THIRD DIVISION

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

ABOITIZ SHIPPING CORPORATION, petitioner, vs. NEW INDIA ASSURANCE COMPANY, LTD., respondent.
DECISION
QUISUMBING, J : p

For review on certiorari are the Decision 1 dated August 29, 2002 of the Court of Appeals in CA-G.R. CV No.
28770 and its Resolution 2 dated January 23, 2003 denying reconsideration. The Court of Appeals affirmed the
Decision 3 dated November 20, 1989 of the Regional Trial Court of Manila in Civil Case No. 82-1475, in favor
of respondent New India Assurance Company, Ltd.

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

The pertinent facts are as follows:

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on board a
vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to General Textile, Inc., in Manila and
insured by respondent New India Assurance Company, Ltd. While in Hongkong, the cargo was transferred
to M/V P. Aboitiz for transshipment to Manila. 4

Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to travel to its
destination. 5 But while at sea, the vessel received a report of a typhoon moving within its general path. To
avoid the typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon when its hull
leaked. On October 31, 1980, the vessel sank, but the captain and his crew were saved.

On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind force was
at 10 to 15 knots at the time the ship foundered and described the weather as "moderate breeze, small waves,
becoming longer, fairly frequent white horses." 6

Thereafter, petitioner notified 7 the consignee, General Textile, of the total loss of the vessel and all of its
cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent paid General
Textile and was subrogated to the rights of the latter. 8

Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the sinking. In its
report, 9 the surveyor concluded that the cause was the flooding of the holds brought about by the vessel's
questionable seaworthiness. Consequently, respondent filed a complaint for damages against petitioner Aboitiz,
Franco-Belgian Services and the latter's local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that the
proximate cause of the loss of the shipment was the fault or negligence of the master and crew of the vessel, its
unseaworthiness, and the failure of defendants therein to exercise extraordinary diligence in the transport of the
goods. Hence, respondent added, defendants therein breached their contract of carriage. 10

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

For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged that the sinking
of M/V P. Aboitiz was due to an unforeseen event and without fault or negligence on its part. It also alleged that
in accordance with the real and hypothecary nature of maritime law, the sinking of M/V P. Aboitiz extinguished
its liability on the loss of the cargoes. 11

Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to determine whether the
captain and crew were administratively liable. However, petitioner neither informed respondent nor the trial
court of the investigation. The BMI exonerated the captain and crew of any administrative liability; and
declared the vessel seaworthy and concluded that the sinking was due to the vessel's exposure to the
approaching typhoon.

On November 20, 1989, the trial court, citing the Court of Appeals decision in General Accident Fire and Life
Assurance Corporation v. Aboitiz Shipping Corporation 12 involving the same incident, ruled in favor of
respondent. It held petitioner liable for the total value of the lost cargo plus legal interest, thus:
 WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of New India and
against Aboitiz ordering the latter to pay unto the former the amount of P142,401.60, plus legal interest
thereon until the same is fully paid, attorney's fees equivalent to fifteen [percent] (15%) of the total
amount due and the costs of suit.

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

SO ORDERED. 13

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

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

I.

. . . DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON THE

APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837
OF THE CODE OF COMMERCE TO CASES INVOLVING THE SINKING OF THE M/V "P.
ABOITIZ;

A.

. . . NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO., INC. ET
AL. V. COURT OF APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION V. GENERAL
ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.;

B.

. . . RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED

LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE CODE OF COMMERCE HAD BEEN
CONSIDERED AND PASSED UPON IN ITS DECISION;

II.

. . . NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRO-

RATA SHARES IN THE INSURANCE PROCEEDS FROM THE SINKING OF THE M/V "P.
ABOITIZ". 14

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

Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that respondent's claim for
damages should only be against the insurance proceeds and limited to its pro-rata share in view of the doctrine
of limited liability.

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

It bears stressing that this Court has variedly applied the doctrine of limited liability to the same incident the
sinking of M/V P. Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to settle the conflicting
pronouncements of this Court relative to the sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of
the vessel was not due to force majeure, but to its unseaworthy condition. 16 Therein, we found petitioner
concurrently negligent with the captain and crew. 17 But the Court stressed that the circumstances therein still
made the doctrine of limited liability applicable. 18

Our ruling in Monarch may appear inconsistent with the exception of the limited liability doctrine, as explicitly
stated in the earlier part of the Monarch decision. An exception to the limited liability doctrine is when the
damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the captain. In
which case, the shipowner shall be liable to the full-extent of the damage. 19 We thus find it necessary to clarify
now the applicability here of the decision in Monarch.

From the nature of their business and for reasons of public policy, common carriers are bound to observe
extraordinary diligence over the goods they transport according to all the circumstances of each case. 20 In the
event of loss, destruction or deterioration of the insured goods, common carriers are responsible, unless they can
prove that the loss, destruction or deterioration was brought about by the causes specified in Article 1734 of the
Civil Code. 21 In all other cases, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence. 22 Moreover, where the vessel is
found unseaworthy, the shipowner is also presumed to be negligent since it is tasked with the maintenance of its
vessel. Though this duty can be delegated, still, the shipowner must exercise close supervision over its men. 23

In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in the transport
of the goods it had on board in order to invoke the limited liability doctrine. Differently put, to limit its liability
to the amount of the insurance proceeds, petitioner has the burden of proving that the unseaworthiness of its
vessel was not due to its fault or negligence. Considering the evidence presented and the circumstances
obtaining in this case, we find that petitioner failed to discharge this burden. It initially attributed the sinking to
the typhoon and relied on the BMI findings that it was not at fault. However, both the trial and the appellate
courts, in this case, found that the sinking was not due to the typhoon but to its unseaworthiness. Evidence on
record showed that the weather was moderate when the vessel sank. These factual findings of the Court of
Appeals, affirming those of the trial court are not to be disturbed on appeal, but must be accorded great weight.
These findings are conclusive not only on the parties but on this Court as well. 24

In contrast, the findings of the BMI are not deemed always binding on the courts. 25 Besides, exoneration of the
vessel's officers and crew by the BMI merely concerns their respective administrative liabilities. 26 It does not in
any way operate to absolve the common carrier from its civil liabilities arising from its failure to exercise
extraordinary diligence, the determination of which properly belongs to the courts. 27

Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot
be applied. 28 Therefore, we agree with the appellate court in sustaining the trial court's ruling that petitioner is
liable for the total value of the lost cargo.

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

Costs against petitioner.

SO ORDERED.

Carpio, Carpio Morales, Tinga and Velasco, Jr., JJ., concur.