Aboitiz Shipping v.

New India Assurance

G.R. No. 156978 - May 2, 2006
J. Quisumbing

Topic: Origin and Growth of Insurance – On the real and hypothecary nature of marine law

Petitioner: Aboitiz Shipping Corporation

Respondent: New India Assurance Company, Ltd.

FACTS:
 Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on
board a vessel owned by Franco-Belgian Services, Inc. (FBSI). The cargo was consigned to General
Textile, Inc. (GTI), in Manila and insured by (R).
o While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.
 The Japanese Meteorological Center advised that it was safe for the vessel to travel to its destination.
o After it departed, it received a report of a typhoon moving within its general path. To avoid
the typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon
when its hull leaked.
 October 31, 1980: The vessel sank, but the captain and his crew were saved.
 November 3, 1980: The ship’s captain filed his Marine Protest, basically stating that the weather was
moderate.

 (P) notified the consignee, GTI, of the total loss. After that, GTI lodged a claim with (R) for its loss.

o (R) paid GTI and was subrogated to its rights.

 (R) hired Perfect, Lambert and Company (PLC) as its surveyor to investigate the cause of the
sinking.

 According to PLC, the flooding of the holds brought about by the vessel’s questionable
seaworthiness caused the ship to sink.

o (R) filed a complaint for damages against (P), FBSI and the latter’s local agent, F.E. Zuellig,
Inc. (Zuellig) alleging that the proximate cause of the loss of the shipment was (1) the
fault or negligence of the master and crew of the vessel, (2) its unseaworthiness, and (3) the
failure of defendants therein to exercise extraordinary diligence in the transport of the goods

o (R) furthered that the defendants breached their contract of carriage.

 FBSI and Zuellig claimed that they exercised extraordinary diligence in handling the shipment while
it was in their possession; its vessel was seaworthy; and the proximate cause of the loss of cargo was
a fortuitous event.

o They filed a crossclaim against (P) alleging that the loss occurred during the transshipment
with (P) and so (P) should be liable.

 (P)’s defense is that the ship was seaworthy; the ship sank due to an unforeseen event and without
fault or negligence on its part; and in accordance with the real and hypothecary nature of maritime
law, the sinking of the ship extinguished its liability on the loss.

 The Board of Marine Inquiry (BMI) investigated to determine WON the captain and crew were
administratively liable. But (P) did not inform (R) and the trial court of the investigation.
 o The BMI cleared the captain and crew of any administrative liability; declared the vessel
seaworthy; and concluded that the sinking was due to the vessel’s exposure to the
approaching typhoon.

 November 20, 1989: The trial court, citing CA’s decision in General Accident Fire and Life
Assurance Corporation v. Aboitiz Shipping Corporation which involved the same incident, ruled in
favor of (R) and holding (P) liable for the total value of the lost cargo plus legal interest.

o The complaint against FBSI and Zuellig was dismissed and so was their counterclaim
against New India.

 (P) elevated the case to the CA and presented the findings of the BMI.

 August 29, 2002: CA affirmed the trial court’s decision, holding that the proceedings before the BMI
was only for the administrative liability of the captain and crew, and not binding on the courts.

o MR was denied, hence the petition for review to the SC.

ISSUE + HOLDING: WON the limited liability doctrine, which limits respondent’s award of damages to its
pro-rata share in the insurance proceeds, applies in this case. NO.

 (P)’s contention:
o According to Monarch Insurance Co. Inc. v. Court of Appeals, contends (R)’s claim for
damages should only be against the insurance proceeds and limited to its pro-rata
share in view of the doctrine of limited liability.

 (R)’s counterclaim:

o The doctrine of real and hypothecary nature of maritime law is not applicable because (P)
was found to have been negligent. (P) should be held liable for the total value of the lost
cargo.

 SC:

o In Monarch, the sinking of the vessel was not due to force majeure, but to its unseaworthy
condition. Therein (P) was concurrently negligent with the captain and crew. But the the
circumstances therein still made the doctrine of limited liability applicable.

o The ruling in Monarch may appear inconsistent with the exception of the limited liability
doctrine. An exception to the limited liability doctrine is when the damage is due to the fault
of the shipowner or to the concurrent negligence of the shipowner and the captain which
would make the shipowner liable to the full extent of the damage.

o It is necessary to clarify the applicability of the decision in Monarch to the case at bar.

 Common carriers are bound to observe extraordinary diligence over the goods they
transport according to all the circumstances of each case because of the nature of
their business and of public policy. In the event of loss, destruction or deterioration
of the insured goods, they are responsible, unless they can prove that the loss,
destruction or deterioration was brought about by the causes specified in NCC Art.
17341.

1
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of
the following causes only:
  They are also presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence.

 Where the vessel is found unseaworthy, the shipowner is also presumed to be

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

o In the case at bar, the burden of showing that extraordinary diligence has been exercised in
the transport of the goods it had on board lies on (P) to invoke the limited liability doctrine.

o (P) must prove that the unseaworthiness of its vessel was not due to its fault or negligence.

o (P) is found to have failed to discharge its burden based on the evidence presented and the
circumstances. The trial court and the CA found that the unseaworthiness of the vessel
resulted in the sinking of the ship and due to the typhoon. Evidence showed that the weather
was moderate then.

o BMI’s findings are not always binding on the courts. Besides, its findings does not operate to
absolve the common carrier from its civil liabilities arising from its failure to exercise
extraordinary diligence, the determination of which properly belongs to the courts.

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

RULING: Petition is denied for lack of merit. CA’s Decision and Resolution are affirmed.

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

(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.