A compilation of Case Digests for

MARITIME LAW

Submitted to:

Transportation Law
Mondays 5:45 p.m. – 6:45 p.m.
Fridays 7:45 p.m. – 8:45 p.m.

Submitted by:

October 6, 2017

II. CONCEPT OF MARITIME LAW

1) STANDARD OIL COMPANY v. MANUEL LOPEZ CASTELO

G.R. No. L-13695 October 18, 1921 47 Phil 256
Facts:

Manuel Castelo, owner of the Batangueno vessel, entered into a Contract of Character
with Jose Chumbuque for conveying of Cargo within the Ports of the Philippine Islands.
In the said Contract, it was stated that the Officers and crew of the Batangueno should
be supplied by the Owner, and the Charterer should have no other Control over the
same, except to specify the voyages they should make and report to the owner
unnecessary performances of the personnel of the vessel.

The vessel then was used by the Charterer to deliver a quantity of petroleum owned
by the Standard Oil Company to the Port of Sorsogon, while the vessel was on her
way to the port of Sorsogon, a violent typhoon struck them causing the Captain to
jettison the petroleum which were placed upon the deck of the vessel.

After the storm, they recovered only 13 cases out of 200 cases of petroleum that
caused the Standard Company (the Plaintiff in this case) to file a case against the
Owner of the said vessel in the Court of First Instance of Manila. However, the
judgment was rendered in favor of the Plaintiff.

Issue:

Whether or not, the Shipowner is liable for the loss of the cargoes?

Ruling:

Under Article 852 of the Code of Commerce, the captain is required to initiate the
proceedings for the adjustment, liquidation, and distribution of any gross average to
which the circumstances of the voyage may have given origin; and it is therefore his
duty to take the proper steps to protect any shipper whose goods may have been
jettisoned for the general safety.

In the case before us, the Captain of the vessel did not take those steps; and the failure
of the Captain to take those steps gave rise to a liability for which the owner of the ship
must answer.

In view thereof, the Owner of the Ship/vessel is a person to whom the Plaintiff may
immediately look for reimbursement to the value of the Cargo pursuance to the
provisions of the Code of Commerce applicable to this case. It is also universally
recognized, that the Captain is primarily the Representative of the owner, thus the
Owner of the vessel is civilly liable for the act of the captain.

The Plaintiff therefore is entitled to recover the amount lost.

2) YU CON v. IPIL (Master), LAURON (Owner), and SOLAMO (Supercargo)

G.R. No. L-10195 December 29, 1916 41 Phil 770

Facts:
On October 17, 1911, the Plaintiff Yu Con chartered the banca from the defendant
Lauron for the delivery of money and transportation of various merchandise belonging
to the Plaintiff from the port of Cebu to the town of Catmon of the Province of Cebu, at
the price of P45 for the round trip.

However, on October 18, 1911, the money disappeared from the said banca, and was
not afterward found.

The plaintiff alleged that the disappearance of his money was due to the abandonment
and negligence on the part of the defendants. As such, an action to recover the said
sum was filed.

Issues:

Are the defendants liable for the loss of the plaintiff? Is Lauron, liable for the negligence
of his crew and captain?

Ruling:

Yes, the evidence showed that Mr. Yu Con had several times chartered from the
defendant Lauron, a banca belonging to the latter, of whom Ipil was a master and
Salamo supercargo, for the transportation of certain merchandise and money to
Catmon and from the port of Cebu.

Under Article 587 of the Code of Commerce, the agent shall be civilly liable for the
indemnities in favor of third persons which arise from the conduct of the captain in the
vigilance of the goods which the vessel carried; but he may exempt himself therefrom
by abandoning the vessel with all her equipment and the freight he may have earned
during the trip.

Also, Article 618 of the same Code provides, the captain shall be civilly liable to the
agent and the latter to the third persons who may have made contracts with the former:

For all the damages suffered by the vessel and its cargo by reason of want of skill or
negligence on his part, xxxx.

For all the thefts committed by the crew, reserving his right of action against the guilty
parties.

3) YANGCO v. LASERNA
G.R. No. L-47447 to 47449 October 29, 1941 73 Phil 330

Facts:
On the afternoon of May 26, 1927, the STEAMER SS NEGROS left the port of
Romblon on its return trip to Manila, typhoon signal no. 2 was then up and in fact, the
passengers duly advised the captain before sailing. The boat was overloaded. After 2
hours of sailing, the boat encountered strong winds and rough seas between the
islands of Banton and Simara. While in the act of maneuvering, the vessel was caught
sidewise by a big wave which caused it to capsize and sink. Many of the passengers
died on the mishap. Civil actions were instituted in the CFI of Capiz.

Issue:

Whether or not, the shipowner or ship agent is liable for damages for the death of its
passengers notwithstanding the total loss of the vessel?

Ruling:

No. Under Article 587 of the Code of Commerce, the agent shall be civilly liable for the
indemnities in favor of third persons which arise from the conduct of the captain in the
vigilance of the goods which the vessel carried; but he may exempt himself therefrom
by abandoning the vessel with all her equipment and the freight he may have earned
during the trip.

Whether the abandonment of the vessel sought by the petitioner in the case was in
accordance with the law or not, is immaterial. The vessel having totally perished, any
act of abandonment would be idle ceremony.

4) CHUA YEK HONG v. IAC

G.R. No. 74811 September 30, 1988 166 SCRA 183

Facts:
Chua Yek Hong (petitioner) is a duly licensed copra dealer based at Puerto Galera,
Oriental Mindoro, while Mariano Guno & Dominador Olit (defendants) are owners of
the vessel, “M/V Luzviminda I,” a common carrier engaged in coastwise trade from the
different ports of Oriental Mindoro to the Port of Manila. In October 1977, petitioner
loaded 1,000 sacks of copra, valued at P 101,227.40, on board the said vessel for
shipment from Puerto Galera to Manila. Said cargo, however, did not reach Manila
because, somewhere between Cape Santiago and Calatagan, Batangas, the vessel
capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then CFI of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against defendants.
In their Answer, defendants averred that, even assuming that the alleged cargo was
truly loaded aboard their vessel, their liability had been extinguished by reason of the
total loss of said vessel. On 17 May 1983, the Trial Court rendered a Decision, holding
that the preponderance of evidence militates in favor of petitioner and orders the
defendants, jointly and severally, to pay the former the sum of P101,227.40
representing the value of the cargo belonging to petitioner which was lost while in the
custody of defendants; P65,550.00 representing miscellaneous expenses; attorney’s
fees in the amount of P5,000.00, and to pay the costs of suit.

In the Appellate Court, decision was reversed when it applied Article 587 of the Code
of Commerce and the doctrine in Yangco vs. Laserna (73 Phil 330) and held that
defendants’ liability, as ship owners, for the loss of the cargo is merely co-extensive
with their interest in the vessel such that a total loss thereof results in its extinction.
Unsuccessful in his Motion for Reconsideration of the Decision, petitioner filed a
petition for review on certiorari.

Issue:

Whether or not respondents can avail of the limited liability.

Ruling:

Yes. The ship owner’s or agent’s liability is merely co-extensive with his interests in
the vessel. The total destruction of the vessel extinguishes maritime liens as there is
no longer any res to which it can attach.

The primary law is the Civil Code and in default thereof, the Code of Commerce and
other special laws are applied. Since the Civil Code contains no provisions regulating
liability of ship owners or agents in the event of total loss or destruction of the vessel,
it is the provisions of the Code of Commerce that govern in this case.

The Supreme Court affirmed the judgment sought to be reviewed; without costs.
5) CHUA YEK HONG v. IAC
G.R. No. L-74811 December 14, 1988

Facts:
Petitioner filed a Motion for Reconsideration of the Supreme Court’s Decision dated
30 September 1988 affirming the judgment of the Court of Appeals dismissing the
complaint against private respondents and absolving them from any and all liability
arising from the loss of 1000 sacks of copra shipped by petitioner aboard private
respondents' vessel. Private respondents filed an opposition thereto.

Petitioner argues that the Supreme Court failed to consider the Trial Court's finding
that the loss of the vessel with its cargo was due to the fault of the ship owner or to
the concurring negligence of the ship owner and the captain, invoking Articles 1733
and 1735 of the Civil Code, and that the ruling laid down in Eastern Shipping Lines vs.
IAC, et al. (150 SCRA 464 [1987]) should be made to apply in the instant case.

Issue:

Whether or not petitioner’s Motion for Reconsideration is meritorious.

Ruling:

No. The Appellate Court Decision, however, mentions only the ship captain as having
been negligent in the performance of his duties. For the exception to the limited liability
rule (Article 587, Code of Commerce) to apply, the loss must be due to the fault of the
ship owner, or to the concurring negligence of the ship owner and the captain. As we
held, there is nothing in the records showing such negligence.

The invocation by petitioners of Articles 1733 & 1735 of the Civil Code is misplaced.
As was stated in the Decision sought to be reconsidered, while the primary law
governing the instant case is the Civil Code, in all matters not regulated by said Code,
the Code of Commerce and other special laws shall govern. Since the Civil Code
contains no provisions regulating liability of ship owners or agents in the event of total
loss or destruction of the vessel, it is the provisions of the Code of Commerce,
particularly Article 587, that governs.

Petitioner further contends that the ruling laid down in Eastern Shipping Lines vs. IAC,
et al. should be made to apply in the instant case. That case, however, involved foreign
maritime trade while the present case involves local inter-island shipping.

6) HEIRS OF AMPARO DE LOS SANTOS v. CA

G.R. No. L-51165 June 21, 1990 186 SCRA 649

Facts:
The ship M/V Mindoro owned by Maritima Company aboard by Amparo de los Santos,
and Children of Mauricio de los Santos bound for Aklan met the Typhoon Welming
and due to the strong waves it sank causing the drowning of many passengers
including the wife and children of Mauricio de Los SANTOS (herein petitioner).

The petitioners filed a case against Maritima but the lower court ruled against them on
the grounds that the death of some passengers was due to force majeure because of
the strong typhoon welming. And the Court of Appeal ruled that Maritima cannot be
held liable in damages based on the principle of limited liability of the shipowner or
ship agent under Article 587 of the Code of Commerce.

Hence, this petition in the Supreme Court.

Issue:

Whether or not, the limited liability rule shall apply in this case.

Ruling:

It was held by the Supreme Court that Martima’s lack of extraordinary diligence
coupled with the negligence of the captain were the proximate cause of the sinking of
M/V Mindoro pursuant to Articles 1733 of the New Civil Code which states that
“Common carriers are tasked to observe extraordinary diligence in the vigilance over
the goods and for the safety of its passengers”

And Article 1755 of the same code, also provides that Common carriers are bound to
carry the passengers safety as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all circumstances.

Thus, the doctrine of limited liability rule shall not apply in this case.

7) ABOITIZ SHIPPING v. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE

CORPORATION (GAFLAC)
G.R. No. 100446 January 21, 1993 217 SCRA 359

Facts:
Aboitiz Shipping is the owner of M/V P. ABOITIZ, a vessel that sank on a voyage from
Hong Kong to the Philippines. This sinking of the vessel gave rise to the filing of several
suits for recovery of the lost cargo either by the shippers, their successors-in-interest,
or the cargo insurers like General Accident (GAFLAC).
Board of Marine Inquiry (BMI), on its initial investigation found that such sinking was
due to force majeure and that subject vessel, at the time of the sinking was seaworthy.
The trial court rules against the carrier on the ground that the loss did not occur as a
result of force majeure. This was affirmed by the CA and ordered the immediate
execution of the full judgment award.
However, other cases have resulted in the finding that vessel was seaworthy at the
time of the sinking, and that such sinking was due to force majeure.
Due to these different rulings, Aboitiz 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, as based on the real and hypothecary nature of maritime law.
Aboitiz argued that the Limited Liability Rule warrants immediate stay of execution of
judgment to prevent impairment of other creditors' shares.

Issues:
1. Whether the limited liability rule arising out of the real and hypothecary nature of
maritime law should apply in this and related cases.

2. Whether there is a finding of such negligence on the part of the owner in this case.

Ruling:

1. The SC ruled in the affirmative. 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.

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.
2. SC ruled in the negative. Decisions in other cases affirmed the factual findings of
the trial court, adding that the cause of the sinking of the vessel was because of its
unseaworthiness due to the failure of the crew and the master to exercise extra-
ordinary diligence. Indeed, there appears to have been no evidence presented
sufficient to form a conclusion that Aboitiz, the ship owner, itself was negligent, and no
tribunal, including this Court will add or subtract to such evidence to justify a conclusion
to the contrary.
The findings of the trial court and the CA, 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.
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.

8) ABOITIZ SHIPPING v. NEW INDIA ASSURANCE COMPANY

G.R. No. 156978 May 2, 2006

Facts:
Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals
from France on board a vessel owned by Francisco- Belgian Services, Inc. The cargo
was consigned to General Textile, Inc., in Manila and insured by respondent New India
Assurance Company. While in Honkong, the Cargo was transferred to M/V P. Aboitiz
for transhipment to Manila. Before departing, the vessel was advised that it was safe
to travel to its destination. But, while at the sea, the vessel received a report of a
typhoon moving within its general path. Thus to avoid the typhoon, the vessel changed
its course. However, the vessel was still encountered the typhoon causing the vessel
to sink, but the captain and his crew were saved.

Issue:

Whether or not, the limited liability rule can be invoked

Ruling:

It was held by the Supreme Court that the limited liability rule cannot be invoked
because the owner of the ship failed to overcome the presumption of negligence.

The 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.
To limit its liability, petitioner has the burden of proving that the unseaworthiness of its
vessel was not due to its negligence. Considering the evidence presented in this case,
the Court finds that petitioner failed to discharge this burden. In this case, both the
Lower court and CA 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.

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, petitioner
should be held liable for the total value of the lost cargo.

9) PHIL–NIPPON KYOEI, CORP. v. GUDELOSAO et. al.

G.R. No. 181375 July 13, 2016
Facts:

Nippon, a domestic shipping corporation, purchased a “RoRo” passengers/cargo

vessel “MV Mahlia in Japan. For the vessel’s one month conduction voyage from
Japan to the Philippines, the Petitioner through the local manning agency hired Edwin
Gudelosao and other crewmembers of the vessel. Petitioner secured a Marine
Insurance Policy over the vessel against loss, damage, and third party liability expense
arising from the occurrence of the perils of the sea for the voyage of the vessel from
Japan to Batangas, Philippines. This marine insurance policy included Personal
Accident Policies for the crewmembers in case of accidental death or injury.
While still within Japanese waters, the vessel sank due to extreme bad weather
condition. Only the Chief Engineer survived the incident while the rest of the
crewmembers, including Gudelosao perished.

Thus, actions were filed for death benefits and other damages against Nippon before
the Arbitration Branch of the National Labor Relations Commission (NLRC)

Issue:

Whether or not, the principle of Limited Liability applies in favor of Nippon.

Ruling:

The SC held that the provisions of the Code of Commerce invoked by the appellant
have no room in the application of the Workmen’s Compensation Act. Such
compensation has nothing to do with the provisions of the Code of Commerce
regarding maritime commerce. The liability of the ship-owner or agent under the
POEA-SEC has likewise nothing to do with the provisions of the Code of Commerce
regarding maritime commerce. The death benefits granted the POEA-SEC is not due
to the death of a passenger by or through the misconduct of the captain or master of
the ship; nor is it the liability for the loss of the ship as a result of collision; nor the
liability for wages of the crew.

9(i) DELA TORRE v. CA

G.R. No. 160088 July 13, 2011

Facts:
Respondent Crisostomo Concepcion owned LCT Josephine, a vessel registered with
the Philippine Coast Guard, entered into an Agreement with Roland de la Torre for the
dry-docking and repairs of the said vessel as well as for its charter afterwards, subject
to the terms and conditions stipulated in the Contract.

Subsequently, Mr. Roland de la Torre sub-chartered LCT Josephine to Trigon

Shipping Lines, owned by his father. His father, sub-chartered LCT Josephine to
Ramon Larrazabal for the transport of cargo consisting of sand and gravel to Leyte.

The sand and gravel was unloaded using a payloader owned by Larrazabal, while the
payloader was on the deck of the vessel scooping a load of the cargo, the vessel’s
ramp started to move downward, the vessel tilted and sea water rushed in. Thereafter,
the vessel sank.

Refloating of the vessel was conducted but the same was not materialized.

For this reason, Concepcion filed a complaint for Sum of Money and Damages against
PTSC and Roland before the RTC. The lower court rendered decision in favor of
Concepcion. Agustin, PTSC, and Roland went to CA. The CA, however, affirmed the
RTC’s decision. Hence, this petition in the SC.

Issue:

Whether or not limited liability rule can be invoked as a defense by petitioners?

Ruling:

The Supreme Court held that the petitioners cannot invoke limited liability Rule as their
defense against the shipowner because the said rule is designed to encourage people
and entities to venture into maritime commerce. In view thereof, Concepcion, as the
Real owner is the one who is supposed to be supported and encouraged to pursue
maritime commerce. Thus, it would be improper to apply LLR against the owner who,
in the first place, should be the one benefiting from the said rule. The petitioners
(charterers) cannot represent the ownership of the vessel, nor could they, in their own
name and in such capacity, take judicial or extrajudicial steps in all that relates to
commerce.

III. VESSELS

1(i) LOPEZ v. DURUELO

G.R. No. 29166 October 22, 1928 52 Phil 229
Facts:

On February 10, 1927, plaintiff Augusto Lopez was desirous of embarking upon the
interisland steamer San Jacinto in order to go to Cebu, the plaintiff embarked at the
landing in the motorboat Jison which was engaged in conveying passengers and
luggage back and forth from the landing to the boats at anchor.

As the motorboat approached San Jacinto in a perfectly quiet sea, it came too near to
the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the
blades of the propeller strucked the motorboat and sank it at once. As it sank, the
plaintiff was thrown into the water against the propeller, and the revolving blades
inflicted various injuries upon him. The plaintiff was hospitalized. He filed a complaint
seeking to recover damages from the defendant. The defendant however alleged that
the complaint does not have a right of action, a demurrer was submitted directed to
the fact that the complaint does not allege that the protest had been presented by the
plaintiff, within twenty-four hours after the occurrence to the competent authority at the
port where the accident occurred as provided for Article 835 of the Code of
Commerce.

Issue:

Whether the motorboat Jison is a vessel provided for by Article 835 of the Code of
Commerce?

Ruling:

The word vessel as used in the third section of tile IV, Book III of the Code of
Commerce, dealing with collisions, does not include all ships, craft or floating
structures of any kind without limitation. The said section does not apply to minor craft
engaged in a river and bay traffic. Therefore, a passenger on boat like the Jison, is not
required to make protest as a condition precedent to his right of action for the injury
suffered by him in the collision described in the complaint. Article 835 of the Code of
Commerce does not apply.

1(ii) RUBISO v. RIVERA

G.R. No. L-11407 October 30, 1917 37 PHIL 72
Facts:

The counsel of plaintiff brought a suit alleging that his clients were the owners of the
pilot boat named Valentine, which has been in bad condition and on the date of the
complaint, was stranded in the place called Tingly, of the municipality of Battings. The
defendant Rivera took charge or took possession of the said boat without the
knowledge or consent of the plaintiff and refused to deliver it to them, under the claim
that he was the owner thereof. The refusal on the part of the defendant has caused
the plaintiff damages because they were unable to derive profit from the voyages for
which the said pilot boat was customarily used. The defendant, on the other hand,
alleged that they purchased the subject pilot boat. The plaintiff alleged that the sale on
behalf of the defendant Rivera was prior to that made at public auction to Rubio, but
the registration of this latter sale was prior to the sale made to the defendant.

Issue:

Whether or not, the plaintiff still has the better right over the subject vessel?

Ruling:

The Code of Commerce, Art 573 provides:

“Merchant vessels constitute property that may be acquired and transferred by any of
the means recognized by law. The acquisition of a vessel must be included in a written
instrument, which shall not produce any effect with regard to third persons if not
recorded in the commercial registry.”

The requisite of registration in the registry of the purchase of a vessel is necessary

and indispensable in order that the purchaser’s rights may be maintained against a
claim filed by third person. It is undeniable that Rivera’s right cannot prevail over those
acquired by Rubiso in the ownership of the pilot boat, though the latter’s acquisition of
the vessel at public auction was subsequent to its purchase by the defendant, Rivera.

IV. SHIP MORTGAGE AND MARITIME LIENS

(i) PHILIPPINE NATIONAL BANK v. CA
G.R. No. 128661 August 8, 2000

Facts:

To finance the acquisition of 7 shipping vessels, the Philippine International Shipping

Corporation (PISC) applied for and was granted by National Investment Development
Corporation (NIDC) guaranty accommodations. As security for these guaranty
accommodations, PISC executed chattel mortgages on the vessels to be acquired by
it. Meanwhile, PISC entered into a contract with Hong Kong United Dockyards, Ltd.
for the repair and conversion of one of the vessels, M/V Asean Liberty. The Central
Bank of the Philippines authorized PISC to open with China Banking Corporation
(CBC) a standby letter of credit for US$545,000 in favor of Citibank, N.A. to cover the
repair and partial conversion of the vessel M/V Asean Liberty. PISC executed an
Application and Agreement for Commercial Letter of Credit for US$545,000 with CBC
in favor of Citibank. CBC then issued its Irrevocable Standby Letter of Credit for
US$545,000 in favor of Citibank for the account of PISC. PISC executed a promissory
note for US$545,000 in favor of Citibank pursuant to the Loan Agreement between
PISC and Citibank.

Upon failure of PISC to fulfill its obligations, Citibank sent CBC a letter drawing on the
Letter of Credit. CBC then instructed its correspondent Irving Trust Co. to pay to
Citibank the amount of US$242,225. Subsequently, for failure of PISC to settle its
obligations under the guaranty accommodations, the Philippine National Bank (PNB)
conducted an auction sale of the mortgaged vessels. NIDC emerged as the highest
bidder in these auctions. PISC, claiming that the foreclosure sale of its mortgaged
vessels was illegal and irregular, instituted a civil case for the annulment of the
foreclosure and auction sale. CBC filed a complaint in intervention for recovery upon
a maritime lien against the proceeds of the sale of the foreclosed vessels.

Issues:

1. Whether or not CBC’s claim as evidenced by its Irrevocable Letter of Credit is in the
nature of a maritime lien under the provisions of P.D. No. 1521; and

2. Whether or not said maritime lien is preferred over the mortgage lien of PNB/NIDC
on the foreclosed vessel M/V Asean Liberty.

Ruling:

1. Under the provisions of P.D. No. 1521, any person furnishing repairs, supplies, or
other necessities to a vessel on credit will have a maritime lien. Such maritime lien, if
it arose prior to the recording of a preferred mortgage lien, shall have priority over the
said mortgage lien. In this case, it was Hong Kong United Dockyards, Ltd. which
originally possessed a maritime lien over the vessel M/V Asean Liberty by virtue of its
repair of the said vessel on credit. CBC, however, stands as guarantor of the loan
extended by Citibank to PISC. It was Citibank which advanced the money to PISC. It
was only upon the failure of PISC to fulfill its obligations under its promissory note to
Citibank that CBC was called upon by Citibank to exercise its duties under the Standby
Letter of Credit.
2. The applicable law, which is the Shipping Mortgage Decree (1978), was patterned
closely after U.S. Ship Mortgage Act of 1920. Being of foreign origin, its provisions
may thus be construed with the aid of foreign jurisprudence. Under American juris-
prudence, “furnishing money to a master in good faith to obtain repairs or supplies or
to remove liens, in order to forward the voyage of the vessel, raises a lien just as
though the things for which money was obtained to pay for had been furnished by the
lender”.

This is in accord with Article1302 (NCC) which provides that there is legal
subrogation “when a third person, not interested in the fulfillment of the obligation,
pays with the express or tacit approval of the debtor”. In this case, the amount for the
repair of vessel M/V Asean Liberty was advanced by Citibank and was used for the
purpose of paying off the original maritime lienor, Hong Kong United Dockyards, Ltd.
As a person not interested in the fulfillment of the obligation between PISC and Hong
Kong United Dockyards, Ltd., Citibank was subrogated to the rights of Hong Kong
United Dockyards, Ltd. as maritime lienor over the vessel. CBC, as guarantor, was
itself subrogated to all the rights of Citibank as against PISC, the latter’s debtor.

Article 2067 of the Civil Code provides that “the guarantor who pays is subro-
gated by virtue thereof to all the rights which the creditor had against the debtor.” When
CBC honored its contract of guaranty with Citibank on March 30, 1983, it also acquired
by subrogation the maritime lien over the vessel which attached to it on March 12,
1979 in favor of Hong Kong United Drydocks, Ltd. The maritime lien of CBC thus arose
prior to the recording of PNB/NIDC’s mortgage on September 25, 1979. As such, the
said maritime lien has priority over the said mortgage lien.

(ii) CRESCENT PETROLEUM, LTD. v. M/V “LOK MAHESHWARI”

 G.R. No. 155014 November 11, 2005

Facts:

M/V Lok Maheshwari operated as an oceangoing vessel, owned by respondent

Shipping Corporation of India. The said vessel was sub-chartered to Porserv. To
continue its operation, Porserv requested Crescent for the supply and delivery of
marine fuels to the vessel which was granted by the latter. As security for payment of
the fuels and other related services, Crescent received two (2) checks from Porserv.
Crescent then contracted Marine Petrobulk Limited for the said purpose. The Ship
owner, charterer, and sub-charterers were foreign nationals.

Marine fuels were delivered to the vessel and the Chief Engineer Officer of the vessel
duly acknowledged and received the delivery receipt Marine Petrobulk issued invoice
to Crescent contained the worth of the fuels. Crescent issued a check for the same
amount in favor of Marine Petrobulk. Having paid Marine Petrobulk, Crescent issued
a revised invoice to Porserv with instruction to remit the amount on or before
December 1, 1995. However, the period lapsed and several demands were made but
no payment was received. Also, the checks received from Porserv as a security were
dishonored for insufficiency of funds.

As a result, Crescent instituted an action for a sum of money with prayer for temporary
restraining order and writ of preliminary attachment against respondents Vessel and
Shipping Corporation of India, Porserv and/or Transmar in the RTC of Cebu City.

Issue:

Is petitioner Crescent entitled to a maritime lien under Philippine laws?

Ruling:

Yes. Maritime lien shall apply to both domestic and foreign vessels, as well as
domestic and foreign suppliers of necessaries pursuance to Section 21 of PD No.
1521, also known as the Ship Mortgage Decree of 1978. The same section of the
same Decree contends that the use of the term any person implies that the law is not
restricted to domestic suppliers but also includes all persons who supply provisions
and necessaries to a vessel, whether foreign or domestic. It points out further that the
law does not indicate that the supplies or necessaries must be furnished in the
Philippines in order to give petitioner the right to seek enforcement of the lien with a
Philippine court.

(iii) POLIAND INDUSTRIAL LTD. v. NATIONAL DEVELOPMENT COMPANY

 G.R. No. 143866 August 22, 2005

Facts:

Poliand is an assignee of the of the rights of Asian Hardwood over the outstanding
obligation of National Development Corporation (NDC), the latter being the owner of
Galleon which previously secured credit accommodations from Asian Hardwood for
its expenses on provisions, oil, repair, among others.

Galleon also obtained loans from Japanese lenders to finance acquisition of vessels
which was guaranteed by DBP in consideration of a promise by Galleon to secure a
first mortgage on the vessels. DBP later transferred ownership of the vessel to NDC.

A collection suit was filed after repeated demands of Poliand for the satisfaction of the
obligation from Galleon, NDC and DBP went unheeded.

Issue:

Whether POLIAND has a maritime lien enforceable against NDC or DBP or both.

Ruling:

Yes, Poliand has a maritime lien which is more superior than DBP’s mortgage lien.

“Before POLIAND’s claim may be classified as superior to the mortgage constituted

on the vessel, it must be shown to be one of the enumerated claims which Section 17,
P.D. No. 1521 declares as having preferential status in the event of the sale of the
vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is
considered to be superior to the preferred mortgage lien is a maritime lien arising prior
in time to the recording of the preferred mortgage. Such maritime lien is described
under Section 21, P.D. No. 1521, which reads:

SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. — Any
person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other
necessaries to any vessel, whether foreign or domestic, upon the order of the owner
of such vessel, or of a person authorized by the owner, shall have a maritime lien on
the vessel, which may be enforced by suit in rem, and it shall be necessary to allege
or prove that credit was given to the vessel.

Under the aforequoted provision, the expense must be incurred upon the order of the
owner of the vessel or its authorized person and prior to the recording of the ship
mortgage. Under the law, it must be established that the credit was extended to the
vessel itself.

The trial court found that GALLEON’s advances obtained from Asian Hardwood were
used to cover for the payment of bunker oil/fuel, unused stores and oil, bonded stores,
provisions, and repair and docking of the GALLEON vessels. These expenses clearly
fall under Section 21, P.D. No. 1521.

The trial court also found that the advances from Asian Hardwood were spent for ship
modification cost and the crew’s salary and wages. DBP contends that a ship
modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have
a status superior to DBP’s preferred mortgage lien.

As stated in Section 21, P.D. No. 1521, a maritime lien may consist in “other
necessaries spent for the vessel.” The ship modification cost may properly be
classified under this broad category because it was a necessary expenses for the
vessel’s navigation. As long as an expense on the vessel is indispensable to the
maintenance and navigation of the vessel, it may properly be treated as a maritime
lien for necessaries under Section 21, P.D. No. 1521."

However, Only NDC is liable on the maritime lien stated as follows:

x x x [O]nly NDC is liable for the payment of the maritime lien. A maritime lien is akin
to a mortgage lien in that in spite of the transfer of ownership, the lien is not
extinguished. The maritime lien is inseparable from the vessel and until discharged, it
follows the vessel. Hence, the enforcement of a maritime lien is in the nature and
character of a proceeding quasi in rem. The expression “action in rem” is, in its narrow
application, used only with reference to certain proceedings in courts of admiralty
wherein the property alone is treated as responsible for the claim or obligation upon
which the proceedings are based. Considering that DBP subsequently transferred
ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien.
Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien
subsists.

(iv) NEGROS NAVIGATION v. CA

G.R. No. 163156 December 10, 2008
Facts:

NNC is a shipping company that is primarily engaged in the business of transporting

through shipping vessels, passengers and cargoes at various ports of call in the
country. Tsuneishi Heavy Industries (Cebu), Inc (THI), on the other hand, is engaged
in the business of shipbuilding and repair. NNC engaged the services of THI for the
repair of its vessels.

On February 9, 2004, THI filed a case for sum of money and damages with prayer for
issuance of writ of attachment against NNC before the Regional Trial Court of Cebu
(Cebu RTC). The action is based on the unpaid services for the repair of NNC's
vessels, otherwise known as repairman's lien.

On March 5, 2004, the Cebu RTC issued an Order granting the issuance of a writ of
preliminary attachment against the properties of NNC. It reasoned that based on the
affidavit in support of the application for the writ, NNC committed fraud in contracting
the debt or in incurring the obligation upon which the action was brought, justifying the
issuance of the writ as mandated by Section 1(d) of Rule 57. It added that the
repairman's lien of THI constituted a superior maritime lien that is enforceable by suit
in rem, as decreed by Presidential Decree No. 1521 (PD 1521).

On March 12, 2004, by virtue of the writ of preliminary attachment, Sheriff Rogelio T.
Pinar levied on one of the vessels of NNC, the M/V St. Peter the Apostle. On March
29, 2004, NNC filed a Petition for Corporate Rehabilitation with Prayer for Suspension
of Payments with the RTC of Manila (Manila RTC). The latter granted the NNC's
petition and issued a Stay Order on April 1, 2004.

Issue:

Whether or not the maritime liens of THI against the vessels of NNC were impaired by
the issuance of the stay order.

Ruling:

No. It is undisputed that THI holds a preferred maritime lien over NNC's assets by
virtue of THI's unpaid services. The issuance of the stay order by the rehabilitation
court does not impair or in any way diminish THI's preferred status as a creditor of
NNC. The enforcement of its claim through court action was merely suspended to give
way to the speedy and effective rehabilitation of the distressed shipping company.
Upon termination of the rehabilitation proceedings or in the event of the bankruptcy
and consequent dissolution of the company, THI can still enforce its preferred claim
upon NNC.

V. PERSONS WHO TAKE PART IN MARITIME COMMERCE

(i) INTER ORIENT MARITIME ENTERPRISES v. NLRC
G.R. No. 115947 September 16, 1996 235 SCRA 268

Facts:

Captain Tayong was hired by Trenda World Shipping and Sea Horse Ship Manage-
ment (Sea Horse). through Inter-Orient Maritime Enterprises for a period of 1 year. He
took command of Inter-Orients vessel in Hong Kong. He was instructed to replenish
bunker and diesel fuel, to sail forthwith to Richard Bay, South Africa, and there to load
120, 000 metric tons of coal. Since a storm would hit Hong Kong, precautionary
measures were taken to secure the vessel’s safety considering that the turbocharger
was leaking and the vessel was 14 years old. Captain Tayong followed-up the
requisition by the former Captain for supplies of oxygen and acetylene, necessary for
the welding-repair of the turbocharger and economizer.

The vessel sailed to Singapore. On its way, the vessel stopped in the middle of the
ocean for 6 hours and 45 minutes due to a leaking economizer. He was instructed to
shut down the economizer and use the auxiliary boiler instead. When the vessel
arrived in Singapore, the Chief Engineer reminded Captain Tayong that the oxygen
and acetylene supplies had not been delivered. Upon inquiry, the Captain was
informed that the supplies could only be delivered on Aug. 1 as the stores had closed.
Captain Tayong called Sea Horse and informed them that the departure of the vessel
for South Africa may be affected because of the delay in the delivery of the supplies.
He was advised to contact Mr. Clark, the Technical Director. According to Mr. Clark,
after being informed that the ship cannot travel without the supplies, Captain Tayong
agreed with him when he said by shutting off the water to the turbochargers and using
the auxiliary boilers, there should be no further problem. According to Captain Tayong,
he was informed by Sea Horse to wait for the supplies. Captain Tayong immediately
sailed for South Africa upon the delivery of the supplies.

Upon reaching South Africa, Captain Tayong was instructed to turn-over his post to
the new captain. He was thereafter repatriated to the Philippines. He was not informed
of the charges against him. He then instated a complaint for illegal dismissal.

Issue:

1. Whether or not Captain Tayong was a confidential and managerial employee.

2. Whether or not Captain Tayong was illegally dismissed?

Ruling:

1. Yes. The captain of a vessel is a confidential and managerial employee. A captain

commonly performs three distinct roles: (1) he is a general agent of the ship owner;
(2) he is also commander and technical director of the vessel; and (3) he is a
representative of the country under whose flag he navigates. The most important is
the role performed by the captain as the commander of the vessel. Such a role
analogous to that of “Chief Executive Officer” of a present-day corporate enterprise.
The captain has control of all departments of service in the vessel, and reasonable
discretion as to its navigation.

2. Yes. Confidential and managerial employees cannot be arbitrarily dismissed at any

time, and without cause as reasonably established in an appropriate investigation.
They are also entitled to security of tenure, fair standards of employment and the
protection of labor laws.

A ship’s captain must be accorded a reasonable measure of discretionary authority to

decide what the safety of the ship and of its crew and cargo specifically requires on a
stipulated ocean voyage. The captain is held responsible for such safety. It is the right
and duty of the captain, in the exercise of sound discretion and in good faith, to do all
things with respect to the vessel and its equipment and conduct of the voyage which
are reasonably necessary for the protection and preservation of the interests under
his charge. It is a basic principle of admiralty law that in navigating a merchantman,
the master must be left free to exercise his own best judgment. The requirements of
safe navigation compel us to reject any suggestion that the judgment and discretion
of the captain of a vessel may be confined within a straight jacket. The master is
entitled to delay for such a period as may be reasonable under the circumstances.

Captain Tayong had reasonable grounds to believe that the safety of the vessel and
crew required him to wait for the delivery of the supplies needed. The vessel had
stopped mid-ocean for 6 hours and 45 minutes on its way to Singapore because of its
leaking economizer. Captain Tayong did not maliciously and arbitrarily delay the
voyage to South Africa. The decision of Captain Tayong did not constitute a legal basis
for his summary dismissal.
(ii) MACONDRAY & CO. v. PROVIDENT INSURANCE CORP.
G.R. No. 154305 December 9, 2004

Facts:

Canpotex Shipping Services Limited Inc (Shipper) at Vancouver Canada, shipped and
loaded aboard M.V Trade Carrier cargoes to be delivered at Toledo Cebu City in favour
of Atlas Fertilizers Corporation (Consignee). Shipment was insured with respondent
against all risks by virtue of an Open Marine Policy issued with a Certificate of
Insurance. When the shipment arrived, Consignee discovered that shipment had
sustained losses/shortage. A formal claim was then filed against Trade and Transport
and Macondray but the same refused and failed to settle the same. Summons was
unserved to Trade and Transport on the grounds that the same is no longer connected
with Macondray & Co. Inc. Macondray on the other hand, denied liability over the
losses having no absolute relation with defendant Trade and Transport, the alleged
operator of the vessel. They alleged that Macondray is the local representative of
Trade and Transport, the charterer of M/V Trade Carrier, and cannot be held
responsible for any losses for they don’t have any control over the crew and captain
thereof and that upon arrival to Toledo Cebu, the latter discharged the full amount of
the shipment as shown in the draft survey.

Issue:
Whether or not Macondray and Co., as an agent, is responsible for any loss
sustained by any party from the vessel owned by defendant Trade and Transport.

Ruling:
Yes. Article 586 of the Code of Commerce states that ship agent is the person
entrusted with provisioning or representing the vessel in the port in which it may be
found. Evidences show that Macondray was the entity that represented the vessel
and was the ship agent within th purview of Article 586. As ship agent, it may be held
liable: Article 586: The ship owner and ship agent shall be civilly liable for the acts of
the captain and for the obligations contracted by the latter to repair, equip, and
provision the vessel, provided that the creditor proves that the amount claimed was
invested for the benefit of the same. Therefore, the decision of the CA is affirmed and
petition is denied. Petitioner Macondray, as agent of Trade and Transport, is jointly
liable for the losses.
(iii) ACE NAVIGATION v. FGU INSURANCE CORP., PIONEER INSURANCE,
CORP., & SURETY CORP.
G.R. No. 171591 June 25, 2012

Facts:

A vessel M/V Pakarti Tiga was owned by PT Pakarti was chartered to Shinwa. Shinwa
then entered into a Charter party contract with SKY International, Inc., an agent of Kee
Yeh Maritime Co., the vessel then was further chartered to Regency Express Lines,
Inc, and Regency directly transacted with Consignee Heindrich for the delivery of 165,
200 bags of Portland cement from the port of Shanghai China to the port of Manila.
The said Cargo was insured with respondents FGU Insurance Corporation, Pioneer
Insurance Corporation and Surety Corporation.

When the vessel arrived at the Port of Manila, the shipment was discharged. However,
Upon inspection of Heindrich and Ace Nagivation –agent of Cardia. It was found out
that the 43,905 bags of cement were in bad order and condition. The Consignee
Heindrich claimed for the reimbursement of the damaged incurred from the Insurance
Company, the insurance company paid for the damaged and became subrogated with
all the rights and causes of actions accruing to Heindrich.

The FGU Insurance Corporation, Pioneer Insurance and Surety Corporation filed a
case against ACE NAVIGATION.

Issue:

Whether or not ACE NAVIGATION is liable to the respondents.

Ruling:
No. The SC ruled that Ace Navigation cannot be made responsible or held
accountable for the damage supposedly caused by its principal because Article 1897
of the Code of Commerce provides that an agent is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
VII. ACCIDENTS: Averages

(i) PHILIPPINE HOME ASSURANCE CORPORATION v. CA

G.R. No. 106999 June 20, 1996

Facts:

Eastern Shipping Lines (ESLI) loaded on board SS Eastern Explorer in Kobe Japan,
shipments for carriage to Manila and Cebu. The cargoes are insured by Philippine
Home Assurance Corporation (PHAC). While the ship was off Okinawa Japan, a small
flame was detected on the acetylene cylinder located in the accommodation area near
the engine room. The crew tried to extinguish the fire but it exploded, causing several
deaths and injuries among the passengers. The captain and crew had to abandon the
ship. It was later towed by a tugboat to the port of Naha, Japan. The cargoes that
were saved were sent to their original port of destination and ESLI charged the
consignees several amounts corresponding to additional freight and salvage charges.
PHAC paid ESLI under protest. Subrogated to the rights of the consignees, PHAC
filed a complaint before the RTC of Manila against ESLI, on the grounds that the
damages resulted from the fault, negligence, illegal and/or breach of contract of ESLI.
ESLI contended that the fire is an unforeseen event and pursuant to the bill of lading,
charges are proper and demandable under Act No. 2616 (Salvage Law). The trial court
decided the case in favor of ESLI, stating that, based on evidence, ESLI complied with
the required safety measures and standards and that the ship has been shown to be
seaworthy. Further, the crew did what was necessary to prevent the explosion.
Applying Section 1 of Act No. 2616, salvage charges may be assessed on the cargoes
saved from the vessel. The court also agreed that the loss thereof is subject to general
average loss, therefore, a charge may be assessed against the consignees based on
the value of the vessel and of the cargoes (in proportion to their respective values).
The Court of Appeals affirmed the decision of the Regional Trial Court.

Issue:

1. Whether or not the fire is a result of, or is equivalent to a natural calamity; and
2. Whether or not the defendant exercised extraordinary diligence.

Ruling:
1 & 2. While it is a well settled rule that only questions of law may be admitted in a
petition for review, an exception may apply as necessary when certain conditions are
present. If there is a showing that the findings complained of are totally devoid of
support in the records, or that they are glaringly erroneous as to constitute grave abuse
of discretion, the same may be properly reviewed and evaluated.

Jurisprudence show that fire may not be considered a natural calamity since it almost
always arises from some acts of man or by human means. It cannot be an act of God
unless caused by lightning or a natural disaster or casualty not attributable to human
agency. It is evident that the fire was caused by the acetylene cylinder and it was
placed in an area which increases the risk of danger towards other passengers.
Further, it was in store in close proximity with the engine room. In contrary to the
findings of the lower court, negligence is present in this case.
(ii) NATIONAL DEVELOPMENT v. CA
G.R. No. L-49407 August 19, 1988

Facts:

In accordance with a memorandum agreement entered into between National

Development Corporation (NDC) and Maritime Corporation of the Philippines Inc.
(MCP) on 13 September 1962, NDC as the first preferred mortgagee of three ocean
going vessels including one with the name ‘Doña Nati’ appointed MCP as its agent to
manage and operate said vessel for and in its behalf and account. Thus, on 28
February 1964 the E. Philipp Corporation of New York loaded on board the vessel
‘Doña Nati’ at San Francisco, California, a total of 1,200 bales of American raw cotton
consigned to the order of Manila Banking Corporation and the People’s Bank and Trust
Company acting for and in behalf of the Pan Asiatic Commercial Co., Inc., who
represents Riverside Mills Corporation. 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.

En route to Manila the vessel Doña Nati figured in a collision at 6:04 a.m. on 15 April
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 or destroyed, of
which 535 bales as damaged were landed and sold on the authority of the General
Average Surveyor for Y 6,045,500 and 15 bales were not landed and deemed lost.
The damaged and lost cargoes was worth P 344,977.86 which amount, the
Development Insurance and Surety Corporation (DISC) as insurer, paid to the
Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed.
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 P 19,938.00 which DISC as insurer paid to Guilcon as
holder of the duly endorsed bill of lading. Thus, DISC had paid as insurer the total
amount of P 364,915.86 to the consignees or their successors-in-interest, for the said
lost or damaged cargoes.

On 22 April 1965, DISC 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. On 12 November 1969, after DISC and MCP presented their
respective evidence, the trial court rendered a decision ordering MCP and NDC to pay
jointly and solidarily to DISC the sum of P 364,915.86 plus the legal rate of interest to
be computed from the filing of the complaint on 22 April 1965, until fully paid and
attorney’s fees of P 10,000.00. Likewise, in said decision, the trial court granted MCP’s
cross-claim against NDC. MCP interposed its appeal on December 20, 1969, while
NDC filed its appeal on 17 February 1970 after its motion to set aside the decision was
denied by the trial court in its order dated 13 February 1970.

On 17 November 1978, the Court of Appeals promulgated its decision affirming in

toto the decision of the trial court. Hence, the appeals by certiorari. On 25 July 1979,
the Supreme Court ordered the consolidation of the above cases.
Issue:

Whether or not the law on averages (Articles 806-818 Code of Commerce) will apply.

Ruling:

No. 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. Barretto et al., (51 Phil. 90)
“cannot limit its liability for injury to a less 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.

VII. ACCIDENTS: Collision

(vi) NATIONAL DEVELOPMENT v. CA

G.R. No. L-49407 August 19, 1988

Facts: (See above)

Issue:

Which laws govern the loss and destruction of goods due to collision of vessels outside
Philippine waters?

Ruling:

In Eastern Shipping Lines Inc. v. IAC where it was held under similar circumstances
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 special laws (Article 1766). Hence, the Carriage of Goods by Sea Act, a special
law, is merely suppletory to the provisions of the Civil Code.

Herein, 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
damaged 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. It is immaterial that the collision actually
occurred in foreign waters, such as Ise Bay, Japan.

The collision, however, falls among matters not specifically regulated by the Civil
Code, so that no reversible error can be found in the lower court’s application to the
present case of Articles 826 to 839, Code of Commerce, which deal exclusively with
collision of vessels.
(vii) MECENAS v. CA
G.R. No. 88052 December 14, 1989

Facts:

On April 22, 1980, two vessels, “Tacloban City” and “Don Juan” collided at the Talbas
Strait within the vicinity of Mindoro. M/V Don Juan sank and hundreds of passengers
died. Among them were petitioners’ parents, whose bodies were never recovered.
Petitioners filed a complaint seeking damages against Negros Navigation. The trial
court awarded P 400,000, but the Court of Appeals reduced the award to P 100,000.

Issue:

Whether the reduction of the award was properly ruled upon by the Court of Appeals

Ruling:

In an action based upon a breach of the contract of carriage, the carrier under our civil
law is liable for the death of passengers arising from the negligence or wilful act of the
carrier's employees although such employees may have acted beyond the scope of
their authority or even in violation of the instructions of the carrier, which liability may
include liability for moral damages. It follows that petitioners would be entitled to moral
damages so long as the collision with the "Tacloban City" and the sinking of the "Don
Juan" were caused or attended by negligence on the part of private respondents.
Whether petitioners are entitled to exemplary damages as claimed must depend upon
whether or not private respondents acted recklessly, that is, with gross negligence.
We believe that the behaviour of the captain of the "Don Juan" in this instance —
playing mahjong "before and up to the time of collision" — constitutes behaviour that
is simply unacceptable on the part of the master of a vessel to whose hands the lives
and welfare of at least seven hundred fifty (750) passengers had been entrusted.
There is also evidence that the "Don Juan" was carrying more passengers than she
had been certified as allowed to carry. We conclude that Capt. Santisteban and
Negros Navigation are properly held liable for gross negligence. We find no necessity
for passing upon the degree of negligence or culpability properly attributable to PNOC
and PNOC Shipping or the master of the "Tacloban City," since they were never
impleaded here. Exemplary damages are designed by our civil law to permit the courts
to reshape behaviour that is socially deleterious in its consequence by creating
negative incentives or deterrents against such behaviour. In requiring compliance with
the standard of extraordinary diligence, a standard which is in fact that of the highest
possible degree of diligence, from common carriers and in creating a presumption of
negligence against them, the law seeks to compel them to control their employees, to
tame their reckless instincts and to force them to take adequate care of human beings
and their property. Both the demands of substantial justice and the imperious
requirements of public policy compel us to the conclusion that the trial court's implicit
award of moral and exemplary damages was erroneously deleted and must be
restored and augmented and brought more nearly to the level required by public policy
and substantial justice.
VIII. SALVAGE LAW (Act No. 2616)

(i) PHILIPPINE HOME ASSURANCE CORPORATION v. CA

G.R. No. 106999 June 20, 1996

Facts:

Eastern Shipping Lines (ESLI) loaded on board SS Eastern Explorer in Kobe Japan,
shipments for carriage to Manila and Cebu. The cargoes are insured by Philippine
Home Assurance Corporation (PHAC). While the ship was off Okinawa Japan, a small
flame was detected on the acetylene cylinder located in the accommodation area near
the engine room. The crew tried to extinguish the fire but it exploded, causing several
deaths and injuries among the passengers. The captain and crew had to abandon the
ship. It was later towed by a tugboat to the port of Naha, Japan. The cargoes that
were saved were sent to their original port of destination and ESLI charged the
consignees several amounts corresponding to additional freight and salvage charges.
PHAC paid ESLI under protest. Subrogated to the rights of the consignees, PHAC
filed a complaint before the RTC of Manila against ESLI, on the grounds that the
damages resulted from the fault, negligence, illegal and/or breach of contract of ESLI.
ESLI contended that the fire is an unforeseen event and pursuant to the bill of lading,
charges are proper and demandable under Act No. 2616 (Salvage Law). The trial court
decided the case in favor of ESLI, stating that, based on evidence, ESLI complied with
the required safety measures and standards and that the ship has been shown to be
seaworthy. Further, the crew did what was necessary to prevent the explosion.
Applying Section 1 of Act No. 2616, salvage charges may be assessed on the cargoes
saved from the vessel. The court also agreed that the loss thereof is subject to general
average loss, therefore, a charge may be assessed against the consignees based on
the value of the vessel and of the cargoes (in proportion to their respective values).
The Court of Appeals affirmed the decision of the Regional Trial Court.

Issue:

Whether or not petitioner is liable for additional freight and salvage charges.

Ruling:
Yes. The expenses involved in saving the cargo are considered general average s
correct. As a rule, general or gross average include all damages and expenses which
are deliberately caused in order to save the vessel, its cargo, or both at the same time,
from real and known risk. However, the formalities prescribed in Articles 813 and 814
of the Code of Commerce were not complied with. Respondent ESL’s claim for
contribution from the consignees turns to naught.
(ii) BARRIOS v. GO THONG
G.R. No. L-17192 March 30, 1963

Facts:

Honorio Barrios was the captain and master of the MV Henry I operated by William
Lines, Inc. which plied the route from Cebu to Davao City. On its voyage on May 1,
1958 the MV Henry I intercepted an SOS signal from the MV Don Alfredo owned and
operated by Go Thong & Co. Responding to the SOS, Henry I approached the Don
Alfredo and found out that the Don Alfredo was suffering from engine failure. After
agreeing to assist the disabled ship, the crew of Henry I attached tow lines and
proceeded to tow the Don Alfredo heading towards the port of Dumaguete City. The
following morning, they encountered a sister ship of Don Alfredo, the MV Lux. Upon
the request of the captain of the Don Alfredo, the crew of the Henry I released the
towlines and continued on their voyage. After the incident, Barrios as captain of MV
Henry I claimed entitlement to compensation under the salvage law which was
opposed by Go Thong and Co. who claimed that what occurred was only mere
towage. The trial court dismissed the claim.

Issue:

Whether the rescue of the MV Don Alfredo should be classified as a salvage, thus
entitling Barrios et al. to reward?

Ruling:
No. Not all the requisites were present for the rescue to be considered as salvage
under the law. The claim of Barrios is anchored on the provisions of the Salvage Law
that stipulates that a ship that is lost or abandoned at sea is considered as a derelict
and the proper subject of salvage. A ship in a desperate condition with passengers
and persons on board but who are unable to do anything for their own safety may be
considered a quasi-derelict.

Further, the Salvage Law provides that those assisting in saving a vessel in its cargo
from shipwreck shall be entitled to a reward. There are three elements that are
necessary for a salvage claim: (1) the existence of a marine peril; (2) service is
voluntarily rendered when not required as an existing duty or special contract; and (3)
success in whole or in part, or that the service rendered contributed to such success.

It is therefore imperative to establish whether the MV Don Alfredo was exposed to any
form of marine peril when it was assisted by the MV Henry I. The Supreme Court
however noted that the nature of its disability and the circumstances surrounding it
could be construed as a marine peril as contemplated in the Salvage Law. When the
engine failure occurred the seas were calm and the weather was clear. In fact the ship
did not drift too far from the location where its engines failed. Further, the captain and
crew of the MV Don Alfredo did not find it necessary to jettison the vessel’s cargo as
a safety measure. Therefore the MV Don Alfredo cannot even be considered as a
quasi derelict.