G.R. No.

L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the
M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern
Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila,
5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co.,
Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and
accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments
consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by
respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine
Insurance Co., Ltd., for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The
respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were
thus subrogated unto the rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having
been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the
amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it
is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00
and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an
appeal to the then Court of Appeals which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery
of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151),
imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting
circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is
established, the burden of proving negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US
$46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal
by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by
decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under
the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R.
No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however,
G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their respective
Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition for
Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was then pending
resolution with the First Division. The same was granted; the Resolution of the Second Division of September 25, 1985
was set aside and the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer
thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are
represented by various counsel representing various consignees or insurance companies. The common
defendant in these cases is petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are
deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received
in evidence against the pleader or his successor-in-interest on the trial of another action to which he is a party, in favor of
a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on Common carriers or
the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their
loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the liability
of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the
rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 8Common
carriers are responsible for the loss, destruction, or deterioration of the goods unless the same is due to any of the
following causes only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or
calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so
as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of an act of
God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or
privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands
where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event,
considering that the law adopts a protection policy towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code
provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or
to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have
been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier
to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by
the Appellate Court, made the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the
vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No.
3; that where the smoke was noticed, the fire was already big; that the fire must have started twenty-four
24) our the same was noticed; that carbon dioxide was ordered released and the crew was ordered to
open the hatch covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort
were not enough to control the fire.
 Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the
goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the
vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not
likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage. Consequently, the crew could not have even explain what could have
caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of
the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law,
Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of
the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the
carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have
started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage." The foregoing suffices to show that the
circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were
negligent in connection therewith. Consequently, the complete defense afforded by the COGSA when loss results from
fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the
COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money of
the United States, or in case of goods 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 bill of lading. This declaration if embodied in the bill of
lading shall be prima facie evidence, but all be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be
less than the figure above named. In no event shall the carrier be Liable for more than the amount of
damage actually sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package
although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the
provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the carrier's
liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of
the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as
much a part thereof as though placed therein by agreement of the parties. 16

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

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is
likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however,
multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44)
would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts, and not
P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA
which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate
Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it
multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained that
"since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding
said amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of
floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering, which
had been shipped in vessel — supplied containers. The U.S. District Court for the Southern District of New York rendered
judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division, modified
and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container supplied by the carrier
and the number of such units is disclosed in the shipping documents, each of those units and not the
container constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea
Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished
containers whose contents are disclosed should be treated as packages, the interest in securing
international uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act,
4(5), 46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a
package is inconsistent with the congressional purpose of establishing a reasonable minimum level of
liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there is, nonetheless, much
to commend it. It gives needed recognition to the responsibility of the courts to construe
and apply the statute as enacted, however great might be the temptation to "modernize"
or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers
from internal illness, Congress alone must undertake the surgery. There is, in this regard,
obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological
advancements, whether or not forseeable by the COGSA promulgators, do not warrant a
distortion or artificial construction of the statutory term "package." A ruling that these
large reusable metal pieces of transport equipment qualify as COGSA packages — at
least where, as here, they were carrier owned and supplied — would amount to just such
a distortion.

Certainly, if the individual crates or cartons prepared by the shipper and containing his
goods can rightly be considered "packages" standing by themselves, they do not
suddenly lose that character upon being stowed in a carrier's container. I would liken
these containers to detachable stowage compartments of the ship. They simply serve to
divide the ship's overall cargo stowage space into smaller, more serviceable loci.
Shippers' packages are quite literally "stowed" in the containers utilizing stevedoring
practices and materials analogous to those employed in traditional on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd
943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in
Matsushita and similarly rejected the functional economics test. Judge Kellam held that when rolls of
polyester goods are packed into cardboard cartons which are then placed in containers, the cartons and
not the containers are the packages.
 xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were
then placed by the shipper into a carrier- furnished container. The number of cartons was disclosed to the
carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container,
as the COGSA packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per
container if the bill of lading failed to disclose the number of cartons or units within the container, or if the
parties indicated, in clear and unambiguous language, an agreement to treat the container as the
package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and

Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in
Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or
units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128
cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually,
however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for Petitioner
Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of the
Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of
Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to
pack and carry them in any type of container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the
goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the containers for if so,
"Two (2) Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it
is a cardinal principle in the construction of contracts that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of adhesion where
a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw.
up by the carrier. 21

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

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

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this point,
the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978,
when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference
was conducted for the last time, the defendant had more than nine months to prepare its evidence. Its
belated notice to take deposition on written interrogatories of its witnesses in Japan, served upon the
plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was
its undertaking on July 11 the that the deposition of the witnesses would be dispensed with if by next time
it had not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for
which reason it deserves no sympathy from the Court in that regard. The defendant has told the Court
since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take
until August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant
itself is to blame for its failure to adduce evidence in support of its defenses.
 xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was denied due
process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due process abhors is
absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the Trial
Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of
NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00
would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the
Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of calorized
lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of
the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

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

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the two (2)
containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation under the
Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the Second
Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807 (1981) and
the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers
whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the following
reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2) the rule laid down
in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court held:
"Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I
would liken these containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as individual units simply by
being placed inside container provided by the carrier, which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This fact cannot
be presumed. The facts of the case in fact show that this was the only shipment placed in containers. The other shipment
involved in the case, consisting of surveying instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of lading.
Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that the shipment
could fit in two containers, thereby showing that when the goods were delivered by the shipper, they were not yet placed
inside the containers and that it was the petitioner carrier which packed the goods into its own containers, as authorized
under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in view of the
following words clearly stamped in red ink on the face of the bill of lading: "Shipper's Load, Count and Seal Said to
Contain." This clearly indicates that it was the shipper which loaded and counted the goods placed inside the container
and sealed the latter.
The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of cartons
said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The freight paid to
the carrier on the shipment was based on the measurement (by volume) of the two containers at $34.50 per cubic meter.
The shipper must have saved on the freight charges by using containers for the shipment. Under the circumstances, it
would be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of cartons inside the
containers, rather than on the containers themselves, since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA package
limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of applying the statutory
limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by
the container revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while
mindful of American jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent
with what is equitable to the parties concerned. There is need to balance the interests of the shipper and those of the
carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the freight unit,
i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed higher freight
charges; instead of paying higher freight charges, the shipper protected itself by insuring the shipment. As subrogee, the
insurance company can recover from the carrier only what the shipper itself is entitled to recover, not the amount it
actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within the
purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If the container
is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation should be based on "the
customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the
carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for the shipment in
question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the two (2)
containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation under the
Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the Second
Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807 (1981) and
the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers
whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the following
reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2) the rule laid down
in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court held:
"Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I
would liken these containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as individual units simply by
being placed inside container provided by the carrier, which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This fact cannot
be presumed. The facts of the case in fact show that this was the only shipment placed in containers. The other shipment
involved in the case, consisting of surveying instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of lading.
Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that the shipment
could fit in two containers, thereby showing that when the goods were delivered by the shipper, they were not yet placed
inside the containers and that it was the petitioner carrier which packed the goods into its own containers, as authorized
under paragraph 11 on the dorsal side of the bill of lading, Exhibit A.
 Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of the bill of lading:
"Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded and counted
the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of cartons
said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The freight paid to
the carrier on the shipment was based on the measurement (by volume) of the two containers at $34.50 per cubic meter.
The shipper must have saved on the freight charges by using containers for the shipment. Under the circumstances, it
would be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of cartons inside the
containers, rather than on the containers themselves, since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA package
limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of applying the statutory
limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by
the container revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while
mindful of American jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent
with what is equitable to the parties concerned. There is need to balance the interests of the shipper and those of the
carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the freight unit,
i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed higher freight
charges; instead of paying higher freight charges, the shipper protected itself by insuring the shipment. As subrogee, the
insurance company can recover from the carrier only what the shipper itself is entitled to recover, not the amount it
actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within the
purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If the container
is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation should be based on "the
customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the
carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for the shipment in
question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,

vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo 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 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 . . .
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
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 . . . .

We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was her
condition of unseaworthiness arising from her having been top-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 (emphasis supplied).6

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking
of "MV Asilda" was its 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 . . ." 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.
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 . . . ." 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. 162467 May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.

DECISION

TINGA, J.:

Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure of the 29 October
20032 Decision of the Court of Appeals and the 26 February 2004 Resolution3 of the same court denying petitioner’s
motion for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc. (Mindanao
Terminal), a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas and
15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce) into the
cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and the goods were to be
transported by it to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured the
shipment under an "open cargo policy" with private respondent Phoenix Assurance Company of New York (Phoenix), a
non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of
Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the port of Davao
City and arrived at the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo was in bad
condition. The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey report, it was stated that
16,069 cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they no
longer had commercial value.5

Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s Marine Claims
Insurance Adjuster evaluated the claim and recommended that payment in the amount of $210,266.43 be made. A check
for the recommended amount was sent to Del Monte Produce; the latter then issued a subrogation receipt6 to Phoenix
and McGee.

Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the Regional Trial Court (RTC) of
Davao City, Branch 12. After trial, the RTC,8 in a decision dated 20 October 1999, held that the only participation of
Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the direction and supervision of the ship’s
officers, who would not have accepted the cargoes on board the vessel and signed the foreman’s report unless they were
properly arranged and tightly secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal cannot
be held liable for whatever happened to the cargoes after it had loaded and stowed them. Moreover, citing the survey
report, it was found by the RTC that the cargoes were damaged on account of a typhoon which M/V Mistrau had
encountered during the voyage. It was further held that Phoenix and McGee had no cause of action against Mindanao
Terminal because the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte Produce,
had no contract with the assured Del Monte Produce. The RTC dismissed the complaint and awarded the counterclaim of
Mindanao Terminal in the amount of ₱83,945.80 as actual damages and ₱100,000.00 as attorney’s fees.9 The actual
damages were awarded as reimbursement for the expenses incurred by Mindanao Terminal’s lawyer in attending the
hearings in the case wherein he had to travel all the way from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside10 the decision of the
RTC in its 29 October 2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and McGee "the total
amount of $210,265.45 plus legal interest from the filing of the complaint until fully paid and attorney’s fees of 20% of the
claim."11 It sustained Phoenix’s and McGee’s argument that the damage in the cargoes was the result of improper
stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to exercise
extraordinary diligence in loading and stowing the cargoes. It further held that even with the absence of a contractual
relationship between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and McGee could be
based on quasi-delict under Article 2176 of the Civil Code.12

Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its 26 February
200414 resolution. Hence, the present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and negligent in the loading and
stowage of the cargoes onboard M/V Mistrau making it liable for damages; and, whether Phoenix and McGee has a cause
of action against Mindanao Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three
questions have to be answered: first, whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the same extraordinary
degree of diligence in the conduct of its business as required by law for common carriers15 and warehousemen;16 and
third, whether Mindanao Terminal observed the degree of diligence required by law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal, from
which the present case has arisen, states a cause of action. The present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both
Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party to the contract of
service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of the
Court’s consistent ruling that the act that breaks the contract may be also a tort.17 In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract18 .

In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte
Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to establish a cause of action arising from quasi-
delict.19

The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to be
observed in the performance of an obligation then that which is expected of a good father of a family or ordinary diligence
shall be required. Mindanao Terminal, a stevedoring company which was charged with the loading and stowing the
cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no
specific provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring company or
one who is charged only with the loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and
McGee that Mindanao Terminal was bound by contractual stipulation to observe a higher degree of diligence than that
required of a good father of a family. We therefore conclude that following Article 1173, Mindanao Terminal was required
to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.

imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes. The case of Summa
Insurance Corporation v. CA, which involved the issue of whether an arrastre operator is legally liable for the loss of a
shipment in its custody and the extent of its liability, is inapplicable to the factual circumstances of the case at bar. Therein,
a vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying a
shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as "notify party."
The shipment, including a bundle of PC 8 U blades, was discharged from the vessel to the custody of the private
respondent, the exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts were issued
by NGSC, duly signed by the ship's checker and a representative of private respondent. When Semirara inspected the
shipment at house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court observed:

x x x The relationship therefore between the consignee and the arrastre operator must be examined. This relationship
is much akin to that existing between the consignee or owner of shipped goods and the common carrier, or that between
a depositor and a warehouseman[22 ]. In the performance of its obligations, an arrastre operator should observe the
same degree of diligence as that required of a common carrier and a warehouseman as enunciated under Article
1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them
over to the party entitled to their possession. (Emphasis supplied)23

There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper and the ship's
tackle. The responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee. The service is
usually performed by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds of the
vessel or between the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon the loading
and stowing of the cargo in the vessel.1avvphi1

It is not disputed that Mindanao Terminal was performing purely stevedoring function while the private respondent in
the Summa case was performing arrastre function. In the present case, Mindanao Terminal, as a stevedore, was only
charged with the loading and stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian of
the shipment of Del Monte Produce. A stevedore is not a common carrier for it does not transport goods or passengers; it
is not akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes would not have a
far reaching public ramification as that of a common carrier and a warehouseman; the public is adequately protected by
our laws on contract and on quasi-delict. The public policy considerations in legally imposing upon a common carrier or a
warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading
and stowing of cargoes for its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that Mindanao Terminal had acted
negligently. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence
preponderates the party having the burden of proof fails upon that issue. That is to say, if the evidence touching a
disputed fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it leaves the mind in a
state of perplexity, the party holding the affirmative as to such fact must fail.261avvphi1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of Appeals did not make
any new findings of fact when it reversed the decision of the trial court. The only participation of Mindanao Terminal was
to load the cargoes on board M/V Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as ropes,
pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials
meets industry standard.30

It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V
Mistrau in accordance with the stowage plan, a guide for the area assignments of the goods in the vessel’s hold, prepared
by Del Monte Produce and the officers of M/V Mistrau.31 The loading and stowing was done under the direction and
supervision of the ship officers. The vessel’s officer would order the closing of the hatches only if the loading was done
correctly after a final inspection.32 The said ship officers would not have accepted the cargoes on board the vessel if they
were not properly arranged and tightly secured to withstand the voyage in open seas. They would order the stevedore to
rectify any error in its loading and stowing. A foreman’s report, as proof of work done on board the vessel, was prepared
by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied that
the cargoes were properly loaded.33

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey report35 of the damage to
the cargoes. Byeong, whose testimony was refreshed by the survey report,36 found that the cause of the damage was
improper stowage37 due to the manner the cargoes were arranged such that there were no spaces between cartons, the
use of cardboards as support system, and the use of small rope to tie the cartons together but not by the negligent
conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment38 before us,

the latter is merely a stevedoring company which was tasked by Del Monte to load and stow the shipments of fresh
banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it should load and stow a shipment
in a vessel is wholly dependent on the shipper and the officers of the vessel. In other words, the work of the stevedore
was under the supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as ropes,
pallets, and cardboards, are provided for by the vessel. Even the survey report found that it was because of the boisterous
stormy weather due to the typhoon Seth, as encountered by M/V Mistrau during its voyage, which caused the shipments
in the cargo hold to collapse, shift and bruise in extensive extent.39 Even the deposition of Byeong was not supported by
the conclusion in the survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that damage occurred aboard the carrying vessel
during sea transit, being caused by ship’s heavy rolling and pitching under boisterous weather while proceeding
from 1600 hrs on 7th October to 0700 hrs on 12th October, 1994 as described in the sea protest.40

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the
cargoes, which is the ordinary diligence of a good father of a family, the grant of the petition is in order.

However, the Court finds no basis for the award of attorney’s fees in favor of petitioner.lawphil.net None of the
circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not an unfounded civil
action against the plaintiff as there is no showing that it was instituted for the mere purpose of vexation or injury. It is not
sound public policy to set a premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding ₱83,945.80 actual damages to Mindanao Terminal. Although actual
expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of Mindanao
Terminal incurred expenses for plane fare, hotel accommodations and food, as well as other miscellaneous expenses, as
he attended the trials coming all the way from Manila. But there is no showing that Phoenix and McGee made a false
claim against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of
expenditures.42

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE
and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is
hereby REINSTATED MINUS the awards of ₱100,000.00 as attorney’s fees and ₱83,945.80 as actual damages.

SO ORDERED

G.R. No. 84680 February 5, 1996

SUMMA INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and METRO PORT SERVICE, INC., respondents.

DECISION

PANGANIBAN, J.:

Is an arrastre operator legally liable for the loss of a shipment in its custody? If so, what is the extent of its liability? These
are the two questions that this Court faced in this petition for review on certiorari of the Decision1 of the Court of
Appeals2 in CA-G.R. No. CV 04964 promulgated on April 27, 1988, which affirmed with modification the decision of the
Court of First Instance of Manila in Civil Case No. 82-13988, ordering petitioner to pay private respondent a sum of money,
with legal interest, attorney's fees and the costs of the suit.

The Facts

On November 22, 1981, the S/S "Galleon Sapphire", a vessel owned by the National Galleon Shipping Corporation
(NGSC), arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd.
with Semirara Coal Corporation (Semirara) as "notify party". The shipment, including a bundle of PC 8 U blades, was
covered by marine insurance under Certificate No. 82/012-FEZ issued by petitioner and Bill of Lading No. SF/MLA 1014.
The shipment was discharged from the vessel to the custody of private respondent, formerly known as E. Razon, Inc., the
exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts were issued by NGSC, duly
signed by the ship's checker and a representative of private respondent.

On February 24, 1982, the forwarder, Sterling International Brokerage Corporation, withdrew the shipment from the pier
and loaded it on the barge "Semirara 8104". The barge arrived at its port of destination, Semirara Island, on March 9,
1982. When Semirara inspected the shipment at its warehouse, it discovered that the bundle of PC8U blades was missing.

On March 15, 1982, private respondent issued a short-landed certificate-stating that the bundle of PC8U blades was
already missing when it received the shipment from the NGSC vessel. Semirara then filed with petitioner, private
respondent and NGSC its claim for P280,969.68, the alleged value of the lost bundle.
On September 29, 1982, petitioner paid Semirara the invoice value of the lost shipment. Semirara thereafter executed a
release of claim and subrogation receipt. Consequently, petitioner filed its claims with NGSC and private respondent but it
was unsuccessful.

Petitioner then filed a complaint (Civil Case No. 8213988) with the Regional Trial Court, Branch XXIV, Manila, against
NGSC and private respondent for collection of a sum of money, damages and attorney's fees.

On August 2, 1984, the trial court rendered a decision absolving NGSC from any liability but finding private respondent
liable to petitioner. The dispositive portion of the decision reads as follows:

PREMISES CONSIDERED, judgment is hereby rendered ordering defendant Metro Port Service, Inc. to pay
plaintiff Summa Insurance Corporation the sum of P280,969.68 with legal interest from November 22, 1982, the
date of the filing of the complaint, until full payment, and attorney's fees in the sum of P20,000.00, with costs of
suit.

The complaint as against defendant National Galleon Shipping Corporation and the counterclaim interposed by
said defendant are hereby dismissed. (Rollo, p. 32).

In resolving the issue as to who had custody of the shipment when it was lost, the trial court relied more on the good-order
cargo receipts issued by NGSC than on the short-landed certificate issued by private respondent. The trial court held:

As between the aforementioned two documentary exhibits, the Court is more inclined to give credence to the
cargo receipts. Said cargo receipts were signed by a checker of defendant NGSC and a representative of Metro
Port. It is safe to presume that the cargo receipts accurately describe the quantity and condition of the shipment
when it was discharged from the vessel. Metro Port's representative would not have signed the cargo receipts if
only four (4) packages were discharged from the vessel and given to the possession and custody of the arrastre
operator. Having been signed by its representative, the Metro Port is bound by the contents of the cargo receipts.

On the other hand, the Metro Port's shortlanded certificate could not be given much weight considering that, as
correctly argued by counsel for defendant NGSC, it was issued by Metro Port alone and was not countersigned
by the representatives of the shipping company and the consignee. Besides, the certificate was prepared by Atty.
Servillano V. Dolina, Second Deputy General Manager of Metro Port, and there is no proof on record that he was
present at the time the subject shipment was unloaded from the vessel and received by the arrastre operator.
Moreover, the shortlanded certificate bears the date of March 15, 1982, more than three months after the
discharge of the cargo from the carrying vessel.

Neither could the Court give probative value to the marine report (Exhibit "J", also Exhibit "l"-Razon). The
attending surveyor who attended the unloading of the shipment did not take the witness stand to testify on said
report. Although Transnational Adjustment Co.'s general manager, Mariano C. Remorin, was presented as a
witness, his testimony is not competent because he was not present at the time of the discharge of the cargo.

Under the foregoing considerations, the Court finds that the one (1) bundle of PC8U blade in question was not
lost while the cargo was in the custody of the carrying vessel. Considering that the missing bundle was
discharged from the vessel unto the custody of defendant arrastre operator and considering further that the
consignee did not receive this cargo from the arrastre operator, it is safe to conclude from these facts that said
missing cargo was lost while same was in the possession and control of defendant Metro Port. Defendant Metro
Port has not introduced competent evidence to prove that the loss was not due to its fault or negligence.
Consequently, only the Metro Port must answer for the value of the missing cargo. Defendant NGSC is absolved
of any liability for such loss.

On appeal, the Court of Appeals modified the decision of the trial court and reduced private respondent's liability to
P3,500.00 as follows3 :

WHEREFORE, the judgment appealed from is MODIFIED in that defendant Metro Port Service, Inc., is ordered to
pay plaintiff Summa Insurance Corporation:

(1) the sum of P3,500.00, with legal interest from November 22, 1982, until fully paid; and

(2) the sum of P7,000.00, as and for attorney's fees.

Costs against defendant Metro Port Service, Inc.

Petitioner moved for reconsideration of the said decision but the Court of Appeals denied the same. Hence, the instant
petition.

The Issues
The issues brought by the parties could be stated as follows:

(1) Is the private respondent legally liable for the loss of the shipment in question?

(2) If so, what is the extent of its liability?

The First Issue: Liability for Loss of Shipment

Petitioner was subrogated to the rights of the consignee. The relationship therefore between the consignee and the
arrastre operator must be examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a depositor and a warehouseman4 . In the performance of its
obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(8) of the Warehouse Receipts Law,
respectively. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care
of the goods and to turn them over to the party entitled to their possession.

In this case, it has been established that the shipment was lost while in the custody of private respondent. We find private
respondent liable for the loss. This is an issue of fact determined by the trial court and respondent Court, which is not
reviewable in a petition under Rule 45 of the Rules of Court.

The Second Issue: Extent of Liability

In the performance of its job, an arrastre operator is bound by the management contract it had executed with the Bureau
of Customs. However, a management contract, which is a sort of a stipulation pour autrui within the meaning of Article
1311 of the Civil Code, is also binding on a consignee because it is incorporated in the gate pass and delivery receipt
which must be presented by the consignee before delivery can be effected to5 .The insurer, as successor-in-interest of the
consignee, is likewise bound by the management contract6 . Indeed, upon taking delivery of the cargo, a consignee (and
necessarily its successor-in-interest) tacitly accepts the provisions of the management contract, including those which are
intended to limit the liability of one of the contracting parties, the arrastre operator.7

However, a consignee who does not avail of the services of the arrastre operator is not bound by the management
contract8 . Such an exception to the rule does not obtain here as the consignee did in fact accept delivery of the cargo
from the arrastre operator.

Section 1, Article VI of the Management Contract between private respondent and the Bureau of Customs9 provides:

1. Responsibility and Liability for Losses and Damages The CONTRACTOR shall, at its own expense handle all
merchandise in the piers and other designated places and at its own expense perform all work undertaken by it
hereunder diligently and in a skillful workmanlike and efficient manner; that the CONTRACTOR shall be solely
responsible as an independent CONTRACTOR, and hereby agrees to accept liability and to promptly pay to the
steamship company, consignee, consignor or other interested party or parties for the loss, damage, or non-
delivery of cargoes to the extent of the actual invoice value of each package which in no case shall be more than
Three Thousand Five Hundred Pesos (P3,500.00) for each package unless the value of the importation is
otherwise specified or manifested or communicated in writing together with the invoice value and supported by a
certified packing list to the CONTRACTOR by the interested party or parties before the discharge of the goods, as
well as all damage that may be suffered on account of loss, damage, or destruction of any merchandise while in
custody or under the control of the CONTRACTOR in any pier, shed, warehouse, facility or other designated
place under the supervision of the BUREAU, . . . (Emphasis supplied).

Interpreting a similar provision in the management contract between private respondent's predecessor, E. Razon, Inc. and
the Bureau of Customs, the Court said in E. Razon Inc. vs. Court of Appeals 10 :

Indeed, the provision in the management contract regarding the declaration of the actual invoice value "before the
arrival of the goods" must be understood to mean a declaration before the arrival of the goods in the custody of
the arrastre operator, whether it be done long before the landing of the shipment at port, or immediately before
turn-over thereof to the arrastre operator's custody. What is essential is knowledge beforehand of the extent of the
risk to be undertaken by the arrastre operator, as determined by the value of the property committed to its care
that it may define its responsibility for loss or damage to such cargo and to ascertain compensation
commensurate to such risk assumed . . . .

In the same case, the Court added that the advance notice of the actual invoice of the goods entrusted to the arrastre
operator is "for the purpose of determining its liability, that it may obtain compensation commensurable to the risk it
assumes, (and) not for the purpose of determining the degree of care or diligence it must exercise as a depository or
warehouseman" 11 since the arrastre operator should not discriminate between cargoes of substantial and small values,
nor exercise care and caution only for the handling of goods announced to it beforehand to be of sizeable value, for that
would be spurning the public service nature of its business.

On the same provision limiting the arrastre operator's liability, the Court held in Northern Motors, Inc. v. Prince Line12:

Appellant claims that the above quoted provision is null and void, as it limits the liability of appellee for the loss,
destruction or damage of any merchandise, to P500.00 per package, contending that to sustain the validity of the
limitation would be to encourage acts of conversion and unjust enrichment on the part of the arrastre operator.
 Appellant, however, overlooks the fact that the limitation of appellee's liability under said provision, is not absolute
or unqualified, for if the value of the merchandise is specified or manifested by the consignee, and the
corresponding arrastre charges are paid on the basis of the declared value, the limitation does not apply.
Consequently, the questioned provision is neither unfair nor abitrary, as contended, because the consignee has it
in his hands to hold, if he so wishes, the arrastre operator responsible for the full value of his merchandise by
merely specifying it in any of the various documents required of him, in clearing the merchandise from the
customs. For then, the appellee arrastre operator, by reasons of the payment to it of a commensurate charge
based on the higher declared value of the merchandise, could and should take extraordinary care of the special or
valuable cargo. In this manner, there would be mutuality. What would, indeed, be unfair and arbitrary is to hold
the arrastre operator liable for the full value of the merchandise after the consignee has paid the arrastre charges
only (on) a basis much lower than the true value of the goods.

In this case, no evidence was offered by petitioner proving the amount of arrastre fees paid to private respondent so as to
put the latter on notice of the value of the cargo. While petitioner alleged that prior to the loss of the package, its value had
been relayed to private respondent through the documents the latter had processed, petitioner does not categorically
state that among the submitted documents were the pro forma invoice value and the certified packing list. Neither does
petitioner pretend that these two documents were prerequisites to the issuance of a permit to deliver or were attachments
thereto. Even the permit to deliver, upon which petitioner anchors its arguments, may not be considered by the Court
because it was not identified and formally offered in evidence 13 .

In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on either side. Said party
must establish his case by a preponderance of evidence, which means that the evidence as a whole adduced by one side
is superior to that of the other 14 . Petitioner having asserted the affirmative of the issue in this case, it should have
presented evidence required to obtain a favorable judgment.

On the other hand, on top of its denial that it had received the invoice value and the packing list before the discharge of
the shipment, private respondent was able to prove that it was apprised of the value of the cargo only after its discharge
from the vessel, ironically through petitioner's claim for the lost package to which were attached the invoice and packing
list. All told, petitioner failed to convince the Court that the requirement of the management contract had been complied
with to entitle it to recover the actual invoice value of the lost shipment.

Anent the attorney 's fees, we find the award to be proper considering that the acts and omissions of private respondent
have compelled petitioner to litigate or incur expenses to protect its rights 15 . However, as to the amount of the award, we
find no reason to re-examine the appellate court's determination thereon in view of the amount of the principal obligation.
Otherwise, we would be disregarding the doctrine that discretion, when well exercised, should not be disturbed.

WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.

SO ORDERED.

G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,

vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997 decision 1 of the
Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991 2 of the Regional Trial Court of
Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co.
(hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the compliant until fully paid, P8,000 as
attorney's fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3 denying LOADSTAR's motion for
reconsideration of said decision.

The facts are undisputed.1âwphi1.nêt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the following goods for
shipment:
 a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including "TOTAL
LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was insured by Prudential Guarantee & Assurance,
Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte,
the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made
a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full
settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due
to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance
proceeds from the loss the vessel directly to MIC, said amount to be deducted from MIC's claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that sinking of its vessel was
due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the
party insured. In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to
LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to
the court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.

In dismissing LOADSTAR's appeal, the appellate court made the following observations:

1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a
single shipper on that fateful voyage. The court noted that the charter of the vessel was
limited to the ship, but LOADSTAR retained control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be
applied in determining the rights and liabilities of the parties.

3) The vessel was not seaworthy because it was undermanned on the day of the voyage.
If it had been seaworthy, it could have withstood the "natural and inevitable action of the
sea" on 20 November 1984, when the condition of the sea was moderate. The vessel
sank, not because of force majeure, but because it was not seaworthy. LOADSTAR'S
allegation that the sinking was probably due to the "convergence of the winds," as stated
by a PAGASA expert, was not duly proven at the trial. The "limited liability" rule, therefore,
is not applicable considering that, in this case, there was an actual finding of negligence
on the part of the carrier.5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply
because said provisions bind only the shipper/consignee and the carrier. When MIC paid
the shipper for the goods insured, it was subrogated to the latter's rights as against the
carrier, LOADSTAR. 6

5) There was a clear breach of the contract of carriage when the shipper's goods never
reached their destination. LOADSTAR's defense of "diligence of a good father of a family"
in the training and selection of its crew is unavailing because this is not a proper or
complete defense in culpa contractual.

6) "Art. 361 (of the Code of Commerce) has been judicially construed to mean that when
goods are delivered on board a ship in good order and condition, and the shipowner
delivers them to the shipper in bad order and condition, it then devolves upon the
shipowner to both allege and prove that the goods were damaged by reason of some fact
which legally exempts him from liability." Transportation of the merchandise at the risk
and venture of the shipper means that the latter bears the risk of loss or deterioration of
his goods arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or fault of the
carrier, unless otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V "Cherokee" a private or a common carrier?

 (2) Did LOADSTAR observe due and/or ordinary diligence in these premises.

Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued certificate of
public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only "one shipper, one
consignee for a special cargo."

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely raised below; hence,
it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for delivery to one
consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of lading in this case made
no mention of any charter party but only a statement that the vessel was a "general cargo carrier." Neither was there any
"special arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The singular fact that
the vessel was carrying a particular type of cargo for one shipper is not sufficient to convert the vessel into a private
carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been negligent,
and the burden of proving otherwise devolved upon MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the vessel
was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety engineers of the
Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the time was experienced,
licensed and unquestionably competent. With all these precautions, there could be no other conclusion except that
LOADSTAR exercised the diligence of a good father of a family in ensuring the vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force majeure. It
points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the next
day when the vessel sank due to strong waves. MCI's witness, Gracelia Tapel, fully established the existence of two
typhoons, "WELFRING" and "YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984, signal
no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the convergence of
winds brought about by these two typhoons strengthened wind velocity in the area, naturally producing strong waves and
winds, in turn, causing the vessel to list and eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired in
this case, is valid. Since the cargo was being shipped at "owner's risk," LOADSTAR was not liable for any loss or damage
to the same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply only to the
shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling
in the case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance Company of
Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted beyond the period
stated in the bills of lading for instituting the same — suits based upon claims arising from shortage, damage, or non-
delivery of shipment shall be instituted within sixty days from the accrual of the right of action. The vessel sank on 20
November 1984; yet, the case for recovery was filed only on 4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due toforce
majeure, because the same concurred with LOADSTAR's fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed waived.

Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at fault or negligent, and
because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is
tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be issued
a certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies,
Inc., 11 where this Court held that a common carrier transporting special cargo or chartering the vessel to a special person
becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter party
absolving the owner from liability for loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that the factual settings
are different. The records do not disclose that the M/V "Cherokee," on the date in question, undertook to carry a special
cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to show any special
arrangement, but only a general provision to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further,
the bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where, as in this
case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Article
1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,15 the Court juxtaposed the statutory definition of
"common carriers" with the peculiar circumstances of that case, viz.:

The Civil Code defines "common carriers" in the following terms:

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.

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 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 service on 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.

xxx xxx xxx

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 or occasional rather than regular or scheduled manner, and
eventhough private 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 fee frequently
fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience,
and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is
not a requisite for the incurring of liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common carrier, without regard to whether or
not such carrier has also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that would be to
reward private respondent precisely for failing to comply with applicable statutory requirements The
business of a common carrier impinges directly and intimately upon the safety and well being and
property of those members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their
services and the law cannot allow a common carrier to render such duties and liabilities merely facultative
by simply failing to obtain the necessary permits and authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it embarked on its
voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. "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 its vessel involved in a contract of carriage is a clear breach
of its duty prescribed in Article 1755 of the Civil Code." 16

Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this case. The
doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or
agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to
sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed
as force majeure, inasmuch as the wind condition in the performance of its duties, LOADSTAR cannot hide behind the
"limited liability" doctrine to escape responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard of
this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc., 18 and National Union Fire
Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that after paying the claim of the insured for
damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover
only the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss or damage to

the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily
subject to the same limitations and restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR
involved a limitation on the carrier's liability to an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in the
case at bar effectively reduces the common carrier's liability for the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments made at
"owner's risk." Such stipulation is obviously null and void for being contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first one exempting the carrier
from any and all liability for loss or damage occasioned by its own negligence. The second is one
providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting
the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a
higher rate of. freight. According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all
the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's cause of action had
not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a
specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) — which provides for a one-year
period of limitation on claims for loss of, or damage to, cargoes sustained during transit — may be applied suppletorily to
the case at bar. This one-year prescriptive period also applies to the insurer of the goods. 22In this case, the period for
filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is null and void; 23 it
must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of Appeals in
CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

G.R. No. 159213, July 03, 2013

VECTOR SHIPPING CORPORATION AND FRANCISCO SORIANO, Petitioners, v. AMERICAN HOME ASSURANCE
COMPANY AND SULPICIO LINES, INC., Respondents.

DECISION

BERSAMIN, J.:

Subrogation under Article 2207 of the Civil Code gives rise to a cause of action created by law. For purposes of the law on
the prescription of actions, the period of limitation is ten years.

The Case

Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision promulgated on July 22, 2003,1 whereby
the Court of Appeals (CA) held them jointly and severally liable to pay P7,455,421.08 to American Home Assurance
Company (respondent) as and by way of actual damages on the basis of respondent being the subrogee of its insured
Caltex Philippines, Inc. (Caltex).

Antecedents

Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector.
Respondent is a domestic insurance corporation.2

On September 30, 1987, Caltex entered into a contract of affreightment3 with Vector for the transport of Caltex’s
petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for P7,455,421.08 under
Marine Open Policy No. 34-5093-6.4 In the evening of December 20, 1987, the M/T Vector and the M/V Doña Paz, the
latter a vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea near Dumali Point in Tablas Strait,
located between the Provinces of Marinduque and Oriental Mindoro. The collision led to the sinking of both vessels. The
entire petroleum cargo of Caltex on board the M/T Vector perished.5 On July 12, 1988, respondent indemnified Caltex for
the loss of the petroleum cargo in the full amount of P7,455,421.08.6

On March 5, 1992, respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full
amount of P7,455,421.08 it paid to Caltex (Civil Case No. 92-620).7 The case was raffled to Branch 145 of the Regional
Trial Court (RTC) in Makati City.
On December 10, 1997, the RTC issued a resolution dismissing Civil Case No. 92-620 on the following
grounds:cralavvonlinelawlibrary

This action is upon a quasi-delict and as such must be commenced within four 4 years from the day they may be brought.
[Art. 1145 in relation to Art. 1150, Civil Code] “From the day [the action] may be brought” means from the day the quasi-
delict occurred. [Capuno v. Pepsi Cola, 13 SCRA 663]

The tort complained of in this case occurred on 20 December 1987. The action arising therefrom would under the law
prescribe, unless interrupted, on 20 December 1991.

When the case was filed against defendants Vector Shipping and Francisco Soriano on 5 March 1992, the action not
having been interrupted, had already prescribed.

Under the same situation, the cross-claim of Sulpicio Lines against Vector Shipping and Francisco Soriano filed on 25
June 1992 had likewise prescribed.

The letter of demand upon defendant Sulpicio Lines allegedly on 6 November 1991 did not interrupt the [tolling] of the
prescriptive period since there is no evidence that it was actually received by the addressee. Under such circumstances,
the action against Sulpicio Lines had likewise prescribed.

Even assuming that such written extra-judicial demand was received and the prescriptive period interrupted in accordance
with Art. 1155, Civil Code, it was only for the 10-day period within which Sulpicio Lines was required to settle its obligation.
After that period lapsed, the prescriptive period started again. A new 4-year period to file action was not created by the
extra-judicial demand; it merely suspended and extended the period for 10 days, which in this case meant that the action
should be commenced by 30 December 1991, rather than 20 December 1991.

Thus, when the complaint against Sulpicio Lines was filed on 5 March 1992, the action had prescribed.

PREMISES CONSIDERED, the complaint of American Home Assurance Company and the cross-claim of Sulpicio Lines
against Vector Shipping Corporation and Francisco Soriano are DISMISSED.

Without costs.

SO ORDERED.8

Respondent appealed to the CA, which promulgated its assailed decision on July 22, 2003 reversing the RTC.9 Although
thereby absolving Sulpicio Lines, Inc. of any liability to respondent, the CA held Vector and Soriano jointly and severally
liable to respondent for the reimbursement of the amount of P7,455,421.08 paid to Caltex,
explaining:cralavvonlinelawlibrary

xxxx

The resolution of this case is primarily anchored on the determination of what kind of relationship existed between Caltex
and M/V Dona Paz and between Caltex and M/T Vector for purposes of applying the laws on prescription. The Civil Code
expressly provides for the number of years before the extinctive prescription s[e]ts in depending on the relationship that
governs the parties.

xxxx

After a careful perusal of the factual milieu and the evidence adduced by the parties, We are constrained to rule that the
relationship that

existed between Caltex and M/V Dona Paz is that of a quasi-delict while that between Caltex and M/T Vector is culpa
contractual based on a Contract of Affreightment or a charter party.

xxxx

On the other hand, the claim of appellant against M/T Vector is anchored on a breach of contract of affreightment. The
appellant averred that M/T Vector committed such act for having misrepresented to the appellant that said vessel is
seaworthy when in fact it is not. The contract was executed between Caltex and M/T Vector on September 30, 1987 for
the latter to transport thousands of barrels of different petroleum products. Under Article 1144 of the New Civil Code,
actions based on written contract must be brought within 10 years from the time the right of action accrued. A passenger
of a ship, or his heirs, can bring an action based on culpa contractual within a period of 10 years because the ticket issued
for the transportation is by itself a complete written contract (Peralta de Guerrero vs. Madrigal Shipping Co., L 12951,
November 17, 1959). Viewed with reference to the statute of limitations, an action against a carrier, whether of goods or
of passengers, for injury resulting from a breach of contract for safe carriage is one on contract, and not in tort, and is
therefore, in the absence of a specific statute relating to such actions governed by the statute fixing the period within
which actions for breach of contract must be brought (53 C.J.S. 1002 citing Southern Pac. R. Co. of Mexico vs.
Gonzales 61 P. 2d 377, 48 Ariz. 260, 106 A.L.R. 1012).

Considering that We have already concluded that the prescriptive periods for filing action against M/V Doña Paz based on
quasi delict and M/T Vector based on breach of contracthave not yet expired, are We in a position to decide the appeal
on its merit.

We say yes.
xxxx

Article 2207 of the Civil Code on subrogation is explicit that 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 should be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. Undoubtedly, the herein appellant has the rights of a subrogee to recover from M/T
Vector what it has paid by way of indemnity to Caltex.

WHEREFORE, foregoing premises considered, the decision dated December 10, 1997 of the RTC of Makati City, Branch
145 is hereby REVERSED. Accordingly, the defendant-appellees Vector Shipping Corporation and Francisco Soriano are
held jointly and severally liable to the plaintiff-appellant American Home Assurance Company for the payment of
P7,455,421.08 as and by way of actual damages.

SO ORDERED.10

Respondent sought the partial reconsideration of the decision of the CA, contending that Sulpicio Lines, Inc. should also
be held jointly liable with Vector and Soriano for the actual damages awarded.11 On their part, however, Vector and
Soriano immediately appealed to the Court on September 12, 2003.12 Thus, on October 1, 2003, the CA held in abeyance
its action on respondent’s partial motion for reconsideration pursuant to its internal rules until the Court has resolved this
appeal.13

Issues

The main issue is whether this action of respondent was already barred by prescription for bringing it only on March 5,
1992. A related issue concerns the proper determination of the nature of the cause of action as arising either from a
quasi-delict or a breach of contract.

The Court will not pass upon whether or not Sulpicio Lines, Inc. should also be held jointly liable with Vector and Soriano
for the actual damages claimed.

Ruling

The petition lacks merit.

Vector and Soriano posit that the RTC correctly dismissed respondent’s complaint on the ground of prescription. They
insist that this action was premised on a quasi-delict or upon an injury to the rights of the plaintiff, which, pursuant to
Article 1146 of the Civil Code, must be instituted within four years from the time the cause of action accrued; that because
respondent’s cause of action accrued on December 20, 1987, the date of the collision, respondent had only four years, or
until December 20, 1991, within which to bring its action, but its complaint was filed only on March 5, 1992, thereby
rendering its action already barred for being commenced beyond the four-year prescriptive period;14 and that there was no
showing that respondent had made extrajudicial written demands upon them for the reimbursement of the insurance
proceeds as to interrupt the running of the prescriptive period.15

We concur with the CA’s ruling that respondent’s action did not yet prescribe. The legal provision governing this case was
not Article 1146 of the Civil Code,16 but Article 1144 of the Civil Code, which states:cralavvonlinelawlibrary

Article 1144. The following actions must be brought within ten years from the time the cause of action
accrues:cralavvonlinelawlibrary
(1) Upon a written contract;chanroblesvirtualawlibrary
(2) Upon an obligation created by law;chanroblesvirtualawlibrary
(3) Upon a judgment.

We need to clarify, however, that we cannot adopt the CA’s characterization of the cause of action as based on the
contract of affreightment between Caltex and Vector, with the breach of contract being the failure of Vector to make the
M/T Vector seaworthy, as to make this action come under Article 1144 (1), supra. Instead, we find and hold that that the
present action was not upon a written contract, but upon an obligation created by law. Hence, it came under Article 1144
(2) of the Civil Code. This is because the subrogation of respondent to the rights of Caltex as the insured was by virtue of
the express provision of law embodied in Article 2207 of the Civil Code, to wit:cralavvonlinelawlibrary

Article 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. (Emphasis supplied)

The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance Corporation
v. Court of Appeals,17 as follows:cralavvonlinelawlibrary

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured,
will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all
remedies which the latter 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 written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer [Compania Maritima v.
Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman’s Fund Insurance
Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].18

Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal obligation of Vector
and Soriano to pay the demand for reimbursement by respondent because it concerned only the agreement for the
transport of Caltex’s petroleum cargo. As the Court has aptly put it in Pan Malayan Insurance Corporation v. Court of
Appeals, supra, respondent’s right of subrogation pursuant to Article 2207, supra, was “not dependent upon, nor d[id] it
grow out of, any privity of contract or upon written assignment of claim [but] accrue[d] simply upon payment of the
insurance claim by the insurer.”

Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the amount of
P7,455,421.08 on July 12, 1988,19 the action was not yet barred by the time of the filing of its complaint on March 5,
1992,20 which was well within the 10-year period prescribed by Article 1144 of the Civil Code.

The insistence by Vector and Soriano that the running of the prescriptive period was not interrupted because of the failure
of respondent to serve any extrajudicial demand was rendered inconsequential by our foregoing finding that respondent’s
cause of action was not based on a quasi-delict that prescribed in four years from the date of the collision on December
20, 1987, as the RTC misappreciated, but on an obligation created by law, for which the law fixed a longer prescriptive
period of ten years from the accrual of the action.

Still, Vector and Soriano assert that respondent had no right of subrogation to begin with, because the complaint did not
allege that respondent had actually paid Caltex for the loss of the cargo. They further assert that the subrogation receipt
submitted by respondent was inadmissible for not being properly identified by Ricardo C. Ongpauco, respondent’s witness,
who, although supposed to identify the subrogation receipt based on his affidavit, was not called to testify in court; and
that respondent presented only one witness in the person of Teresita Espiritu, who identified Marine Open Policy No. 34-
5093-6 issued by respondent to Caltex.21

We disagree with petitioners’ assertions. It is undeniable that respondent preponderantly established its right of
subrogation. Its Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to insure the petroleum
cargo against marine peril.22 Its Exhibit D was the formal written claim of Caltex for the payment of the insurance coverage
of P7,455,421.08 coursed through respondent’s adjuster.23 Its Exhibits E to H were marine documents relating to the
perished cargo on board the M/V Vector that were processed for the purpose of verifying the insurance claim of
Caltex.24 Its Exhibit I was the subrogation receipt dated July 12, 1988 showing that respondent paid Caltex P7,455,421.00
as the full settlement of Caltex’s claim under Marine Open Policy No. 34-5093-6.25 All these exhibits were unquestionably
duly presented, marked, and admitted during the trial.26 Specifically, Exhibit C was admitted as an authentic copy of
Marine Open Policy No. 34-5093-6, while Exhibits D, E, F, G, H and I, inclusive, were admitted as parts of the testimony
of respondent’s witness Efren Villanueva, the manager for the adjustment service of the Manila Adjusters and Surveyors
Company.27

Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to prove the payment
of P7,455,421.00 as the full settlement of Caltex’s claim.28 The payment made to Caltex as the insured being thereby duly
documented, respondent became subrogated as a matter of course pursuant to Article 2207 of the Civil Code. In legal
contemplation, subrogation is the “substitution of another person in the place of the creditor, to whose rights he succeeds
in relation to the debt;” and is “independent of any mere contractual relations between the parties to be affected by it, and
is broad enough to cover every instance in which one party is required to pay a debt for which another is primarily
answerable, and which in equity and conscience ought to be discharged by the latter.”29

Lastly, Vector and Soriano argue that Caltex waived and abandoned its claim by not setting up a cross-claim against them
in Civil Case No. 18735, the suit that Sulpicio Lines, Inc. had brought to claim damages for the loss of the M/V Doña Paz
from them, Oriental Assurance Company (as insurer of the M/T Vector), and Caltex; that such failure to set up its cross-
claim on the part of Caltex, the real party in interest who had suffered the loss, left respondent without any better right
than Caltex, its insured, to recover anything from them, and forever barred Caltex from asserting any claim against them
for the loss of the cargo; and that respondent was similarly barred from asserting its present claim due to its being merely
the successor-in-interest of Caltex.

The argument of Vector and Soriano would have substance and merit had Civil Case No. 18735 and this case involved
the same parties and litigated the same rights and obligations. But the two actions were separate from and independent of
each other. Civil Case No. 18735 was instituted by Sulpicio Lines, Inc. to recover damages for the loss of its M/V Doña
Paz. In contrast, this action was brought by respondent to recover from Vector and Soriano whatever it had paid to Caltex
under its marine insurance policy on the basis of its right of subrogation. With the clear variance between the two actions,
the failure to set up the cross-claim against them in Civil Case No. 18735 is no reason to bar this action.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated on July 22,
2003; and ORDERS petitioners to pay the costs of suit.

SO ORDERED.