G.R. No.

L-51165 June 21, 1990 HEIRS OF AMPARO DE LOS SANTOS, HEIRS OF ERNANIE DELOS SANTOS, HEIRS OF AMABELLA DELOS SANTOS, HEIRS OF LENNY DELOS SANTOS, HEIRS OF MELANY DELOS SANTOS, HEIRS OF TERESA PAMATIAN, HEIRS OF DIEGO SALEM, AND RUBEN REYES, petitioners, vs. HONORABLE COURT OF APPEALS AND COMPANIA MARITIMA, respondents. MEDIALDEA. J.: This petition for review on certiorari seeks to set aside the decision of the Court of Appeals in CA-G.R. No. 58118-R affirming the decision in Civil Case No. 74593 of the then Court of First Instance (now Regional Trial Court), Branch XI, Manila which dismissed the petitioners' claim for damages against Compania Maritima for the injury to and death of the victims as a result of the sinking of M/V Mindoro on November 4, 1967. The trial court found the antecedent facts to be as follows: This is a complaint originally filed on October 21, 1968 (p. 1, rec.) and amended on October 24, 1968 (p. 16 rec.) by the heirs of Delos Santos and others as pauper litigants against the Compania Maritima, for damages due to the death of several passengers as a result of the sinking of the vessel of defendant, the M/V 'Mindoro', on November 4, 1967. There is no dispute in the record that the M/V 'Mindoro' sailed from pier 8 North Harbor, Manila, on November 2,1967 at about 2:00 (should have been 6:00 p.m.) in the afternoon bound for New Washington, Aklan, with many passengers aboard. It appears that said vessel met typhoon 'Welming' on the Sibuyan Sea, Aklan, at about 5:00 in the morning of November 4, 1967 causing the death of many of its passengers, although about 136 survived. Mauricio delos Santos declared that on November 2, 1967 he accompanied his common-law wife, Amparo delos Santos, and children, namely: Romeo, Josie, Hernani, who was 10 years old, Abella, 7 years old, Maria Lemia, 5 years old and Melany, 5 months old, to pier 8, North Harbor, Manila, to board the M/V Mindoro 'bound for Aklan. It appears that Amparo delos Santos and the aforesaid children brought all their belongings, including household utensils valued at P 1,000.00, with the intention of living in Aklan permanently. As already stated, the boat met typhoon 'Welming' and due to the strong waves it sank causing the drowning of many passengers among whom were Amparo delos Santos and all the aforesaid children. It appears also that Teresa Pamatian and Diego Salim, who were also passengers also drowned. Plaintiff Ruben Reyes was one of the survivors. 'The plaintiffs presented the birth and death certificates of Amparo delos Santos and the children (Exhs. 1, I-1, J, J-1, K, K-1, L, L-1, 0 to S, pp. 180 to 194 rec.). They also presented copies of the manifest of passengers of the M/V 'Mindoro' on November 2,1967 (Exhs. B & C, pp. 163 to 161 rec.). Eliadora Crisostomo de Justo, one of the survivors, corroborated the testimony of Mauricio delos Santos that he accompanied Amparo delos Santos and her children to the port to board the M/V Mindoro. She is a cousin of Amparo delos

Santos' husband. According to her, when she boarded the second deck of the vessel, she saw about 200 persons therein. She tried to see whether she could be accommodated in the third deck or first deck because the second deck was very crowded. She admitted that she was not included in the manifest because she boarded the boat without a ticket, but she purchased one in the vessel. She testified further that the boat was not able to reach its destination due to its sinking. During the typhoon before the vessel sunk, she was able to board a 'balsa'. Ruben Reyes, the other survivor, declared that he paid for his ticket before boarding the M/V Mindoro. At that time he had with him personal belongings and cash all in the amount of P2,900.00. It appears that Felix Reyes Jakusalem, Teresa Pamatian and Amparo delos Santos drowned during the sinking of the vessel. He was able to swim on (sic) an island and was with the others, rescued later on and brought to the hospital. The survivors were then taken ashore (Exh. M, p. 188, rec.). Dominador Salim declared that Teresa Pamatian, his aunt and Diego Salim, his father, drowned along with the sinking of the M/V Mindoro. Tins witness declared that he accompanied both his father and his aunt to the pier to board the boat and at the time Teresa Pamatian was bringing cash and personal belongings of about P250.00 worth. His father brought with him P200.00 in cash plus some belongings. He admitted that when his father boarded the vessel he did not have yet a ticket. The plaintiffs further submitted in evidence a copy of a Radiogram stating among other things that the MN Mindoro was loaded also with 3,000 cases of beer, one dump truck and 292 various goods (Exhs. D and D-1, p. 162 rec). In alleging negligence on the part of the vessel, plaintiffs introduced in evidence a letter sent to the Department of Social Welfare concerning the resurvey of the M/V Mindoro victims (Exh. F, p. 169 rec.) and a telegram to the Social Welfare Administration (Exh. G, p. 170 rec.), a resurvey of the M/V 'Mindoro' victims (Exh. H, p. 171 rec.), a complete list of the M/V 'Mindoro' victims (Exhs. H-1 to H-8, pp. 172179 rec.), a certified true copy of the Special Permit to the Compania Maritima issued by the Bureau of Customs limiting the vessel to only 193 passengers (Exh. X, p. 318 rec.). It appears that in a decision of the Board of Marine Inquiry, dated February 2, 1970, it was found that the captain and some officers of the crew were negligent in operating the vessel and imposed upon them a suspension and/or revocation of their license certificates. It appears, however, that this decision cannot be executed against the captain who perished with the vessel (Exhs. E, E-1, E-1-A, E-2 to E-9, pp. 163- 168 rec.). Upon agreement of the parties, the plaintiffs also introduced in evidence the transcript of stenographic notes of the testimony of Boanerjes Prado before Branch I of this Court (Exh. U, pp. 203-220) and that of Felimon Rebano in the same branch (Exh. V, pp. 225-260 rec.).

The defendant alleges that no negligence was ever established and, in fact, the shipowners and their officers took all the necessary precautions in operating the vessel. Furthermore, the loss of lives as a result of the drowning of some passengers, including the relatives of the herein plaintiff, was due to force majeure because of the strong typhoon 'Welming.' It appears also that there was a note of marine protest in connection with the sinking of the vessel as substantiated by affidavits (Exhs. 3, 3-A, 3-B, 3-C, 3-D, 3-E, 3-F and 3-G rec.). On this score Emer Saul, member of the PC Judge Advocate General's Office, brought to Court records of this case which were referred to their office by the Board of Marine Inquiry. According to him the decision referred to by the plaintiffs was appealed to the Department of National Defense, although he did not know the result of the appeal. At any rate, he knew that the Department of National Defense remanded the case to the Board of Marine Inquiry for further investigation. In the second indorsement signed by Efren I. Plana, Undersecretary of National Defense, it is stated, among other things, that the hearings of the Board of Marine Inquiry wherein the Philippine Coast Guard made the decision lacked the necessary quorum as required by Section 827 of the Tariff and Customs Code. Moreover, the decision of the Commandant of the Philippine Coast Guard relied principally on the findings reached by the Board of Officers after an ex-parte investigation especially in those aspects unfavorable to the captain (Exh. 1, folder of exhibits). It appears also that there were findings and recommendations made by the Board of Marine Inquiry, dated March 5, 1968, recommending among other things that the captain of the M/V 'Mindoro,' Felicito Irineo, should be exonerated. Moreover, Captain Irineo went down with the vessel and his lips are forever sealed and could no longer defend himself. This body also found that the ship's compliment (sic) and crew were all complete and the vessel was in seaworthy condition. If the M/V Mindoro' sank, it was through force majeure (Exhs. 2 & 2-A, folder of exhibits). Defendant also introduced in evidence the transcripts of stenographic notes of the testimony of Francisco Punzalan, marine officer, as well as of Abelardo F. Garcia, Harbor Pilot in Zamboanga City, in Civil Case No. Q-12473 of Branch XXVIII, Court of First Instance of Rizal, Quezon City Branch (Exhs. 3-H & 10-H, folder of exhibits), and of Arturo Ilagan, boat captain, in Civil Case No. Q-1 5962 of Branch V, of the same Court (Exh. 9 folder of exhibits). It appears that five other vessels left the pier at Manila on November 2, 1967, aside from the M/V Mindoro' (Exhs 4 & 4-A). A certification of the Weather Bureau indicated the place of typhoon 'Welming' on November 2, 1967 (Exh. 6). A certification of the shipyard named El Varadero de Manila stated among other things that the M/V 'Mindoro' was dry-docked from August 25 to September 6, 1967 and was found to be in a seaworthy condition (Exh. 5), and that the said M/V 'Mindoro' was duly inspected by the Bureau of Customs (Exhs. 7, 7-A & 7-B). Another certification was introduced stating among other things that the Bureau of Customs gave a clearance to the M/V 'Mindoro' after inspection (Exh. 8 folder of exhibits). (CFI Decision, Records, pp. 468-471)

On the basis of these facts, the trial court sustained the position of private respondent Compania Maritima (Maritima, for short) and issued a decision on March 27, 1974, to wit: WHEREFORE, the Court finds that in view of lack of sufficient evidence, the case be, as it is hereby DISMISSED. For lack of evidence, the counterclaim is also hereby DISMISSED. IT IS SO ORDERED. (Records, p. 474) Forthwith, the petitioners' heirs and Reyes brought an appeal to the Court of Appeals. As earlier mentioned, the appellate court affirmed the decision on appeal. While it found that there was concurring negligence on the part of the captain which must be imputable to Maritima, the Court of Appeals ruled that Maritima cannot be held liable in damages based on the principle of limited liability of the shipowner or ship agent under Article 587 of the Code of Commerce. The heirs and Reyes now come to Us with the following assignment of errors: ERROR I THE HONORABLE RESPONDENT COURT OF APPEALS ERRED IN NOT CONCENTRATING TO (sic) THE PROVISION OF LAW IN THE NEW CIVIL CODE AS EXPRESSED) IN, Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. ERROR II RESPONDENT COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF THE LOWER COURT OF ORIGIN AFTER FINDING A SERIES OF FAULTS AND NEGLIGENCE AND IN NOT ORDERING ITS CORESPONDENT COMPANIA MARITIMA TO PAY THE DAMAGES IN ACCORDANCE WITH THE LAW. ERROR III THE HONORABLE RESPONDENT COURT OF APPEALS ERRED TO NOTE, OBSERVE AND COMPREHEND THAT ART. 587 OF THE CODE OF COMMERCE IS ONLY FOR THE GOODS WHICH THE VESSEL CARRIED AND DO NOT INCLUDE PERSONS. (Rollo, p. 8) The petition has merit. At the outset, We note that there is no dispute as to the finding of the captain's negligence in the mishap. The present controversy centers on the questions of Maritima's negligence and of the application of Article 587 of the Code of Commerce. The said article provides: Art. 587. The ship agent shall also be civilly liable for indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel, but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight it may have earned during the voyage.

Under this provision, a shipowner or agent has 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" (Yangco v. Laserna, et al., 73 Phil. 330, 332). Notwithstanding the passage of the New Civil Code, Article 587 of the Code of Commerce is still good law. The reason lies in the peculiar nature of maritime law which is 94 exclusively real and hypothecary that operates to limit such liability to the value of the vessel, or to the insurance thereon, if any (Yangco v. Laserna, Ibid). As correctly stated by the appellate court, "(t)his rule is found necessary to offset against the innumerable hazards and perils of a sea voyage and to encourage shipbuilding and marine commerce. (Decision, Rollo, p. 29). Contrary to the petitioners' supposition, the limited liability doctrine applies not only to the goods but also in all cases like death or injury to passengers wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain (Yangco v. Laserna, Ibid). It must be stressed at this point that Article 587 speaks only of situations where the fault or negligence is committed solely by the captain. In cases where the shipowner is likewise to be blamed, Article 587 does not apply (see Manila Steamship Co., Inc. v. Abdulhanan, et al., 100 Phil. 32, 38). Such a situation will be covered by the provisions of the New Civil Code on Common Carriers. Owing to the nature of their business and for reasons of public policy, common carriers are tasked to observe extraordinary diligence in the vigilance over the goods and for the safety of its passengers (Article 1733, New Civil Code). Further, they are bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances (Article 1755, New Civil Code). Whenever death or injury to a passenger occurs, common carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code). Guided by the above legal provisions, We painstakingly reviewed the records of the case and found imprints of Maritima's negligence which compel Us to reverse the conclusion of the appellate court. Maritima claims that it did not have any information about typhoon 'Welming' until after the boat was already at sea. Modem technology belie such contention. The Weather Bureau is now equipped with modern apparatus which enables it to detect any incoming atmospheric disturbances. In his summary report on tropical cyclone 'Welming' which occurred within the Philippine Area of Responsibility, Dr. Roman L. Kintanar, Weather Bureau Director, stated that during the periods of November 15, 1967, the Bureau issued a total of seventeen (17) warnings or advisories of typhoon 'Welming' to shipping companies. Additionally, he reported that: By 11:15 a.m. of November lst, or in less than twenty four hours, the storm intensified into a typhoon. It was by then located at 8.7 N 137.3 E with sea level pressure of 978 millibars, an eye diameter of about 18.53 kilometers and a maximum surface wind of 139 kilometers per hour. "As it moved along in the open

sea, it intensified further and by 11.07 a.m. of November 2, when its center was at 103 N 131.4 E, it had attained surface winds of about 240 kilometers per hour. ... (Exh. Z, p. 131, Index of Exhibits, p. 11 5, Emphasis supplied). Considering the above report and the evidence on record showing the late departure of the ship at 6:00 p.m. (instead of the scheduled 2:00 p.m. departure) on November 2, 1967, We find it highly improbable that the Weather Bureau had not yet issued any typhoon bulletin at any time during the day to the shipping companies. Maritima submitted no convincing evidence to show this omission. It's evidence showing the Weather Bureau's forecast of November 3, 1967 is not persuasive. It merely indicated the weather bulletin of that day. Nowhere could We find any statement therein from the Weather Bureau that it had not issued any forecast on November I and 2, 1967 (Exh. 6, Records, p. 257). Significantly, the appellate court found that the ship's captain through his action showed prior knowledge of the typhoon. The court said: ... It cannot be true that he was apprised of the typhoon only at about 11:00 o'clock the following morning on November 3, 1967 when the Weather report was transmitted to him from the Weather Bureau at which time he plotted its position. For in his radiogram sent to defendant-appellee's office in Manila as early as 8:07 in the morning of November 3, 1967 (Exh. D) he states in the concluding portion 'still observing weather condition.' thereby implicitly suggesting that he had known even before departure of the unusual weather condition. ... (Decision, Rollo, p. 26) If the captain knew of the typhoon beforehand, it is inconceivable for Maritima to be totally in the dark of 'Welming.' In allowing the ship to depart late from Manila despite the typhoon advisories, Maritima displayed lack of foresight and minimum concern for the safety of its passengers taking into account the surrounding circumstances of the case. While We agree with the appellate court that the captain was negligent for overloading the ship, We, however, rule that Maritima shares equally in his negligence. We find that while M/V Mindoro was already cleared by the Bureau of Customs and the Coast Guard for departure at 2:00 p.m. the ship's departure was, however, delayed for four hours. Maritima could not account for the delay because it neither checked from the captain the reasons behind the delay nor sent its representative to inquire into the cause of such delay. It was due to this interim that the appellate court noted that "(i)ndeed there is a great probability that unmanifested cargo (such as dump truck, 3 toyota cars, steel bars, and 6,000 beer cases) and passengers (about 241 more than the authorized 193 passengers) were loaded during the four (4) hour interval" (Decision, p. 13, Rollo, p. 26). Perchance, a closer supervision could have prevented the overloading of the ship. Maritima could have directed the ship's captain to immediately depart in view of the fact that as of 11:07 in the morning of November 2, 1967, the typhoon had already attained surface winds of about 240 kilometers per hour. As the appellate court stated, '(v)erily, if it were not for have reached (its) destination and this delay, the vessel could thereby have avoided the effects of the storm" (Decision, Rollo p. 26). This conclusion was buttressed by evidence that another ship, M/V Mangaren, an interisland vessel, sailed for New Washington, Aklan on November 2, 1967, ahead of M/V Mindoro and took the same route as the latter

but it arrived safely (Exh. BB-2, Index of Exhibits, pp. 143-144 and Exh. 4-A, Ibid, p. 254). Maritima presents evidence of the seaworthy condition of the ship prior to its departure to prove that it exercised extraordinary diligence in this case. M/V Mindoro was drydocked for about a month. Necessary repairs were made on the ship. Life saving equipment and navigational instruments were installed. While indeed it is true that all these things were done on the vessel, Maritima, however, could not present evidence that it specifically installed a radar which could have allowed the vessel to navigate safely for shelter during a storm. Consequently, the vessel was left at the mercy of ''Welming' in the open sea because although it was already in the vicinity of the Aklan river, it was unable to enter the mouth of Aklan River to get into New Washington, Aklan due to darkness and the Floripon Lighthouse at the entrance of the Aklan River was not functioning or could not be seen at all (Exh. 3-H, Index of Exhibits, p. 192-195; see also Exh. 2-A, Ibid, p. 160). Storms and typhoons are not strange occurrences. In 1967 alone before 'Welming,' there were about 17 typhoons that hit the country (Exh. M, Index of Exhibits, p. 115), the latest of which was typhoon Uring which occurred on October 20-25, which cost so much damage to lives and properties. With the impending threat of 'Welming,' an important device such as the radar could have enabled the ship to pass through the river and to safety. The foregoing clearly demonstrates that Maritima's lack of extraordinary diligence coupled with the negligence of the captain as found by the appellate court were the proximate causes of the sinking of M/V Mindoro. Hence, Maritima is liable for the deaths and injury of the victims. amount of With the above finding, We now come to the damages due to the petitioners. Ordinarily, We would remand the case to the trial court for the reception of evidence. Considering however, that this case has been pending for almost twenty-three (23) years now and that since all the evidence had already been presented by both parties and received by the trial court, We resolve to decide the corresponding damages due to petitioners (see Samal v. Court of Appeals, 99 Phil. 230; Del Castillo v. Jaymalin, L-28256, March 17, 1982, 112 SCRA 629). In their complaint filed with the Court of First Instance, petitioners prayed for moral, actual and exemplary damages, as well as for attorney's fees plus costs. Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the death of a passenger caused by the breach of contract by a common carrier is at least three thousand pesos (P3,000.00). The prevailing jurisprudence has increased the amount of P3,000.00 to P30,000.00 (De Lima v. Laguna Tayabas Co., L-35697-99, April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the civil indemnity of P30,000.00 to the heirs of each of the victims. For mental anguish suffered due to the deaths of their relatives, Maritima should also pay to the heirs the sum of P10,000.00 each as moral damages. In addition, it was proven at the trial that at the time of death, (1) Amparo delos Santos had with her cash in the sum of P1,000.00 and personal belongings valued at P500.00; (2) Teresa Pamatian, cash in the sum of P250.00 and personal belongings worth P200.00; and (3) Diego Salem, cash in the sum of P200.00 and personal belongings valued at P100.00. Likewise, it was established that the heirs of Amparo delos Santos and her deceased children incurred transportation and incidental expenses in connection with the trial of this case in the amount of

P500.00 while Dominador Salem, son of victim Diego Salem and nephew of victim Teresa Pamatian spent about P100.00 for expenses at the trial. With respect to petitioner Reyes, the evidence shows that at the time of the disaster, he had in his possession cash in the sum of P2,900.00 and personal belongings worth P100.00. Further, due to the disaster, Reyes was unable to work for three months due to shock and he was earning P9.50 a day or in a total sum of P855.00. Also, he spent about P100.00 for court expenses. For such losses and incidental expenses at the trial of this case, Maritima should pay the aforestated amounts to the petitioners as actual damages. Reyes' claim for moral damages cannot be granted inasmuch as the same is not recoverable in damage action based on the breach of contract of transportation under Articles 2219 and 2220 of the New Civil Code except (1) where the mishap resulted in the death of a passenger and (2) where it is proved that the carrier was guilty of fraud or bad faith, even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109 Phil. 712). The exceptions do not apply in this case since Reyes survived the incident and no evidence was presented to show that Maritima was guilty of bad faith. Mere carelessness of the carrier does not per se constitute or justify an inference of malice or bad faith on its part (Rex Taxicab Co., Inc. v. Bautista, supra). Anent the claim for exemplary damages, We are not inclined to grant the same in the absence of gross or reckless negligence in this case. As regards the claim for attorney's fees, the records reveal that the petitioners engaged the services of a lawyer and agreed to pay the sum of P 3,000.00 each on a contingent basis (see TSN'S, July 21, 1971, p. 24; November 3, 1971, pp. 18 and 29). In view hereof, We find the sum of P 10,000.00 as a reasonable compensation for the legal services rendered. ACCORDINGLY, the appealed decision is hereby REVERSED and judgment is hereby rendered sentencing the private respondent to pay the following: (1) P30,000.00 as indemnity for death to the heirs of each of the victims; (2) P10,000.00 as moral damages to the heirs of each of the victims; (3) P6,805.00 as actual damages divided among the petitioners as follows: heirs of Amparo Delos Santos and her deceased children, P2,000.00; heirs of Teresa Pamatian, P450.00; heirs of Diego Salem, P400.00; and Ruben Reyes, P2,955.00; (4) P10,000.00 as attorney's fees; and (5) the costs. SO ORDERED.

appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce. 2 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 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.

goods should have been delivered. G.R. No. L-6420 July 18, 1955 INSURANCE COMPANY OF NORTH AMERICA, plaintiff-appellant, vs. PHILIPPINE PORTS TERMINALS, INC., defendant-appellee. JUGO, J.: This is an appeal by the plaintiff, Insurance Company of North America from the order of dismissal entered by the Court of First Instance of Manila, dated June 30, 1952. The facts of the case are as follows: On May 28, 1952, the Insurance Company of North America filed a complaint against the Philippine Ports Terminals, Inc., alleging, among other things, that: the defendant Philippine Ports Terminals, Inc., was the contractor and operator of the arrastre service in the Port of Manila, and as such, was charged with the custody and care of all cargoes discharged at the government piers at Manila with the duty to deliver same to their respective owners upon presentation by the latter of release papers from the agents or owners of vessels and the Bureau of Custom; that the plaintiff had been informed and therefore alleged that in the month of September, 1949, the steamship "PRESIDENT VAN BUREN" discharged into the custody of the Philippine Ports Terminals, Inc., one case of machine knives consigned to the Central Saw Mill, valued at least P3,796.00 but said merchandise was never delivered by the defendant to said consignee; that the defendant admits the non-delivery of the said merchandise to the consignee, Central Saw Mills, Inc., and offered to pay P500.00 for said merchandise instead of its value P3,796.00 which offer was refused; that the plaintiff Insurance Company of North America was subrogated to the rights of the Central Saw Mill, Inc., by virtue of a receipt dated October 21, 1949; and that the defendant corporation refused to pay said sum of P3,796.00. There is a claim by the plaintiff of P1,000.00 as attorney's fees. The defendant-appellee filed a motion for dismissal on the ground that the complaint was filed after one year from the time that the cause of action accrued. The court below dismissed the complaint. The motion of dismissal was based on the provisions of Public Act No. 521 of the 74th U.S. Congress more commonly known as "Carriage of Goods by Sea Act". This Act was expressly made applicable to the Philippines by Commonwealth Act No. 65 which was approved and took effect on October 22, 1936. The pertinent provision of said "Carriage of Goods by Sea Act" regarding the time for bringing action reads as follows: In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the It is evident, however, that the defendant Philippine Ports Terminals, Inc., is not a carrier. Section 1 (a) and (d) of "Carriage of Goods by Sea Act" defines the terms "carrier" and "ship" as follows: The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper. The term "ship" means any vessel used for the carriage of goods by sea. The defendant-appellee, Philippine Ports Terminals, Inc., is neither a charterer nor a ship. Consequently the "Carriage of Goods by Sea Act" does not apply to it. However, the ordinary period of four years fixed by the Code of Civil Procedure will apply. The action in this case has been brought within that time. In view of the foregoing, the order of the lower court dismissing the complaint is hereby reversed and the case is remanded to the court of origin for further proceedings, with costs against the appellee. It is so ordered. Bengzon, Acting C. J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.

G.R. No. 124050 June 19, 1997 MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, respondents. PUNO, J.: This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of Appeals dated December 14, 1995 1 and its Resolution dated February 22, 1996 2 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation. 3 In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4 Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with respondent Charter. Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to examine whether the pipes and fittings are manufactured in accordance with the specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was damaged. Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is a factory defect. On April 17, 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners because the damage to the goods is due to factory defects which are not covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. The dispositive portion of the decision states: WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the plaintiffs the following: 1. the sum equivalent in Philippine currency of HK$299,345.30, with legal rate of interest as of the filing of the complaint; 2. P100,000.00 as and for attorney's fees; and 3. costs of suit. SO ORDERED. 5 Private respondents elevated the case to respondent Court of Appeals. Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered." Respondent court ruled that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro. 6 Hence this petition with the following assignments of error: 1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and 2. The respondent Court of Appeals committed an error in dismissing the complaint. 7 The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea Act. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Under this provision, only the carrier's liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on

the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code. Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other cases 9 cited therein does not support respondent court's view that the insurer's liability prescribes after one year if no action for indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court held that the insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or the date when the goods should have been delivered. The court said that "the coverage of the Act includes the insurer of the goods." 10 The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner Mayer. The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract. An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. 11 An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. 12 Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code. 13 IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial Court is hereby REINSTATED. No costs. SO ORDERED.

G.R. No. L-17192 March 30, 1963 HONORIO M. BARRIOS, plaintiff-appellant, vs. CARLOS A. GO THONG & COMPANY, defendant-appellee. BARRERA, J.: From the decision of the Court of First Instance of Manila (in Civil Case No. 37219) dismissing with costs his case against defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios, interposed the present appeal. The facts of the case, as found by the trial court, are briefly stated in its decision, to wit: The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of the William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other southern cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about 8:00 o'clock on the evening of May 1, 1958, plaintiff in his capacity as such captain and/or master of the aforesaid MV Henry I, received or otherwise intercepted an S.O.S. or distress signal by blinkers from the MV Don Alfredo, owned and/or operated by the defendant Carlos A. Go Thong & Company. Acting on and/or answering the S.O.S. call, the plaintiff Honorio M. Barrios, also in his capacity as captain and/or master of the MV Henry I, which was then sailing or navigating from Dumaguete City, altered the course of said vessel, and steered and headed towards the beckoning MV Don Alfredo, which plaintiff found to be in trouble, due to engine failure and the loss of her propeller, for which reason, it was drifting slowly southward from Negros Island towards Borneo in the open China Sea, at the mercy of a moderate easterly wind. At about 8:25 p.m. on the same day, May 1, 1958, the MV Henry I, under the command of the plaintiff, succeeded in getting near the MV Don Alfredo in fact as near as about seven meters from the latter ship and with the consent and knowledge of the captain and/or master of the MV Don Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and connected with two lines from the MV Henry I; and in that manner, position and situation, the latter had the MV Don Alfredo in tow and proceeded towards the direction of Dumaguete City, as evidenced by a written certificate to this effect executed and accomplished by the Master, the Chief Engineer, the Chief Officer, and the Second Engineer, of the MV Don Alfredo, who were then on board the latter ship at the time of the occurrence stated above (Exh. A). At about 5:10 o'clock the following morning, May 2, 1958, or after almost nine hours during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were approaching the vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of the MV Don Alfredo, was sighted heading towards the direction of the aforesaid two vessels, reaching then fifteen minutes later, or at about 5:25 o'clock on that same morning. Thereupon, at the request and instance of the captain and/or master of the MV Don Alfredo, the plaintiff caused the tow lines to be released, thereby also releasing the MV Don Alfredo. These are the main facts of the present case as to which plaintiff and defendant

quite agree with each other. As was manifested in its memorandum presented in this case on August 22, 1958, defendant thru counsel said that there is, indeed, between the parties, no dispute as to the factual circumstances, but counsel adds that where plaintiff concludes that they establish an impending sea peril from which salvage of a ship worth more than P100,000.00, plus life and cargo was done, the defendant insists that the facts made out no such case, but that what merely happened was only mere towage from which plaintiff cannot claim any compensation or remuneration independently of the shipping company that owned the vessel commanded by him. On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating: Plaintiff bases his claim upon the provisions of the Salvage Law, Act No. 2616, ..... In accordance with the Salvage Law, a ship which is lost or abandoned at sea is considered a derelict and, therefore, proper subject of salvage. A ship in a desperate condition, where persons on board are incapable, by reason of their mental and physical condition, of doing anything for their own safety, is a quasiderelict and may, likewise, be the proper subject of salvage. Was the MV Don Alfredo, on May 1, 1958, when her engine failed and, for that reason, was left drifting without power on the high seas, a derelict or a quasi-derelict? In other words, was it a ship that was lost or abandoned, or in a desperate condition, which could not be saved by reason of incapacity or incapacity of its crew or the persons on board thereof? From all appearances and from the evidence extant in the records, there can be no doubt, for it seems clear enough, that the MV Don Alfredo was not a lost ship, nor was it abandoned. Can it be said that the said ship was in a desperate condition, simply because S.O.S. signals were sent from it?. From the testimony of the captain of the MV Don Alfredo, the engine failed and the ship already lost power as early as 8:00 o'clock on the morning of May 1, 1958; although it was helpless, in the sense that it could not move, it did not drift too far from the place where it was, at the time it had an engine failure. The weather was fair in fact, as described by witnesses, the weather was clear and good. The waves were small, too slight there were only ripples on the sea, and the sea was quite smooth. And, during the night, while towing was going on, there was a moonlight. Inasmuch as the MV Don Alfredo was drifting towards the open sea, there was no danger of floundering. As testified to by one of the witnesses, it would take days or even weeks before the ship could as much as approach an island. And, even then, upon the least indication, the anchor could always be weighed down, in order to prevent the ship from striking against the rocks. "There was no danger of the vessel capsizing, in view of the fairness of the sea, and the condition of the weather, as described above. As a matter of fact, although the MV Don Alfredo had a motor launch, and two lifeboats, there was no attempt, much less, was there occasion or necessity, to lower anyone or all of them, in order to evacuate the persons on board; nor did the conditions then obtaining require an order to jettison the cargo. But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from aboard the MV Don Alfredo, which was enough to establish the fact that it was

exposed to imminent peril at sea. It is admitted by the defendant that such S.O.S. signal was, in fact, sent by blinkers. However, defendant's evidence shows that Captain Loresto of the MV Don Alfredo, did not authorize the radio operator of the aforesaid ship to send an S.O.S. or distress signal, for the ship was never in distress, nor was it exposed to a great imminent peril of the sea. What the aforesaid Captain told the radio operator to transmit was a general call; for, at any rate, message had been sent to defendant's office at Cebu City, which the latter had acknowledged, by sending back a reply stating that help was on the way. However, as explained by the said radio operator, in spite of his efforts to send a general call by radio, he did not receive any response. For this reason, the Captain instructed him to send the general call by blinkers from the deck of the ship; but the call by blinkers, which follows the dots and dashes method of sending messages, could not be easily understood by deck officers who ordinarily are not radio operators. Hence, the only way by which the attention of general officers on deck could be called, was to send an S.O.S. signal which can be understood by all and sundry. Be it as it may, the evidence further shows that when the two ships were already within hearing distance (barely seven meters) of each other, there was a sustained conversation between Masters and complement of the two vessels, by means of loud speakers and the radio; and, the plaintiff must have learned of the exact nature and extent of the disability from which the MV Don Alfredo had suffered that is, that the only trouble that the said vessel had developed was an engine failure, due to the loss of its propellers. It can thus be said that the MV Don Alfredo was not in a perilous condition wherein the members of its crew would be incapable of doing anything to save passengers and cargo, and, for this reason, it cannot be duly considered as a quasi-derelict; hence, it was not the proper subject of salvage, and the Salvage Law, Act No. 2616, is not applicable. Plaintiff, likewise, predicates his action upon the provisions of Article 2142 of the New Civil Code, which reads as follows: Certain lawful, voluntary and unilateral acts give to the juridical relation of quasicontract to the end that no one shall be unjustly enriched or benefited at the expense of another. This does not find clear application to the case at bar, for the reason that it is not the William Lines, Inc., owners of the MV Henry I which is claiming for damages or remuneration, because it has waived all such claims, but the plaintiff herein is the Captain of the salvaging ship, who has not shown that, in his voluntary act done towards and which benefited the MV Don Alfredo, he had been unduly prejudiced by his employers, the said William Lines, Incorporated. What about equity? Does not equity permit plaintiff to recover for his services rendered and sacrifices made? In this jurisdiction, equity may only be taken into account when the circumstances warrant its application, and in the absence of any provision of law governing the matter under litigation. That is not so in the

present case. In view of the foregoing, judgment is hereby rendered dismissing the case with costs against the plaintiff; and inasmuch as the plaintiff has not been found to have brought the case maliciously, the counterclaim of the defendant is, likewise, dismissed, without pronouncement as to costs. SO ORDERED. The main issue to be resolved in this appeal is, whether under the facts of the case, the service rendered by plaintiff to defendant constituted "salvage" or "towage", and if so, whether plaintiff may recover from defendant compensation for such service. The pertinent provision of the Salvage Law (Act No. 2616), provides: SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage. Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be entitled to a like reward. According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be entitled to a reward (salvage). "Salvage" has been defined as "the compensation allowed to persons by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture." (Blackwall v. Saucelito Tug Company, 10 Wall. 1, 12, cited in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178.) In the Erlanger & Galinger case, it was held that three elements are necessary to a valid salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when not required as an existing duty or from a special contract, and (3) success in whole or in part, or that the service rendered contributed to such success.1 Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant? Like the trial court, we do not think there was. It appears that although the defendant's vessel in question was, on the night of May 1, 1958, in a helpless condition due to engine failure, it did not drift too far from the place where it was. As found by the court a quo the weather was fair, clear, and good. The waves were small and too slight, so much so, that there were only ripples on the sea, which was quite smooth. During the towing of the vessel on the same night, there was moonlight. Although said vessel was drifting towards the open sea, there was no danger of it floundering or being stranded, as it was far from any island or rocks. In case of danger of stranding, its anchor could released, to prevent such occurrence. There was no danger that defendant's vessel would sink, in view of the smoothness of the sea and the fairness of the weather. That there was absence of danger is shown by the fact that said vessel or its crew did not even find it necessary to lower its launch and two motor boats, in order to evacuate its passengers aboard. Neither did they find occasion to jettison the vessel's cargo as a safety measure. Neither the passengers nor the cargo were in danger of perishing. All that the vessel's crew members could not do was to move the vessel on its own power. That did not make the vessel a quasi-derelict, considering that even before the appellant extended the help to the distressed ship, a sister vessel was known to be on its way to succor it. If plaintiff's service to defendant does not constitute "salvage" within the purview

of the Salvage Law, can it be considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer seems to incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant (through the captain of its vessel MV Don Alfredo) thereby impliedly entered into a juridical relation of "towage" with the owner of the vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated. Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its engine speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by while ship proceeded to dock under own power, was entitled, in absence of written agreement as to amount to be paid for services, to payment for towage services, and not for salvage services. (Sause, et al. v. United States, et al., 107 F. Supp. 489) If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to the exclusion of the crew of the said vessel, may be entitled to remuneration. It often becomes material too, for courts to draw a distinct line between salvage and towage, for the reason that a reward ought sometimes to be given to the crew of the salvage vessel and to other participants in salvage services; and such reward should not be given if the services were held to be merely towage. (The Rebecca Shepherd, 148 F. 731.) The master and members of the crew of a tug were not entitled to participate in payment by liberty ship for services rendered by tug which were towage services and not salvage services. (Sause, et al. v. United States, et al., supra.) "The distinction between salvage and towage is of importance to the crew of the salvaging ship, for the following reasons: If the contract for towage is in fact towage, then the crew does not have any interest or rights in the remuneration pursuant to the contract. But if the owners of the respective vessels are of a salvage nature, the crew of the salvaging ship is entitled to salvage, and can look to the salvaged vessel for its share. (I Norris, The Law of Seamen, Sec. 222.) And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation for the towage service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon and not separate from the interest of his employer, is not entitled to payment for such towage service. Neither may plaintiff invoke equity in support of his claim for compensation against defendant. There being an express provision of law (Art. 2142, Civil Code) applicable to the relationship created in this case, that is, that of a quasi-contract of towage where the crew is not entitled to compensation separate from that of the vessel, there is no occasion to resort to equitable considerations. WHEREFORE, finding no reversible error in the decision of the court a quo appealed from, the same is hereby affirmed in all respects, with costs against the plaintiff-appellant. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur. G.R. No. L-25047 March 18, 1967

DOMINGO ANG, plaintiff-appellant, vs. AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee. ----------------------------G.R. No. L-25050 March 18, 1967 DOMINGO ANG, plaintiff-appellant, vs. AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee. BENGZON, J. P., J.: These are two cases separately appealed to the Court of Appeals and certified to Us by said Court. Since both appeals involve the same parties and issue, they are decided together herein. Yau Yue Commercial Bank, Ltd. of Hongkong, also referred to hereafter as Yau Yue, agreed to sell one boat (50 feet, 30 tons) containing used U.S. Military Surplus to one Davao Merchandising Corp. for the sum of $8,820.27 (US), and 42 cases (62 sets and 494 pieces) of Hiranos Automatic Cop Change for Cotton Loom for Calieo to one Herminio Teves for the sum of $18,246.,65 (US), respectively. Said agreements were both subject to the following terms and arrangements: (a) the purchase price should be covered by a bank draft for the corresponding amount which should be paid by the purchaser in exchange for the delivery of the corresponding bill of lading to be deposited with a local bank, the Hongkong & Shanghai Bank of Manila; (b) upon arrival of the articles in Manila the purchaser would be notified and would have to pay the amount called for in the corresponding demand draft, after which the bill of lading would be delivered to said purchaser; and (c) the purchaser would present said bill of lading to the carrier's agent; American Steamship Agencies, Inc., which would then issue the correspoding "Permit To Deliver Imported Articles" to be presented to the Bureau of Custom to obtain the release of the articles. Pursuant thereto, on February 17, 1961, Hirahira & Co., Ltd. shipped the 42 cases (62 sets and 494 pieces ) of Hiranos Automatic Cop Change for Cotton Loom for Calico at Nagoya, aboard the "S.S. CELEBES MARU", for Manila, with the Kansai Steamship Co., Ltd. of Osaka, Japan, as carrier, of which the American Steamship Agencies, Inc. is the agent in the Philippines, under a shipping agreement, Bill of Lading No. NM 1, dated February 17, 1961, consigned "to order of the shipper", with Herminio G. Teves as the party to be notified of the arrival of said articles.1wph1.t Similarly, on June 3, 1961, the United States Contracting Officer, on behalf of Nippon Trading Shokai for Nishiman Kaihatsu Co., Ltd. shipped the boat containing U.S. Military Surplus at Yokohama, Japan, the "KYOJU MARU", with Sankyo Kiun Kabushiki Kaisha of Japan as carrier, of which the American Steamship Agencies, Inc. is the agent in the Philippines, under a shipping agreement, Bill of Lading No. YM-3, dated June 3, 1961, consigned "to the order of Yau Yue Commercial Bank, Ltd. of Hongkong", with Davao Merchandising

Corporation as the party to be notified of the arrival of said boat. The bills of lading were indorsed to the order of Yau Yue and delivered to it by the respective shippers. Upon receipt thereof, Yan Yue drew demand drafts together with the bills of lading against Teves and Davao Merchandising Corp., through the Hongkong & Shanghai Bank. The shipment for Teves arrived in Manila on March 2, 1961; that of Davao Merchandising Corp., arrived on June 10, 1961. Accordingly, Hongkong & Shanghai Bank notified Teves and the Davao Merchandising Corporation, the "notify parties" under the bills of lading, of the arrival of the goods and requested payment of the demand drafts representing the purchase prices of the articles. The Davao Merchandising Corp. and Teves, however, did not pay the respective drafts, prompting the bank in both cases to make the corresponding protests. The bank likewise returned the bills of lading and demand drafts to Yau Yue which indorsed both bills of lading to Domingo Ang. Teves and Davao Merchandising Corporation, however, were able to obtain bank guaranties in favor of the American Steamship Agencies., Inc., as carriers' agent, to the effect that they would surrender the original and negotiable bills of lading duly indorsed by Yau Yue. And on the strength of said guaranties, Davao Merchandising Corp. and Teves each succeeded in securing a "Permit To Deliver Imported Articles" from the carriers' agent, which they presented to the Bureau of Customs. In turn the latter released to them the articles covered by the bills of lading. After being informed by the American Steamship Agencies that the articles covered by the respective bills of lading were already delivered by them to the Davao Merchandising Corp. and to Teves, Domingo Ang filed claims with the carriers' agent for the cost of said articles, interests and damages. The American Steamship Agencies, Inc., however, refused payment. Domingo Ang thereafter filed separate complaints in the Court of First Instance of Manila against the American Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted the goods covered by the bills of lading belonging to plaintiff Ang, to the damage and prejudice of the latter. The suit as to the Teves shipment was filed on October 30, 1963; that referring to the Davao Merchandising Corp.'s shipment was filed on November 14, 1963. Subsequently, defendant filed motions to dismiss upon the ground that plaintiff's causes of action have prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more particularly section 3(6), paragraph 4, which provides: In any event, the carrier and the ship shall be discharged from all liability in respect to loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. It argued that the cargoes should have been delivered to the person entitled to the delivery thereof, i.e., plaintiff, on March 2, 1961 (Teves shipment) and June 10, 1961 (Davao Merchandising Corp. shipment), the respective dates of the vessels'

arrival in Manila, and that even allowing a reasonable time (even one month) after such arrivals within which to make delivery, still, the actions commenced on October 30, 1963 and November 14, 1963. respectively, were filed beyond the prescribed period of one year. By order dated February 21, 1964, copy of which was received by plaintiff on February 28, 1964, the lower court presided over by the Hon. Judge Guillermo S. Santos, dismissed the action (in re the 42 cases [62 sets and 494 pieces] of Hiranos Automatic Cop Change for Cotton Loom for Calico) on the ground of prescription. His motion for reconsideration dated March 20, 1964 having been denied by the lower court in its order dated June 5, 1964, plaintiff appealed to the Court of Appeals. This is now L-25050 and refers to the Teves shipment. Upon the other hand, by order dated January 6, 1964, the lower court presided over by the Hon. Jesus P. Morfe (in re the boat [50 feet, 30 tons] containing used U.S. Military Surplus) denied the motion to dismiss on the ground that there being no allegation in the complaint as to the date of arrival of the cargo or the date of which it should have been delivered, the defendant was relying on facts which are not yet in evidence such as presuming that the cargo had arrived on the specific date and that the same had been delivered on another specific date. Upon a motion for reconsideration filed by the defendant on January 13, 1964 and after the parties submitted their memoranda of authorities and counter-authorities, respectively, the lower court by an order dated February 20, 1964, reconsidered its prior order of January 6, 1964 and dismissed plaintiff's action also on the ground of prescription. From this order, defendant appealed to the Court of Appeals. This is now L-25047 and refers to the Davao Merchandising Corp. shipment. At issue is a question purely of law, namely: Did plaintiff-appellant's causes of action prescribe under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act? . The point has already been resolved by this Court in a case involving the same parties and parallel facts to those herein involved. In Domingo Ang vs. American Steamship Agencies, Inc., L-22491, January 27, 1967, We held that the one-year prescriptive period under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act does not apply to cases of misdelivery or conversion. For convenience, We quote the ruling therein: The provision of law involved in this case speaks of "loss or damage". That there was no damage caused to the goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is admitted by both parties in this case. What is to be resolved in order to determine the applicability of the prescriptive period of one year to the case at bar is whether or not there was 'loss' of the goods subject matter of the complaint. Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to the Civil Code which provides in Article 18 thereof that, "In matters which are governed by the Code of Commerce and special law, their

deficiency shall be supplied by the provision of this Code." Article 1189 of the Civil Code defines the word 'loss' in cases where condition have been imposed with the intention of suspending the efficacy of an obligation to give. The contract of carriage under consideration entered into by and between American Steamship Agencies, Inc. and the Yau Yue (which later on endorsed the bill of lading covering the shipment to plaintiff herein Domingo Ang), is one involving an obligation to give or to deliver the goods "to the order of shipper" that is, upon the presentation and surrender of the bill of lading. This being so, said article can be applied to the present controversy, more specifically paragraph 2 thereof which provides that, "... it is understood that a thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered." As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, 'loss' contemplates merely a situation where no delivery at all was made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in much a way that their existence is unknown or they cannot be recovered. It does not include a situation where there was indeed delivery but delivery to the wrong person, or a misdelivery, as alleged fir the complaint in this case. xxx xxx xxx

The point that matters here is that the situation is either delivery or misdelivery, but not non-delivery. Thus, the goods were either rightly delivered or misdelivered, but they were not lost. There being no loss or damage to the goods, the aforequoted provision of the Carriage of Goods by Sea Act stating that "In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless it is brought within one year after delivery of the goods or the date of when the goods should have been delivered," does not apply. The reason is not difficult to see. Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in port to someone who claimed to be entitled thereto, the situation is different, and the special need for the short period of limitation in case of loss or damage caused by maritime perils does not obtain. It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of the goods, the applicable rule on prescription is that found in the Civil Code, namely, either ten years for breach of a written contract or four years for quasi-delict (Arts. 1144[1], 1146, Civil Code). ... The goods covered by the two shipments subject matter of these appealed cases were also delivered to the notify parties, Davao Merchandising Corporation and Herminio Teves, despite the latter's inability to present the proper bills of lading and without the knowledge and consent of plaintiff-appellant Domingo Ang to whom were endorsed said bills of lading. There is therefore likewise misdelivery not nondelivery. Finally, the recipients of said goods did not file any complaint with defendant regarding any damage to the same. No loss nor damage is therefore

involved in these cases. And thus the prescriptive period under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act does not apply. The applicable prescriptive period is that found in the Civil Code, namely, either ten years for breach of a written contract or four years for quasi-delict (Arts. 1144[1] and 1146). Since the complaints in these appealed cases were filed two years and five months (as to Davao Merchandising Corp. shipment) and 2 years and 8 months (as to Teves shipment), from the arrival of the two shipments, it is clear that the causes of action have not yet prescribed. Wherefore, the orders appealed from dismissing plaintiff's complaints in these two cases on the ground of prescription are hereby reversed and set aside; let said cases be remanded to the respective court a quo for further proceedings. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur.