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COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, respondents. G.R. No. 92735 June 8, 2000 ALLIED GUARANTEE INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24 and ABOITIZ SHIPPING CORPORATION,respondents. G.R. No. 94867 June 8, 2000 EQUITABLE INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, Former First Division Composed of Hon. Justices RODOLFO NOCON, PEDRO RAMIREZ, and JESUS ELBINIAS and ABOITIZ SHIPPING CORPORATION, respondents. G.R. No. 95578 June 8, 2000 These are three consolidated cases. All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a common carrier owned and operated by Aboitiz, sank on her voyage from Hong Kong to Manila on October 31, 1980. The claims numbered one hundred and ten (110) for the total amount of P41,230,115.00 which is almost thrice the amount of the insurance proceeds of P14,500,000.00 plus earned freight of 500,000.00 according to Aboitiz. Facts: The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of October 29, 1980 after securing a departure clearance from the Hong Kong Port Authority. The departure was delayed for two hours because he (Capt. Racines) was observing the direction of the storm that crossed the Bicol Region. He proceeded with the voyage only after being informed that the storm had abated. The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980. Justo Iglesias, meteorologist of PAGASA, testified in both cases that during the inclusive dates of October 28-31, 1980, a stormy weather condition prevailed within the Philippine area of responsibility, particularly along the sea route from Hong Kong to Manila, because of tropical depression "Yoning." Petitioners Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its cargo were lost due to force majeure, relying mainly on the marine protest filed by Capt. Racines under scale No. 4 that describes the sea condition as "moderate breeze," and "small waves becoming longer, fairly frequent white horses." Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the shippers and were consequently subrogated to their rights, interests and actions against Aboitiz. Because Aboitiz refused to compensate Monarch, it filed two complaints against Aboitiz. In its answer with counterclaim, Aboitiz rejected responsibility for the claims on the ground that the sinking of its cargo vessel was due to force majeure or an act of God. Aboitiz had repeatedly failed to appear in court, it then allowed Monarch and Tabacalera to present evidence ex-parte. The survey established that on her voyage to Manila from Hong Kong, the vessel did not encounter weather so inclement that Aboitiz would be exculpated from liability for losses. The survey added that the seaworthiness of the vessel was in question especially because the breaches of the hull and the serious flooding of two (2) cargo holds occurred simultaneously in "seasonal weather." In due course, the trial court rendered judgment against Aboitiz. It was appealed to the Court of Appeals but the appeal was dismissed for its failure to file appellant's brief. Consequently, Monarch and Tabacalera moved for execution of judgment. The trial court granted the motion and issued separate writs of execution. However, Aboitiz, invoking the real and hypothecary nature of liability in maritime law, filed an urgent motion to quash the writs of execution. According to Aboitiz, since its liability is limited to the value of the vessel which was insufficient to satisfy the aggregate claims of all 110 claimants, to indemnify Monarch and Tabacalera ahead of the other claimants would be prejudicial to the latter. Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with prayer for preliminary injunction and/or temporary restraining order, the same was granted by the court. Issue: Whether or not the respondent Court of Appeals erred in finding, upon review, that Aboitiz is entitled to the benefit of the limited liability rule. Held: NO. (PAUL: The discussion in this case about the limited liability rule is basically the same as what s in the book of Aquino, the cases cited in the case at bar were the same cases cited in the book) Rule on Limited Liability The petitioners assert in common that the vessel M/V P. Aboitiz did not sink by reason of force majeure but because of its unseaworthiness and the concurrent fault and/or negligence of Aboitiz, the captain and its crew, thereby barring Aboitiz from availing of the benefit of the limited liability rule. In Yangco v. Laserna, this Court elucidated on the import of Art. 587 as follows:

The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to abandon-"the vessel with all her equipments and the freight it may have earned during the voyage." It is true that the article appears to deal only with the limited liability of the shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. "No vessel, no liability," expresses in a nutshell the limited liability rule. The shipowner's or agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach. In cases where the ship owner is likewise to be blamed, Article 587 does not apply. Such a situation will be covered by the provisions of the Civil Code on common carriers. A finding that a fortuitous event was the sole cause of the loss of the M/V P. Aboitiz would absolve Aboitiz from any and all liability pursuant to Article 1734(1) of the Civil Code which provides in part that common carriers are responsible for the loss, destruction, or deterioration of the goods they carry, unless the same is due to flood, storm, earthquake, lightning, or other natural disaster or calamity. On the other hand, a finding that the M/V P. Aboitiz sank by reason of fault and/or negligence of Aboitiz, the ship captain and crew of the M/V P. Aboitiz would render inapplicable the rule on limited liability. These issues are therefore ultimately questions of fact which have been subject of conflicting determinations by the trial courts, the Court of Appeals and even this Court. The Court of Appeals brushed aside the issue of Aboitiz' negligence and/or fault and proceeded to allow the application of the limited liability rule "to accomplish the aims of justice." It elaborated thus: "To execute the judgment in this case would prejudice the substantial right of other claimants who have filed suits to claim their cargoes that was lost in the vessel that sank and also against the petitioner to be ordered to pay more than what the law requires." After reviewing the records of the instant cases, we categorically state that by the facts on record, the M/V P. Aboitiz did not go under water because of the storm "Yoning." Captain Racines also testified in open court that the ill-fated M/V P. Aboitiz was two hundred (200) miles away from storm "Yoning" when it sank. On the matter of Aboitiz' negligence, we adhere to our ruling in Aboitiz Shipping Corporation v. Court of Appeals, that found Aboitiz, and the captain and crew of the M/V P. Aboitiz to have been concurrently negligent. The said survey established that the cause of the sinking of the vessel was the leakage of water into the M/V P. Aboitiz. The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the sinking of its vessel in the face of the foregoing expert testimony constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the ship captain and crew of the M/V P. Aboitiz. This is in accordance with the rule that in cases involving the limited liability of shipowners, the initial burden of proof of negligence or unseaworthiness rests on the claimants. However, once the vessel owner or any party asserts the right to limit its liability, the burden of proof as to lack of privity or knowledge on its part with respect to the matter of negligence or unseaworthiness is shifted to it. This burden, Aboitiz had unfortunately failed to discharge. That Aboitiz failed to discharge the burden of proving that the unseaworthiness of its vessel was not due to its fault and/or negligence should not however mean that the limited liability rule will not be applied to the present cases. The peculiar circumstances here demand that there should be no strict adherence to procedural rules on evidence lest the just claims of shippers/insurers be frustrated. The rule on limited liability should be applied in accordance with the latest ruling in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., promulgated on January 21, 1993, that claimants be treated as "creditors in an insolvent corporation whose assets are not enough to satisfy the totality of claims against it." There is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence over the others by the simple expedience of having completed its action earlier than the rest. In fairness to the claimants and as a matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in trust.