other things, as being in the public interest, and in accordance with the public convenience and necessity:(a) The development and utilization of the air potential of the Philippines;(b) The encouragement and development of an air transportation system properly adapted to the present and future of foreign and domestic commerce of the Philippines, of the Postal Service and of the National Defense;(c) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to improve the relations between, and coordinate transportation by, air carriers;(d) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices;(e) Competition between air carriers to the extent necessary to assure the sound development of an air transportation system properly adapted to the need of the foreign and domestic commerce of the Philippines, of the Postal Service, and of the National Defense;(f) To promote safety of flight in air commerce in the Philippines; and,(g) The encouragement and development of civil aeronautics.

More importantly, the said law has enumerated the requirements to determine the competency of a prospective operator to engage in the public service of air transportation.

Sec. 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air transportation shall be issued only to citizens of the Philippines 24

Sec. 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform such service properly in conformity with the provisions of this Act and the rules, regulations, and requirements issued thereunder; and (2) that such service is required by the public convenience and necessity; otherwise the application shall be denied.

Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and Necessity had been established to ensure the weeding out of those entities that are not deserving of public service. 25

In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise of its jurisdiction.ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public Convenience and Necessity.SO ORDERED.