G.R. No. L-11407
October 30, 1917
FAUSTO RUBISO and BONIFACIO GELITO, plaintiff-appellee, vs. FLORENTINO E. RIVERA, defendant-appellant.
This appeal by bill of exceptions was filed by counsel for Florentino E. Rivera against the judgment of September 6,
1915, in which the defendant and appellant was ordered to place at the disposal of the plaintiff Fausto Rubiso the pilot
boat in litigation. No special finding was made for costs.
On April 10, 1915, counsel for plaintiff brought suit in the Court of the First Instance of this city and alleged in the
complaint that his clients were the owners of the pilot boat named Valentina, which had been in bad condition since the
year 1914 and, on the date of the complaint, was stranded in the place called Tingloy, of the municipality of Bauan,
Batangas; that the defendant Florentino E. Rivera took charge or possession of said vessel without the knowledge or
consent of the plaintiff and refused to deliver it to them, under claim that he was the owner thereof; and that such
procedure on the defendant's part caused the plaintiffs to suffer damages, not only because they could not proceed to
repair the vessel, but also because they were unable to derive profit from the voyages for which said pilot boat was
customarily used; and that the net amount of such uncollected profit was P1,750. The complaint terminated with a
petition that judgment be rendered by ordering the defendant to deliver said pilot boat to the plaintiffs and indemnify
them in the amount aforementioned or in such amount as should be proven at trial, and to pay the costs.
Counsel for the defendant entered a general and specific denial of all the facts set forth in the complaint, with the
exception of those admitted in the special defense and consisting in that said pilot boat belonged to the concern named
"Gelito and Co.," Bonifacio Gelito being a copartner thereof to the extent of two-thirds, and the Chinaman Sy Qui, to that
of the one-third, of the value of said vessel; the subsequently Bonifacio Gelito sold his share to his copartner Sy Qui, as
attested by the instrument Exhibit A, registered in the office of the Collector of Customs and made a part of his answer;
that later said Chinaman, the absolute owner of the vessel, sold it in turn to the defendant Rivera, according to the public
instrument, also attached to his answer as Exhibit B; and that, for the reason, Rivera took possession of said pilot boat
Valentina, as its sole owner. He therefore petitioned that the defendant be absolved from the complaint, with the costs
against the plaintiff.
After the hearing of the case and introduction of documentary evidence, the judgment of September 6, 1915, was
rendered, from which counsel for the defendant appealed and moved for a new trial. This motion was denied and the
appellant excepted.
The record shows it to have been fully proven that Bonifacio Gelito sold his share in the pilot boat Valentina, consisting
of a two-thirds interest therein, to the Chinaman Sy Qui, the coowner of the other one-third interest in said vessel;
wherefore this vendor is no longer entitled to exercise any action whatever in respect to the boat in question. Gelito was
one of the partnership owners of the Valentina, as in fact his name appears in the certificate of protection issued by the
Bureau of Customs, and the rights he held are evidenced by the articles of partnership; but, the whole ownership in the
vessel having been consolidated in behalf of the Chinaman Sy Qui, this latter, in the use of his right as the sole owner
of the Valentina, sold this boat to Florentino E. Rivera for P2,500, on January 4, 1915, which facts, are set forth in a
deed ratified on the same date before a notary. This document was registered in the Bureau of Customs on March 17th
of the same year.
On the 23d of January of that year, that is, after the sale of the boat to the defendant Rivera, suit having been brought
in the justice of the peace court against the Chinaman Sy Qui to enforce payment of a certain sum of money, the latter's
creditor Fausto Rubiso, the herein plaintiff, acquired said vessel at a public auction sale and for the sum of P55.45. The
certificate of sale and adjudication of the boat in question was issued by the sheriff on behalf of Fausto Rubiso, in the
office of the Collector of Customs, on January 27 of the same year and was also entered in the commercial registry on
the 14th of March, following.
So that the pilot boat Valentina was twice sold: first privately by its owner Sy Qui to the defendant Florentino E. Rivera,
on January 4, 1915, and afterwards by the sheriff at public auction in conformity with the order contained in the judgment
rendered by the justice of the peace, court, on January 23 of the same year, against the Chinaman Sy Qui and in behalf
of the plaintiff, Fausto Rubiso.
It is undeniable that the defendant Rivera acquired by purchase the pilot boat Valentina on a date prior to that of the
purchase and adjudication made at public auction, by and on behalf of the plaintiff Rubiso; but it is no less true that the
sale of the vessel by Sy Qui to Florentino E. Rivera, on January 4, 1915, was entered in the customs registry only on
March 17, 1915, while its sale at public auction to Fausto Rubiso on the 23d of January of the same year, 1915, was
recorded in the office of the Collector of Customs on the 27th of the same month, and in the commercial registry on the
4th of March, following; that is, the sale on behalf of the defendant Rivera was prior to that made at public auction to
Rubiso, but the registration of this latter sale was prior by many days to the sale made to the defendant.
Article 573 of the Code of Commerce provides, in its first paragraph:
Merchant vessels constitute property which may be acquired and transferred by any of the means recognized
by law. The acquisition of a vessel must be included in a written instrument, which shall not produce any effect
with regard to third persons if not recorded in the commercial registry.
So that, pursuany to the above-quoted article, inscription in the commercial registry was indispensable, in order that
said acquisition might affect, and produce consequences with respect to third persons.
However, since the enactment of Act No. 1900, on May 18, 1909, said article of the Code of Commerce was amended,
as appears by section 2 of that Act, here below transcribed.
The documenting, registering, enrolling, and licensing of vessels in accordance with the Customs Administrative
Act and customs rules and regulations shall be deemed to be a registry of vessels within the meaning of the
title two of the Code of Commerce, unless otherwise provided in said Customs Administrative Act or in said
customs rules and regulations, and the Insular Collector of Customs shall perform the duties of commercial
register concerning the registering of vessels, as defined in title two of the Code of Commerce.
The requisite of registration in the registry, of the purchase of a vessel, is necessary and indispensable in order that the
purchaser's rights may be maintained against a claim filed by a third person. Such registration is required both by the
Code of Commerce and by Act No. 1900. The amendment solely consisted in charging the Insular Collector of Customs,
as at present, with the fulfillment of the duties of the commercial register concerning the registering of vessels; so that
the registration of a bill of sale of a vessel shall be made in the office of the insular Collector of Customs, who, since
May 18, 1909, has been performing the duties of the commercial register in place of this latter official.
In view of said legal provisions, it is undeniable that the defendant Florentino E. Rivera's rights cannot prevail over those
acquired by Fausto Rubiso in the ownership of the pilot boat Valentina, inasmuch as, though the latter's acquisition of
the vessel at public auction, on January 23, 1915, was subsequent to its purchase by the defendant Rivera, nevertheless
said sale at public auction was antecedently recorded in the office of the Collector of Customs, on January 27, and
entered in the commercial registry — an unnecessary proceeding — on March 4th; while the private and voluntary
purchase made by Rivera on a prior date was not recorded in the office of the Collector of Customs until many days
afterwards, that is, not until March 17, 1915.
The legal rule set down in the Mercantile Code subsists, inasmuch as the amendment solely refers to the official who
shall make the entry; but, with respect to the rights of the two purchasers, whichever of them first registered his
acquisition of the vessel is the one entitled to enjoy the protection of the law, which considers him the absolute owner
of the purchased boat, and this latter to be free of all encumbrance and all claims by strangers for, pursuant to article
582 of the said code, after the bill of the judicial sale at auction has been executed and recorded in the commercial
registry, all the other liabilities of the vessel in favor of the creditors shall be considered canceled.
1aw phil.net
The purchaser at public auction, Fausto Rubiso, who was careful to record his acquisition, opportunely and on a prior
date, has, according to the law, a better right than the defendant Rivera who subsequently recorded his purchase. The
latter is a third person, who was directly affected by the registration which the plaintiff made of his acquisition.
Ships or vessels, whether moved by steam or by sail, partake, to a certain extent, of the nature and conditions of real
property, on account of their value and importance in the world commerce; and for this reason the provisions of article
573 of the Code of Commerce are nearly identical with those of article 1473 of the Civil Code.
With respect to the indemnity for losses and damages, requested by the plaintiff, aside from the fact, as shown by the
evidence, that, subsequent to the date when the judgment appealed from was rendered, the vessel in question emerged
unharmed from the place where it was stranded, and was, at the time of the trial, anchored in the port of Maricaban, the
record certainly does not furnish any positive evidence of the losses and damages alleged to have been occasioned.
On the other hand, it cannot be affirmed that the defendant acted in bad faith specifically because he acquired the vessel
on a date prior to that of its acquisition at public auction by the plaintiff Rubiso, who, for the reason aforestated, is the
true and sole owner of said pilot boat.
For the foregoing considerations, whereby the errors assigned to the judgment appealed from are deemed to have been
refuted, it is our opinion that said judgment should be, as it is hereby, affirmed, with costs against the appellant. So
ordered.
G.R. No. L-11897
October 31, 1964
FERNANDO A. FROILAN, plaintiff-appellee, vs. PAN ORIENTAL SHIPPING COMPANY, defendant-appellant,
REPUBLIC OF THE PHILIPPINES, and COMPANIA MARITIMA, intervenors-appellees.
On March 7, 1947, Fernando A. Froilan purchased from the Shipping Administration a boat described as MV/FS 197 for
the sum of P200,000.00, with a down payment of P50,000,00. To secure payment of the unpaid balance of the purchase
price, a mortgage was constituted on the vessel in favor of the Shipping Administration in a contract which provides,
among others, the following:
In the event that the FIRST PARTY should elect to exercise its rights to rescind under the terms of this contract, it shall
have the right to take possession of the vessel herein sold in the condition that it is at the time of rescission but in no
case in a worse condition than when originally delivered to the second party, ordinary wear and tear excepted and in
case at the time of rescission the condition of the vessel is not satisfactory to the FIRST PARTY, it shall have the right
to have the vessel reconditioned, repaired, dry-docked at the expense of the SECOND PARTY. The same right is hereby
granted to the FIRST PARTY in case the SECOND PARTY should for any reason refuse or fail to comply with this
condition of sale and return the vessel herein sold in a condition not satisfactory to the FIRST PARTY.
The right of rescission shall be considered as a cumulative remedy granted to the FIRST PARTY and shall not in any
way prejudice his right to demand immediate and complete payment of the purchase price of the vessel under the terms
herein provided, and to demand and collect from the SECOND PARTY such damages caused by the non-compliance
with this contract.
This contract was duly approved by the President of the Philippines.
Froilan appeared to have defaulted in spite of demands, not only in the payment of the first installment on the unpaid
balance of the purchase price and the interest thereon when they fell due, but also failed in his express undertaking to
pay the premiums on the insurance coverage of the vessel, obliging the Shipping Administration to advance such
payment to the insurance company. Consequently, the Shipping Administration requested the Commissioner of
Customs on June 1, 1948 to refuse clearance on the vessel and the voyage thereof was ordered suspended.
Thereafter, Froilan asked for a reconsideration of the action taken by the Shipping Administration, claiming that his
failure to pay the required installments was due to the fact that he was awaiting the decision of the President on the
petition of the shipowners for an extension of the period of payment of the purchased vessels, which petition was
favorably acted upon.
On July 3, 1948, the Shipping Administration and Froilan entered into an agreement whereby the latter undertook to
liquidate immediately all of his outstanding accounts, including the insurance premiums, within 30 days, and have the
vessel overhauled, and promised that in case of his default, he shall "waive, any formal notice of demand and to redeliver
the said vessel peaceably and amicably without any other proceedings" (Exh. 39).
Again, Froilan failed to settle his accounts within the prescribed period, thus, the Shipping Administration threatened to
rescind the contract unless payment be immediately made. On August 28, 1948, upon Froilan's request, the Shipping
Administration agreed to release the vessel on condition that the same would be overhauled and repaired and the
accrued interest on the first installment would be paid. The Administration also allowed the mortgagor to pay his overdue
accounts, amounting now to P48,500.00 in monthly installments, with warming that in case of further default, it would
immediately repossess the vessel and rescind the contract. Froilan failed to pay. On January 17, 1949, the Shipping
Administration required him to return the vessel or else file a bond for P25,000.00 in five days. In a letter dated January
28, 1949, Froilan requested that the period for filing the bond be extended to February 15, 1949, upon the express
condition and understanding that:
... . If I fail to file the required bond on the said date, February 15, 1949, to the satisfaction of the Shipping Administration,
I am willing to relinquish and I do hereby relinquish any and all rights I have or may have on the said vessel including
any payments made thereon to the Shipping Administration, without prejudice to other rights the Shipping Administration
may have against me under the contract of sale executed in my favor.
I wish to reiterate that if I fail to file the bond within the period I have requested, any and all rights I have on the vess el
and any payments made to the Shipping Administration shall be considered automatically forfeited in favor of the
Shipping Administration and the ownership of the said vessel will be as it is hereby automatically transferred to the
Shipping Administration which is then hereby authorized to take immediate possession of said vessel. (Exh. 66)
This letter of Froilan was submitted by the General Manager of the Shipping Administration to the board of directors for
proper consideration. By resolution of January 31, 1949, the petition was granted subject specifically to the conditions
set forth therein. Froilan again failed to make good his promises. Hence, on February 18, 1949, the General Manager
of the Shipping Ad-ministration wrote the Collector of Customs of Manila, advising the latter that the Shipping
Administration, by action of its board, terminated the contract with Froilan, and requesting the suspension of the
clearance of the boat effective that date (Exh. 70).
On February 21, 1949, the General Manager directed its officers, Capt. Laconico and others, to take immediate
possession of the vessel and to suspend the unloading of all cargoes on the same until the owners thereof made the
corresponding arrangement with the Shipping Administration. Pursuant to these instructions, the boat was, not only
actually repossessed, but the title thereto was registered again in the name of the Shipping Administration, thereby retransferring the ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental, offered to charter said vessel
FS-197 for a monthly rent of P3,000.00. Because the government was then spending for the guarding of the boat and
subsistence of the crew-members since repossession, the Shipping Administration on April 1, 1949, accepted Pan
Oriental's offer "in principle" subject to the condition that the latter shall cause the repair of the vessel, advancing the
cost of labor and drydocking thereof, and the Shipping Administration to furnish the necessary spare parts. In
accordance with this charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his failure to comply with the obligations he assumed
and asked that he be given another extension up to March 15, 1949 to file the necessary bond. Then on March 8, Froilan
offered to pay all his overdue accounts. However, as he failed to fulfill even these offers made by him in these two
communications, the Shipping Administration denied his petition for reconsideration (of the rescission of the contract)
on March 22, 1949. It should be noted that while his petition for reconsideration was denied on March 22, it does not
appear when he formally formulated his appeal. In the meantime, as already stated, the boat has being repossessed by
the Shipping Administration and the title thereto re-registered in the name of the government, and delivered to the Pan
Oriental in virtue of the charter agreement. On June 2, 1949, Froilan protested to the President against the charter of
the vessel.
On the same date, the Executive Office advised the Administration and the Commissioner of Customs not to dispose of
the vessel in favor of another party pending final decision by the President on the appeal of Froilan (Exhs. 93-A and 93D). But since the vessel was already cleared in favor of Pan Oriental prior to the receipt of the foregoing communication,
and allegedly in order to prevent its being made answerable for damages, the General Manager of the Shipping
Administration advised the Collector of Customs not to suspend the voyage of the vessel pending final decision on the
appeal of Froilan. Similar manifestation, to allow the Pan Oriental's operation of the vessel without prejudice to whatever
action the President may take in the case, was also made by the Administration to the Executive Secretary.
On June 4, 1949, the Shipping Administration and the Pan Oriental formalized the charter agreement and signed a
bareboat contract with option to purchase, containing the following pertinent provisions:
III. CHARTER HIRE, TIME OF PAYMENT. — The CHARTERER shall pay to the owner a monthly charter hire of THREE
THOUSAND (P3,000.00) PESOS from date of delivery of the vessel, payable in advance on or before the 5th of every
current month until the return of the vessel to OWNER or purchase of the vessel by CHARTERER.
XII. RIGHT OF OPTION TO PURCHASE. — The right of option to purchase the vessel at the price of P150,000.00 plus
the amount expended for its present repairs is hereby granted to the CHARTERER within 120 days from the execution
of this Contract, unless otherwise extended by the OWNER. This right shall be deemed exercised only if, before the
expiration of the said period, or its extension by the OWNER the CHARTERER completes the payment, including any
amount paid as Charter hire, of a total sum of not less than twenty-five percentum (25%) of said price of the vessel.
The period of option may be extended by the OWNER without in any way affecting the other provisions, stipulations,
and terms of this contract.
If, for any reason whatsoever, the CHARTERER fails to exercise its option to purchase within the period stipulated, or
within the extension thereof by the OWNER, its right of option to purchase shall be deemed terminated, without prejudice
to the continuance of the Charter Party provisions of this contract. The right to dispose of the vessel or terminate the
Charter Party at its discretion is reserved to the OWNER.
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. — After the CHARTERER has exercised his right of option as
provided in the preceding paragraph (XII), the vessel shall be deemed conditionally sold to the purchaser, but the
ownership thereof shall not be deemed transferred unless and until all the price of the vessel, together with the interests
thereon, and any other obligation due and payable to the OWNER under this contract, have been fully paid by the
CHARTERER.
xxx
xxx
xxx
XXI. APPROVAL OF THE PRESIDENT. — This contract shall take effect only upon approval of His Excellency, the
President.
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's contract of sale and restored to him all his
rights thereunder, on condition that he would give not less than P10,000.00 to settle partially his overdue accounts and
that reimbursement of the expenses incurred for the repair and drydocking of the vessel performed by Pan Oriental was
to be made in accordance with future adjustment between him and the Shipping Administration (Exh. I). Later, pursuant
to this reservation, Froilan's request to the Executive Secretary that the Administration advance the payment of the
expenses incurred by Pan Oriental in the drydocking and repair of the vessel, was granted on condition that Froilan
assume to pay the same and file a bond to cover said undertaking (Exh. 111).
On September 7, 1949, the formal bareboat charter with option to purchase filed on June 4, 1949, in favor of the Pan
Oriental was returned to the General Manager of the Shipping Administration without action (not disapproval), only
because of the Cabinet resolution of September 6, 1949 restoring Froilan to his rights under the conditions set forth
therein, namely, the payment of P10,000.00 to settle partially his overdue accounts and the filing of a bond to guarantee
the reimbursement of the expenses incurred by the Pan Oriental in the drydocking and repair of the vessel. But Froilan
again failed to comply with these conditions. And so the Cabinet, considering Froilan's consistent failure to comply with
his obligations, including those imposed in the resolution of September 6, 1949, resolved to reconsider said previous
resolution restoring him to his previous rights. And, in a letter dated December 3, 1949, the Executive Secretary
authorized the Administration to continue its charter contract with Pan Oriental in respect to FS-197 and enforce
whatever rights it may still have under the original contract with Froilan (Exh. 188).
Froilan, for his part, petitioned anew for a reconsideration of this action of the Cabinet, claiming that other ship
purchasers, including the President-Treasurer of the Pan Oriental himself, had also defaulted in payment and yet no
action to rescind their contracts had been taken against them. He also offered to make a cash partial payment of
P10,000.00 on his overdue accounts and reimburse Pan Oriental of all its necessary expense on the vessel. Pan
Oriental, however, not only expressed its unwillingness to relinquish possession of the vessel, but also tendered the
sum of P15,000.00 which, together with its alleged expenses already made on the vessel, cover 25% of the cost of the
vessel, as provided in the option granted in the bareboat contract (Exh. 122). This amount was accepted by the
Administration as deposit, subject to the final determination of Froilan's appeal by the President. The Executive
Secretary was also informed of the exercise by Pan Oriental of said option to purchase.
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his rights under the original contract of sale,
on condition that he shall pay the sum of P10,000.00 upon delivery of the vessel to him, said amount to be credited to
his outstanding accounts; that he shall continue paying the remaining installments due, and that he shall assume the
expenses incurred for the repair and drydocking of the vessel (Exh. 134). Pan Oriental protested to this restoration of
Froilan's rights under the contract of sale, for the reason that when the vessel was delivered to it, the Shipping
Administration had authority to dispose of the said property, Froilan having already relinquished whatever rights he may
have thereon. Froilan paid the required cash of P10,000.00, and as Pan Oriental refused to surrender possession of the
vessel, he filed an action for replevin in the Court of First Instance of Manila (Civil Case No. 13196) to recover possession
thereof and to have him declared the rightful owner of said property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of the vessel from Pan Oriental and its delivery
to the plaintiff. Pan Oriental tried to question the validity of this order in a petition for certiorari filed in this Court (G.R.
No. L-4577), but the same was dismissed for lack of merit by resolution of February 22, 1951. Defendant accordingly
filed an answer, denying the averments of the complaint.
The Republic of the Philippines, having been allowed to intervene in the proceeding, also prayed for the possession of
the vessel in order that the chattel mortgage constituted thereon may be foreclosed. Defendant Pan Oriental resisted
said intervention, claiming to have a better right to the possession of the vessel by reason of a valid and subsisting
contract in its favor, and of its right of retention, in view of the expenses it had incurred for the repair of the said vessel.
As counterclaim, defendant demanded of the intervenor to comply with the latter's obligation to deliver the vessel
pursuant to the provisions of the charter contract.
Thereafter, and upon plaintiff's presenting proof that he had made payment to the intervenor Republic of the Philippines,
of the sum of P162,576.96, covering the insurance premiums, unpaid balance of the purchase price of the vessel and
interest thereon, the lower court by order of February 8, 1952, dismissed the complaint in intervention on the ground
that the claim or demand therein had already been released. Said dismissal, however, was made without prejudice to
the determination of defendant's right, and that the release and cancellation of the chattel mortgage did not "prejudge
the question involved between the plaintiff and the defendant which is still the subject of determination in this case."
In view of the dismissal of its complaint, intervenor Republic of the Philippines also moved for the dismissal of
defendant's counterclaims against it, which was granted by the court. On appeal by Pan Oriental to this Court (G.R. No.
L-6060), said order was reversed and the case remanded to the lower court for further proceedings.
Subsequently, Compañia Maritima, as purchaser of the vessel from Froilan, was allowed to intervene in the proceedings
(in the lower court), said intervenor taking common cause with the plaintiff Froilan. In its answer to the complaint in
intervention, defendant set up a counterclaim for damages in the sum of P50,000.00, alleging that plaintiff secured the
Cabinet resolutions and the writ of replevin, resulting in its deprivation of possession of the, vessel, at the instigation
and inducement of Compañia Maritima. This counterclaim was denied by both plaintiff and intervenor Maritima.
On September 28, 1956, the lower court rendered a decision upholding Froilan's (and Compañia Maritima's) right to the
ownership and possession of the FS-197. It was ruled that Froilan's violations of the conditions of the contract of sale in
his favor did not automatically deprive him of his right of ownership of the vessel, which passed to him upon execution
of the contract, but merely gave rise to the Shipping Administration's right either to foreclose the mortgage or rescind
the contract by court action. As the Shipping Administration failed to avail itself of any of these remedies, Froilan's right
of ownership remained unaffected. And the subsequent resolutions of the Cabinet, restoring him to his rights under the
said contract, reaffirmed the same. The charter contract between the Shipping Administration and defendant was
declared null and void, not only because the former could not have legally bound the vessel, but also due to the fact
that said agreement has not been perfected for lack of approval by the President of the Philippines. And, even assuming
that the said charter contract was valid, the lower court held that, as the owner (Republic of the Philippines) under the
same agreement was given the right to terminate the charter or dispose of the vessel anytime, the action of the Cabinet
in cancelling or withdrawing the rescission of Froilan's contract, had the effect of terminating the charter agreement with
the defendant. The court also dismissed (1) defendant's counterclaims against plaintiff Froilan and intervenor Compañia
Maritima, on the ground that it (defendant) was a possessor in bad faith, and consequently, not entitled to damages; (2)
plaintiff's counterclaims against defendant, for the reason that the same should have been directed against intervenor
Republic of the Philippines; and (3) defendant's counterclaims said intervenor Republic, on the ground that the order
dismissing the complaint in intervention had already become final and it was materially impossible for the latter to secure
possession of the vessel. From this decision, Pan Oriental brought the instant appeal.
Contrary to appellant's contention, the ruling of the lower court that under the contract of sale with mortgage, ownership
of the vessel passed to Froilan, upon delivery of the property to the latter, must be sustained. It is to be noted that unlike
in the charter contract where it was specifically prescribed that ownership of the vessel shall be transferred to the vendee
only upon full payment of the purchase price, no similar provision appears in the contract of sale in favor of Froilan. In
the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon the actual or
constructive delivery thereof (Art. 1477, new Civil Code). It is for this reason that Froilan was able to constitute a
mortgage on the vessel in favor of the Administration, to secure payment of the unpaid balance of the purchase price.
There is no gainsaying the fact that there was continuous violation by Froilan of the terms of said contract of sale. The
records conclusively show that notwithstanding the numerous opportunities given him, Froilan had been remiss in the
fulfillment of his obligations thereunder. Nevertheless, the lower court upheld his allegation that the Administration may
not legally rescind the contract without filing the corresponding complaint in court.
Under Article 11911 of the Civil Code, in case of reciprocal obligations, the power to rescind the contract where a party
incurs in default, is impliedly given to the injured party. Appellee maintains however, that the law contemplates of
rescission of contract by judicial action and not a unilateral act by the injured party; consequently, the action of the
Shipping Administration contravenes said provision of the law. This is not entirely correct, because there is also nothing
in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract. As already held2judicial action is needed where there, is absence of special
provision in the contract granting to a party the right of rescission.
In the instant case, while it may be true that the contract of sale did not expressly give to the mortgagee the right to
cancel the agreement it was, nevertheless, provided therein that said party may rescind the contract as it may see fit in
case of breach of the terms thereof by the mortgagor. Taking into account the promises, waivers and representations
made by Froilan, to the extent that he agreed to the automatic transfer of ownership of the vessel to the Administration,
should he fall to fulfill what was incumbent upon him, which did happen, the rescission of the contract without judicial
action is proper.
The next question to be determined is whether there had been a valid and enforceable charter contract in favor of
appellant Pan Oriental, and what was the effect thereon of the subsequent restoration to Froilan by the Cabinet, of his
rights under the original contract of sale with mortgage.
It is not disputed that appellant Pan Oriental took possession of the vessel in question after it had been repossessed by
the Shipping Administration and title thereto reacquired by the government, and operated the same from June 2, 1949
after it had repaired the vessel until it was dispossessed of the property on February 3, 1951, in virtue of a bareboat
charter contract entered into between said company and the Shipping Administration. In the same agreement, appellant
as charterer, was given the option to purchase the vessel, which may be exercised upon payment of a certain amount
within a specified period. The President and Treasurer of the appellant company, tendered the stipulated initial payment
on January 16, 1950. Appellant now contends that having exercised the option, the subsequent Cabinet resolutions
restoring Froilan's rights on the vessel violated its existing rights over the same property. To the contention of plaintiff
Froilan that the charter contract never became effective because it never received presidential approval, as required
therein, Pan Oriental answers that the letter of the Executive Secretary dated December 3, 1949 (Exh. 118), authorizing
the Shipping Administration to continue its charter contract with appellant, satisfies such requirement (of presidential
approval). It is to be noted, however, that said letter was signed by the Executive Secretary only and not under authority
of the President. The same, therefore, cannot be considered to have attached unto the charter contract the required
consent of the Chief Executive for its validity.
Upon the other hand, the Cabinet resolutions purporting to restore Froilan to his former rights under the deed of sale,
cannot also be considered as an act of the President which is specifically required in all contracts relating to these
vessels (Executive Order No. 31, series of 1946). Actions of the Cabinet are merely recommendatory or advisory in
character. Unless afterwards specifically adopted by the President as his own executive act, they cannot be considered
as equivalent to the act of approval of the President expressly required in cases involving disposition of these vessels.
In the circumstances of this case, therefore, the resulting situation is that neither Froilan nor the Pan Oriental holds a
valid contract over the vessel. However, since the intervenor Shipping Administration, representing the government
practically ratified its proposed contract with Froilan by receiving the full consideration of the sale to the latter, for which
reason the complaint in intervention was dismissed as to Froilan, and since Pan Oriental has no capacity to question
this actuation of the Shipping Administration because it had no valid contract in its favor, the decision of the lower court
adjudicating the vessel to FroiIan and its successor Compañia Maritima, must be sustained. Nevertheless, under the
circumstances already adverted to, Pan Oriental cannot be considered a possessor in bad faith until after the institution
of the instant case. However, since it is not disputed that said appellant made useful and necessary expenses on the
vessel, appellant is entitled to the refund of such expenses with the right to retain the vessel until he has been reimbursed
therefor (Art. 546, Civil Code). As it is by the concerted acts of defendants and intervenor Republic of the Philippines
that appellant was deprived of the possession of the vessel over which appellant had a lien for his expenses, appellees
Froilan, Compañia Maritima, and the Republic of the Philippines3are declared liable for the reimbursement to appellant
of its legitimate expenses, as allowed by law, with legal interest from the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs. Case is remanded to the lower court for
further proceedings in the matter of expenses. So ordered.
G.R. No. 143866. August 22, 2005
POLIAND INDUSTRIAL LIMITED, Petitioners, vs. NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT
BANK OF THE PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth Division) respondents.
G.R. No. 143877. August 22, 2005
NATIONAL DEVELOPMENT COMPANY, Petitioners, vs. POLIAND INDUSTRIAL LIMITED, Respondent.
Before this Court are two Rule 45 consolidated petitions for review seeking the review of the Decision1 of the Court of
Appeals (Fourth Division) in CA-G.R. CV No. 53257, which modified the Decision of the Regional Trial Court, Branch
61, Makati City in Civil Case No. 91-2798. Upon motion of the Development Bank of the Philippines (DBP), the two
petitions were consolidated since both assail the same Decision of the Court of Appeals.
In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment declaring the National
Development Company (NDC) and the DBP solidarily liable in the amount of US$2,315,747.32, representing the
maritime lien in favor of POLIAND and the net amount of loans incurred by Galleon Shipping Corporation (GALLEON).
It also prays that NDC and DBP be ordered to pay the attorney’s fees and costs of the proceedings as solidary debtors.
In G.R. No. 143877, petitioner NDC seeks the reversal of the Court of Appeals’ Decision ordering it to pay POLIAND
the amount of One Million Nine Hundred Twenty Thousand Two Hundred Ninety-Eight and 56/100 United States Dollars
(US$1,920,298.56), corresponding to the maritime lien in favor of POLIAND, plus interest.
ANTECEDENTS
Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong corporation,
extended credit accommodations in favor of GALLEON totaling US$3,317,747.32.2 At that time, GALLEON, a domestic
corporation organized in 1977 and headed by its president, Roberto Cuenca, was engaged in the maritime transport of
goods. The advances were utilized to augment GALLEON’s working capital depleted as a result of the purchase of five
new vessels and two second-hand vessels in 1979 and competitiveness of the shipping industry. GALLEON had
incurred an obligation in the total amount of US$3,391,084.91 in favor of Asian Hardwood.
To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo Kobe Bank,
Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979, GALLEON, through Cuenca, and DBP executed a
Deed of Undertaking3 whereby DBP guaranteed the prompt and punctual payment of GALLEON’s borrowings from the
Japanese lenders. To secure DBP’s guarantee under the Deed of Undertaking, GALLEON promised, among others, to
secure a first mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON executed on January
25, 1982 a mortgage contract over five of its vessels namely, M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon
Dignity," M/V "Galleon Pride," and M/V "Galleon Trust" in favor of DBP.4
Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155, directing
NDC to acquire the entire shareholdings of GALLEON for the amount originally contributed by its shareholders payable
in five (5) years without interest cost to the government. In the same LOI, DBP was to advance to GALLEON within
three years from its effectivity the principal amount and the interest thereon of GALLEON’s maturing obligations.
On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented by Minister of Trade
Roberto Ongpin, forged a Memorandum of Agreement,5 whereby NDC and GALLEON agreed to execute a share
purchase agreement within sixty days for the transfer of GALLEON’s shareholdings. Thereafter, NDC assumed the
management and operations of GALLEON although Cuenca remained president until May 9, 1982.6 Using its own
funds, NDC paid Asian Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement of
GALLEON’s obligations.7
On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels. For failure
of GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially foreclosed on various
dates and acquired by DBP for the total amount of ₱539,000,000.00. DBP subsequently sold the vessels to NDC for
the same amount.8
On April 22, 1982, the Board of Directors of GALLEON amended the Articles of Incorporation changing the corporate
name from Galleon Shipping Corporation to National Galleon Shipping Corporation and increasing the number of
directors from seven to nine.9
Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of US$2,315,747.32 to World Universal
Trading and Investment Company, S.A. (World Universal), embodied in a Deed of Assignment executed on April 29,
1989.10 World Universal, in turn, assigned the credit to petitioner POLIAND sometime in July 1989.11
On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and Philippine Export
and Foreign Loan Guarantee Corporation (now Trade and Investment Development Corporation of the Philippines) to
transfer some of their assets to the National Government, through the Asset Privatization Trust (APT) for disposition.
Among those transferred to the APT were the five GALLEON vessels sold at the foreclosure proceedings.
On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for the satisfaction of the
outstanding balance in the amount of US$2,315,747.32.12 For failure to heed the demand, POLIAND instituted a
collection suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial Court, Branch 61,
Makati City. POLIAND claimed that under LOI No. 1155 and the Memorandum of Agreement between GALLEON and
NDC, defendants GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit
advances/loan accommodations to GALLEON. POLIAND also claimed that it had a preferred maritime lien over the
proceeds of the extrajudicial foreclosure sale of GALLEON’s vessels mortgaged by NDC to DBP. The complaint prayed
for judgment ordering NDC, DBP, and GALLEON to pay POLIAND jointly and severally the balance of the credit
advances/loan accommodations in the amount of US$2,315,747.32 and attorney’s fees of ₱100,000.00 plus 20% of the
amount recovered. By way of an alternative cause of action, POLIAND sought reimbursement from NDC and DBP for
the preferred maritime lien of US$1,193,298.56.13
In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a party to any of the alleged loan
transactions. Accordingly, DBP argued that POLIAND’s complaint stated no cause of action against DBP or was barred
by the Statute of Frauds because DBP did not sign any memorandum to act as guarantor for the alleged credit
advances/loan accommodations in favor of POLIAND. DBP also denied any liability under LOI No. 1155, which it
described as immoral and unconstitutional, since it was rescinded by LOI No. 1195. By way of its Affirmative Allegations
and Defenses, DBP countered that it was unaware of the maritime lien on the five vessels mortgaged in its favor and
that as far as GALLEON’s foreign borrowings are concerned, DBP agreed to act as guarantor thereof only under the
conditions laid down under the Deed of Undertaking. DBP prayed for the award of actual, moral and exemplary damages
and attorney’s fees against POLIAND as compulsory counterclaim. In the event that it be adjudged liable for the payment
of the loan accommodations and the maritime liens, DBP prayed that its co-defendant GALLEON be ordered to
indemnify DBP for the full amount.14
For its part, NDC denied any participation in the execution of the loan accommodations/credit advances and acquisition
of ownership of GALLEON, asserting that it acted only as manager of GALLEON. NDC specifically denied having agreed
to the assumption of GALLEON’s liabilities because no purchase and sale agreement was executed and the delivery of
the required shares of stock of GALLEON did not take place.15
Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite vigorous oppositions from NDC
and DBP. At the pre-trial conference on April 29, 1993, the trial court issued an Order limiting the issues to the following:
(1) whether or not GALLEON has an outstanding obligation in the amount of US$2,315,747.32; (2) whether or not NDC
and DBP may be held solidarily liable therefor; and (3) whether or not there exists a preferred maritime lien of
₱1,000,000.00 in favor of POLIAND.16
After trial on the merits, the court a quo rendered a decision on August 9, 1996 in favor of POLIAND. Finding that
GALLEON’s loan advances/credit accommodations were duly established by the evidence on record, the trial court
concluded that under LOI No. 1155, DBP and NDC are liable for those obligations. The trial court also found NDC liable
for GALLEON’s obligations based on the Memorandum of Agreement dated August 1981 executed between GALLEON
and NDC, where it was provided that NDC shall prioritize repayments of GALLEON’s valid and subsisting liabilities
subject of a meritorious lawsuit or which have been arranged and guaranteed by Cuenca. The trial court was of the
opinion that despite the subsequent issuance of LOI No. 1195, NDC and DBP’s obligation under LOI No. 1155 subsisted
because "vested rights of the parties have arisen therefrom." Accordingly, the trial court interpreted LOI No. 1195’s
directive to "limit and protect" to mean that "DBP and NDC should not assume or incur additional exposure with respect
to GALLEON."17
The trial court dismissed NDC’s argument that the Memorandum of Agreement was merely a preliminary agreement,
noting that under paragraph nine thereof, the only condition for the payment of GALLEON’s subsisting loans by NDC
was the determination by the latter that those obligations were incurred in the ordinary course of GALLEON’s business.
The trial court did not regard the non-execution of the stock purchase agreement as fatal to POLIAND’s cause since its
non-happening was solely attributable to NDC. The trial court also ruled that POLIAND had preference to the maritime
lien over the proceeds of the extrajudicial foreclosure sale of GALLEON’s vessels since the loan advances/credit
accommodations utilized for the payment of expenses on the vessels were obtained prior to the constitution of the
mortgage in favor of DBP.
In sum, NDC and DBP were ordered to pay POLIAND as follows:
WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff as against defendants DBP and NDC, who are
hereby ORDERED as follows:
1. To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION THREE HUNDRED FIFTEEN THOUSAND SEVEN
HUNDRED FORTY SEVEN AND 21/100 [sic] United States Dollars (US$2,315,747.32) computed at the official exchange rate at the
time of payment, plus interest at the rate of 12% per annum from 25 September 1991 until fully paid;
2. To PAY the amount of ONE MILLION (₱1,000,000.) Pesos, Philippine Currency, for and as attorney’s fees; and
3. To PAY the costs of the proceedings.
Both NDC and DBP appealed the trial court’s decision.
The Court of Appeals rendered a modified judgment, absolving DBP of any liability in view of POLIAND’s failure to
clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising from the credit
advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but
merely assumed control over its management and operations. However, NDC was held liable to POLIAND for the
payment of the preferred maritime lien based on LOI No. 1195 which directed NDC to "discharge such maritime liens
as may be necessary to allow the foreclosed vessels to engage on the international shipping business," as well as
attorney’s fees and costs of suit. The dispositive portion of the Decision reads:
WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing findings, as follows:
The case against defendant-appellant DBP is hereby DISMISSED.
Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the amount of US$1,920,298.56 plus legal interest
effective September 12, 1984. The award of attorney’s fees and cost of suit is addressed only against NDC. Costs against defendantappellant NDC.
Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this Court via two separate petitions for
review on certiorari. In G.R. No. 143866 filed on August 21, 2000, petitioner POLIAND raises the following arguments:
RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERRORS IN ITS QUESTIONED DECISION
DATED 29 JUNE 2000 AND DECIDED QUESTIONS CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST 1996 RENDERED BY THE REGIONAL TRIAL
COURT (BRANCH 61) CONSIDERING THAT:
A.
CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, RESPONDENT NDC NOT ONLY TOOK
OVER TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF
GALLEON PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED 10 AUGUST 1981; THUS,
RESPONDENT NDC’S ACQUISITION OF FULL OWNERSHIP AND CONTROL OF GALLEON CARRIED WITH IT THE
ASSUMPTION OF THE LATTER’S LIABILITIES TO THIRD PARTIES SUCH AS ASIAN HARDWOOD, PETITIONER
POLIAND’S PREDECESSOR-IN-INTEREST.
B.
RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION AND THE RULES OF COURT,
DISMISSED THE CASE AGAINST RESPONDENT DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE
REASONS FOR SUCH A DISMISSAL.
C.
CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, PETITIONER POLIAND WAS ABLE TO
ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH
RESPECT TO THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND.
D.
RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING THAT RESPONDENT DBP IS
JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS
INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREEE 1521.
On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing the following errors to the Court of
Appeals:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS LIABLE TO PAY GALLEON’S
OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO SATISFY
THE PREFERRED MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE
GALLEON VESSELS.
(A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE ‘SHIP MORTGAGE DECREE OF 1978 IS NOT
APPLICABLE IN THE CASE AT BAR.
(B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE (5) GALLEON
VESSELS.
(C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS EXTINGUISHES ALL CLAIMS AGAINST THE VESSELS.
II.
THE COURT OF APPEALS ERRED IN AWARDING ATTORNEY’S FEES TO RESPONDENT POLIAND.
The two petitions were consolidated considering that both petitions assail the same Court of Appeals’ Decision, although
on different fronts. In G.R. No. 143866, POLIAND questions the appellate court’s finding that neither NDC nor DBP can
be held liable for the loan accommodations to GALLEON. In G.R. No. 143877, NDC asserts that it is not liable to
POLIAND for the preferred maritime lien.
ISSUES
The bone of contention revolves around two main issues, namely: (1) Whether NDC or DBP or both are liable to
POLIAND on the loan accommodations and credit advances incurred by GALLEON, and (2) Whether POLIAND has a
maritime lien enforceable against NDC or DBP or both.
RULING of the COURT
I. Liability on loan accommodations and credit advances incurred by GALLEON
The Court of Appeals reversed the trial court’s conclusion that NDC and DBP are both liable to POLIAND for GALLEON’s
debts on the basis of LOI No. 1155 and the Memorandum of Agreement. It ratiocinated thus:
With respect to appellant NDC, resolution of the matters raised in its assignment of errors hinges on whether or not it
acquired the shareholdings of GALLEON as directed by LOI 1155; and if in the negative, whether or not it is liable to
pay GALLEON’s outstanding obligation.
The Court answers the issue in the negative. The MOA executed by GALLEON and NDC following the issuance of LOI
1155 called for the execution of a "formal share purchase agreement and the transfer of all the shareholdings of seller
to Buyer." Since no such execution and consequent transfer of shareholdings took place, NDC did not acquire ownership
of GALLEON. It merely assumed "actual control over the management and operations" of GALLEON in the exercise of
which it, on January 15, 1982, after being satisfied of the existence of GALLEON’s obligation to ASIAN HARDWOOD,
partially paid the latter One Million ($1,000,000.00) US dollars.
With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of action against it. This leaves it
unnecessary to dwell on DBP’s other assigned errors, including that bearing on its claim for damages and attorney’s
fees which does not persuade.
POLIAND’s cause of action against NDC is premised on the theory that when NDC acquired all the shareholdings of
GALLEON, the former also assumed the latter’s liabilities, including the loan advances/credit accommodations obtained
by GALLEON from POLIAND’s predecessors-in-interest. In G.R. No. 143866, POLIAND argues that NDC acquired
ownership of GALLEON pursuant to paragraphs 1 and 2 of LOI No. 1155, which was implemented through the execution
of the Memorandum of Agreement. It believes that no conditions were required prior to the assumption by NDC of
GALLEON’s ownership and subsisting loans. Even assuming that conditions were set, POLIAND opines that the
conditions were deemed fulfilled pursuant to Article 1186 of the Civil Code because of NDC’s apparent intent to prevent
the execution of the share purchase agreement.
On the other hand, NDC asserts that it could not have acquired GALLEON’s equity and, consequently, its liabilities
because LOI No. 1155 had been rescinded by LOI No. 1195, and therefore, became inoperative and non-existent.
Moreover, NDC, relying on the pronouncements in Philippine Association of Service Exporters, Inc. et al. v. Ruben D.
Torres25 and Parong, et al. v. Minister Enrile, is of the opinion that LOI No. 1155 does not have the force and effect of
law and cannot be a valid source of obligation. NDC denies POLIAND’s contention that it deliberately prevented the
execution of the share purchase agreement considering that Cuenca remained GALLEON’s president seven months
after the signing of the Memorandum of Agreement. NDC contends that the Memorandum of Agreement was a mere
preliminary agreement between Cuenca and Ongpin for the intended purchase of GALLEON’s equity, prescribing the
manner, terms and conditions of said purchase.
NDC, not liable under LOI No. 1155
As a general rule, letters of instructions are simply directives of the President of the Philippines, issued in the exercise
of his administrative power of control, to heads of departments and/or officers under the executive branch of the
government for observance by the officials and/or employees thereof.30 Being administrative in nature, they do not
have the force and effect of a law and, thus, cannot be a valid source of obligation. However, during the period when
then President Marcos exercised extraordinary legislative powers, he issued certain decrees, orders and letters of
instruction which the Court has declared as having the force and effect of a statute. As pointed out by the Court in
Legaspi v. Minister of Finance,31 paramount considerations compelled the grant of extraordinary legislative power to
the President at that time when the nation was beset with threats to public order and the purpose for which the authority
was granted was specific to meet the exigencies of that period, thus:
True, without loss of time, President Marcos made it clear that there was no military take-over of the government, and
that much less was there being established a revolutionary government, even as he declared that said martial law was
of a double-barrelled type, unfamiliar to traditional constitutionalists and political scientists—for two basic and
transcendental objectives were intended by it: (1) the quelling of nation-wide subversive activities characteristic not only
of a rebellion but of a state of war fanned by a foreign power of a different ideology from ours, and not excluding the
stopping effectively of a brewing, if not a strong separatist movement in Mindanao, and (2) the establishment of a New
Society by the institution of disciplinary measures designed to eradicate the deep-rooted causes of the rebellion and
elevate the standards of living, education and culture of our people, and most of all the social amelioration of the poor
and underprivileged in the farms and in the barrios, to the end that hopefully insurgency may not rear its head in this
country again.
Thus, before a letter of instruction is declared as having the force and effect of a statute, a determination of whether or
not it was issued in response to the objectives stated in Legaspi is necessary. Parong, et al. v. Minister Enrile
differentiated between LOIs in the nature of mere administrative issuances and those forming part of the law of the land.
The following conditions must be established before a letter of instruction may be considered a law:
To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his
extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever
in his judgment, there exists a grave emergency or threat or imminence thereof, or whenever the interim Batasan
Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his
judgment requires immediate action.
Only when issued under any of the two circumstances will a decree, order, or letter be qualified as having the force and
effect of law. The decree or instruction should have been issued either when there existed a grave emergency or threat
or imminence or when the Legislature failed or was unable to act adequately on the matter. The qualification that there
exists a grave emergency or threat or imminence thereof must be interpreted to refer to the prevailing peace and order
conditions because the particular purpose the President was authorized to assume legislative powers was to address
the deteriorating peace and order situation during the martial law period.
There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then President Marcos was vested with
extraordinary legislative powers. LOI No. 1155 was specifically directed to DBP, NDC and the Maritime Industry
Authority to undertake the following tasks:
LETTER OF INSTRUCTIONS NO. 1155
DEVELOPMENT BANK OF THE PHILIPPINES
NATIONAL DEVELOPMENT COMPANY
MARITIME INDUSTRY AUTHORITY
DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION
1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners for the amount
of ₱46.7 million which is the amount originally contributed by the present shareholders, payable after five years with no
interest cost.
2. NDC to immediately infuse ₱30 million into Galleon Shipping Corporation in lieu of is previously approved subscription
to Philippine National Lines. In addition, NDC is to provide additional equity to Galleon as may be required.
3. DBP to advance for a period of three years from date hereof both the principal and the interest on Galleon's obligations
falling due and to convert such advances into 12% preferred shares in Galleon Shipping Corporation.
4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon.
5. MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule considering existing freight
volumes and to immediately negotiate a bilateral agreement with the United States in accordance with UNCTAD
resolutions.
Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative powers granted
under Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155 precludes this Court from
declaring that said LOI had the force and effect of law in the absence of any of the conditions set out in Parong. The
subject matter of LOI No. 1155 is not connected, directly or remotely, to a grave emergency or threat to the peace and
order situation of the nation in particular or to the public interest in general. Nothing in the language of LOI No. 1155
suggests that it was issued to address the security of the nation. Obviously, LOI No. 1155 was in the nature of a mere
administrative issuance directed to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a
private corporation.
NDC, not liable under the Corporation Code
The Court cannot accept POLIAND’s theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired the
interests in GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation.
Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues
the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the
surviving corporation.35 The merger, however, does not become effective upon the mere agreement of the constituent
corporations.36
As specifically provided under Section 7937 of said Code, the merger shall only be effective upon the issuance of a
certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the
merger is not inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed
by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government
agency should first be obtained. The issuance of the certificate of merger is crucial because not only does it bear out
SEC’s approval but also marks the moment whereupon the consequences of a merger take place. By operation of law,
upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights, and properties as well as
liabilities shall be taken and deemed transferred to and vested in the surviving corporation.38
The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were required prior
to the assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance with the statutory
requirements is a condition precedent to the effective transfer of the shareholdings in GALLEON to NDC. In directing
NDC to acquire the shareholdings in GALLEON, the President could not have intended that the parties disregard the
requirements of law. In the absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON
to NDC. Hence, NDC did not acquire the rights or interests of GALLEON, including its liabilities.
DBP, not liable under LOI No. 1155
POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the obligations of
GALLEON.39 DBP argues that POLIAND has no cause of action against it under LOI No. 1155 which is void and
unconstitutional.40
The Court affirms the appellate court’s ruling that POLIAND does not have any cause of action against DBP under LOI
No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not
create any privity of contract between DBP and POLIAND or its predecessors-in-interest. At best, the directive in LOI
No. 1155 was in the nature of a grant of authority by the President on DBP to enter into certain transactions for the
satisfaction of GALLEON’s obligations. There is, however, nothing from the records of the case to indicate that DBP
had acted as surety or guarantor, or had otherwise accommodated GALLEON’s obligations to POLIAND or its
predecessors-in-interest.
II. Liability on maritime lien
On the second issue of whether or not NDC is liable to POLIAND for the payment of maritime lien, the appellate court
ruled in the affirmative, to wit:
Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay ASIAN HARDWOOD’s successor-ininterest POLIAND the equivalent of US$1,930,298.56 representing the proceeds of the loan from Asian Hardwood which
were spent by GALLEON for ship modification and salaries of crew, to satisfy the preferred maritime liens over the
proceeds of the foreclosure sale of the 5 vessels.
POLIAND contends that NDC can no longer raise the issue on the latter’s liability for the payment of the maritime lien
considering that upon appeal to the Court of Appeals, NDC did not assign it as an error.42 Generally, an appellate court
may only pass upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court
ruled that an appellate court is accorded a broad discretionary power to waive the lack of assignment of errors and
consider errors not assigned:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.
It is noteworthy that the question of NDC and DBP’s liability on the maritime lien had been raised by POLIAND as an
alternative cause of action against NDC and DBP and was passed upon by the trial court. The Court of Appeals,
however, reversed the trial court’s finding that NDC and DBP are liable to POLIAND for the payment of the credit
advances and loan accommodations and instead found NDC to be solely liable on the preferred maritime lien although
NDC did not assign it as an error.
The records, however, reveal that the issue on the liability on the preferred maritime lien had been properly raised and
argued upon before the Court of Appeals not by NDC but by DBP who was also adjudged liable thereon by the trial
court. DBP’s appellant’s brief44 pointed out POLIAND’s failure to present convincing evidence to prove its alternative
cause of action, which POLIAND disputed in its appellee’s brief.45 The issue on the maritime lien is a matter of record
having been adequately ventilated before and passed upon by the trial court and the appellate court. Thus, by way of
exception, NDC is not precluded from again raising the issue before this Court even if it did not specifically assign the
matter as an error before the Court of Appeals. Besides, this Court is clothed with ample authority to review matters,
even if they are not assigned as errors in the appeal if it finds that their consideration is necessary in arriving at a just
decision of the case.
Articles 578 and 580 of the Code of Commerce, not applicable
NDC cites Articles 57847 and 58048 of the Code of Commerce to bolster its argument that the foreclosure of the vessels
extinguished all claims against the vessels including POLIAND’s claim.49 Article 578 of the Code of Commerce is not
relevant to the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision outlines
the formal and registration requirements in order that a sale of a vessel on voyage or in a foreign port becomes effective
as against third persons. On the other hand, the resolution of the instant case depends on the determination as to which
creditor is entitled to the proceeds of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce
is inapplicable.
Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by
the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship Mortgage Decree of 1978.
In particular, Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall
be satisfied in the order specified therein. On the other hand, Section 17 of P.D. No. 152150 also provides that in the
judicial or extrajudicial sale of a vessel for the enforcement of a preferred mortgage lien constituted in accordance with
Section 2 of P.D. No. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the
vessel, save for those claims enumerated under Section 17, which have preference over the preferred mortgage lien in
the order stated therein. Since P.D. No. 1521 is a subsequent legislation and since said law in Section 17 thereof confers
on the preferred mortgage lien on the vessel superiority over all other claims, thereby engendering an irreconcilable
conflict with the order of preference provided under Article 580 of the Code of Commerce, it follows that the Code of
Commerce provision is deemed repealed by the provision of P.D. No. 1521, as the posterior law.51
P.D. No. 1521 is applicable, not the Civil Code provisions on concurrence/preference of credits
Whether or not the order of preference under Section 17, P.D. No. 1521 may be properly applied in the instant case
depends on the classification of the mortgage on the GALLEON vessels, that is, if it falls within the ambit of Section 2,
P.D. No. 1521, defining how a preferred mortgage is constituted.
NDC and DBP both argue that POLIAND’s claim cannot prevail over DBP’s mortgage credit over the foreclosed vessels
because the mortgage executed in favor of DBP pursuant to the October 10, 1979 Deed of Undertaking signed by
GALLEON and DBP was an ordinary ship mortgage and not a preferred one, that is, it was not given in connection with
the construction, acquisition, purchase or initial operation of the vessels, but for the purpose of guaranteeing
GALLEON’s foreign borrowings.
Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to wit:
SECTION 2. Who may Constitute a Ship Mortgage. — Any citizen of the Philippines, or any association or corporation
organized under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizens of the
Philippines may, for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of
vessels, freely constitute a mortgage or any other lien or encumbrance on his or its vessels and its equipment with any
bank or other financial institutions, domestic or foreign.
If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a preferred
status provided the formal requisites enumerated under Section 453 are complied with. Upon enforcement of the
preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of
the mortgage creditor unless there are superior or preferential liens, as enumerated under Section 17, namely:
SECTION 17. Preferred Maritime Lien, Priorities, Other Liens. — (a) Upon the sale of any mortgaged vessel in any
extra-judicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the enforcement of a
preferred mortgage lien thereon, all pre-existing claims in the vessel, including any possessory common-law lien of
which a lienor is deprived under the provisions of Section 16 of this Decree, shall be held terminated and shall thereafter
attach in like amount and in accordance with the priorities established herein to the proceeds of the sale. The preferred
mortgage lien shall have priority over all claims against the vessel, except the following claims in the order stated: (1)
expenses and fees allowed and costs taxed by the court and taxes due to the Government; (2) crew's wages; (3) general
average; (4) salvage including contract salvage; (5) maritime liens arising prior in time to the recording of the preferred
mortgage; (6) damages arising out of tort; and (7) preferred mortgage registered prior in time.
(b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade, the residue
shall be divided among them pro rata. All credits not paid, whether fully or partially shall subsist as ordinary credits
enforceable by personal action against the debtor. The record of judicial sale or sale by public auction shall be recorded
in the Record of Transfers and Encumbrances of Vessels in the port of documentation. (Emphasis supplied.)
There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary to NDC’s
assertion, the mortgage constituted on GALLEON’s vessels in favor of DBP may appropriately be characterized as a
preferred mortgage under Section 2, P.D. No. 1521 because GALLEON constituted the same for the purpose of
financing the construction, acquisition, purchase of vessels or initial operation of vessels. While it is correct that
GALLEON executed the mortgage in consideration of DBP’s guarantee of the prompt payment of GALLEON’s
obligations to the Japanese lenders, DBP’s undertaking to pay the Japanese banks was a condition sine qua non to the
acquisition of funds for the purchase of the GALLEON vessels. Without DBP’s guarantee, the Japanese lenders would
not have provided the funds utilized in the purchase of the GALLEON vessels. The mortgage in favor of DBP was
therefore constituted to facilitate the acquisition of funds necessary for the purchase of the vessels.
NDC adds that being an ordinary ship mortgage, the Civil Code provisions on concurrence and preference of credits
and not P.D. No. 1521 should govern. NDC contends that under Article 2246, in relation to Article 2241 of the Civil Code,
the credits guaranteed by a chattel mortgage upon the thing mortgaged shall enjoy preference (with respect to the thing
mortgaged), to the exclusion of all others to the extent of the value of the personal property to which the preference
exists.54 Following NDC’s theory, DBP’s mortgage credit, which is fourth in the order of preference under Article 2241,
is superior to POLIAND’s claim, which enjoys no preference.
NDC’s argument does not persuade the Court.
The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the vessel is the more
applicable statute to the instant case compared to the Civil Code provisions on the concurrence and preference of credit.
General legislation must give way to special legislation on the same subject, and generally be so interpreted as to
embrace only cases in which the special provisions are not applicable.55
POLIAND’s alternative cause of action for the payment of maritime liens is based on Sections 17 and 21 of P.D. No.
1521. POLIAND also contends that by virtue of the directive in LOI No. 1195 on NDC to discharge maritime liens to
allow the vessels to engage in international business, NDC is liable therefor.56
POLIAND’s maritime lien is superior to DBP’s mortgage lien
Before POLIAND’s claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to
be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of
the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be
superior to the preferred mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage.
Such maritime lien is described under Section 21, P.D. No. 1521, which reads:
SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs, supplies,
towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the
order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel,
which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel.
Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its
authorized person and prior to the recording of the ship mortgage. Under the law, it must be established that the credit
was extended to the vessel itself.57
The trial court found that GALLEON’s advances obtained from Asian Hardwood were used to cover for the payment of
bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking of the GALLEON vessels.58
These expenses clearly fall under Section 21, P.D. No. 1521.
The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crew’s
salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it
does not have a status superior to DBP’s preferred mortgage lien.
As stated in Section 21, P.D. No. 1521, a maritime lien may consist in "other necessaries spent for the vessel." The ship
modification cost may properly be classified under this broad category because it was a necessary expenses for the
vessel’s navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the
vessel, it may properly be treated as a maritime lien for necessaries under Section 21, P.D. No. 1521.
With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the enumerated claims
under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the government in preference and, thus,
having a status superior to DBP’s mortgage lien.
All told, the determination of the existence and the amount of POLIAND’s claim for maritime lien is a finding of fact which
is within the province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon the
Supreme Court except when the findings are grounded on speculation, surmises or conjectures; when the inference
made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts;
when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its
findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and
appellee; when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to
notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are
conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of
Appeals are premised on the absence of evidence but are contradicted by the evidence on record.59 The Court finds
no sufficient justification to reverse the findings of the trial court and the appellate court in respect to the existence and
amount of maritime lien.
Only NDC is liable on the maritime lien
POLIAND maintains that DBP is also solidarily liable for the payment of the preferred maritime lien over the proceeds
of the foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims that since the lien was incurred prior to the
constitution of the mortgage on January 25, 1982, the preferred maritime lien attaches to the proceeds of the sale of the
vessels and has priority over all claims against the vessels in accordance with Section 17, P.D. No. 1521.60
In its defense, DBP reiterates the following arguments: (1) The salary and crew’s wages cannot be claimed by POLIAND
or its predecessors-in-interest because none of them is a sailor or mariner;61 (2) Even if conceded, POLIAND’s
preferred maritime lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3) POLIAND’s claim is barred
by prescription and laches.62
The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to wages, they
can still make a claim for the advances spent for the salary and wages of the crew under the principle of legal
subrogation. As explained in Philippine National Bank v. Court of Appeals,63 a third person who satisfies the obligation
to an original maritime lienor may claim from the debtor because the third person is subrogated to the rights of the
maritime lienor over the vessel. The Court explained as follows:
From the foregoing, it is clear that the amount used for the repair of the vessel M/V "Asean Liberty" was advanced by
Citibank and was utilized for the purpose of paying off the original maritime lienor, Hong Kong United Dockyards, Ltd.
As a person not interested in the fulfillment of the obligation between PISC and Hong Kong United Dockyards, Ltd.,
Citibank was subrogated to the rights of Hong Kong United Dockyards, Ltd. as a maritime lienor over the vessel, by
virtue of Article 1302, par. 2 of the New Civil Code. By definition, subrogation is the transfer of all the rights of the creditor
to a third person, who substitutes him in all his rights. Considering that Citibank paid off the debt of PISC to Hong Kong
United Dockyards, Ltd. it became the transferee of all the rights of Hong Kong Dockyards, Ltd. as against PISC, including
the maritime lien over the vessel M/V "Asian Liberty."
DBP’s reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the contracts
covered by the Statue of Frauds, is inapplicable. To begin with, there is no privity of contract between POLIAND or its
predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on
LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement.
Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an action upon
an obligation created by law must be brought within ten years from the time the right of action accrues. The right of
action arose after January 15, 1982, when NDC partially paid off GALLEON’s obligations to POLIAND’s predecessorin-interest, Asian Hardwood. At that time, the prescriptive period for the enforcement by action of the balance of
GALLEON’s outstanding obligations had commenced. Prescription could not have set in because the prescriptive period
was tolled when POLIAND made a written demand for the satisfaction of the obligation on September 24, 1991, or
before the lapse of the ten-year prescriptive period. Laches also do not lie because there was no unreasonable delay
on the part of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably.
All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime
lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien
is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is
in the nature and character of a proceeding quasi in rem.65 The expression "action in rem" is, in its narrow application,
used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as
responsible for the claim or obligation upon which the proceedings are based.66 Considering that DBP subsequently
transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the
subsequent transfer of the vessels to NDC, the maritime lien subsists.
This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels took place without the intervention
of GALLEON’s other creditors including POLIAND’s predecessors-in-interest who were apparently left in the dark about
the foreclosure proceedings. At that time, GALLEON was already a failing corporation having borrowed large sums of
money from banks and financial institutions. When GALLEON defaulted in the payment of its obligations to DBP, the
latter foreclosed on its mortgage over the GALLEON ships. The other creditors, including POLIAND’s predecessors-ininterest who apparently had earlier or superior rights over the foreclosed vessels, could not have participated as they
were unaware and were not made parties to the case.
On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure proceedings was tainted
with bad faith. It took place when NDC had already assumed the management and operations of GALLEON. NDC could
not have pleaded ignorance over the existence of a prior or preferential lien on the vessels subject of foreclosure. As
aptly held by the Court of Appeals:
NDC’s claim that even if maritime liens existed over the proceeds of the foreclosure sale of the vessels which it
subsequently purchased from DBP, it is not liable as it was a purchaser in good faith fails, given the fact that in its "actual
control over the management and operations" of GALLEON, it was put on notice of the various obligations of GALLEON
including those secured from ASIAN HARDWOOD as in fact it even paid ASIAN HARDWOOD US$1,000,000.00 in
partial settlement of GALLEON’s obligations, before it (NDC) mortgaged the 5 vessels to DBP on January 25, 1982.
Parenthetically, LOI 1195 directed NDC to "discharge such maritime liens as may be necessary to allow the foreclosed
vessels to engage on the international shipping business."
In fine, it is with respect to POLIAND’s claim for payment of US$1,930,298.56 representing part of the proceeds of
GALLEON’s loan which was spent by GALLEON "for ship modification and salaries of crew" that NDC is liable.67
Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that the vessels
were subject to various liens. At the very least, to evince good faith, NDC could have inquired as to the existence of
other claims against the vessels apart from DBP’s mortgage lien. Considering that NDC was also in a position to know
or discover the financial condition of GALLEON when it took over its management, the lack of notice to GALLEON’s
creditors suggests that the extrajudicial foreclosure was effected to prejudice the rights of GALLEON’s other creditors.
NDC also cannot rely on Administrative Order No. 64,68 which directed the transfer of the vessels to the APT, on its
hypothesis that such transfer extinguished the lien. APT is a mere conduit through which the assets acquired by the
National Government are provisionally held and managed until their eventual disposal or privatization. Administrative
Order No. 64 did not divest NDC of its ownership over the GALLEON vessels because APT merely holds the vessels in
trust for NDC until the same are disposed. Even if ownership was transferred to APT, that would not be sufficient to
discharge the maritime lien and deprive POLIAND of its recourse based on the lien. Such denouement would smack of
denial of due process and taking of property without just compensation.
NDC’s liability for attorney’s fees
The lower court awarded attorney’s fees to POLIAND in the amount of ₱1,000,000.00 on account of the amount involved
in the case and the protracted character of the litigation.69 The award was affirmed by the Court of Appeals as against
NDC only.
This Court finds no reversible error with the award as upheld by the appellate court. Under Article 220871 of the Civil
Code, attorney’s fees may be awarded inter alia when the defendant’s act or omission has compelled the plaintiff to
incur expenses to protect his interest or in any other case where the court deems it just and equitable that attorney’s
fees and expenses of litigation be recovered.
One final note. There is a discrepancy between the dispositive portion of the Court of Appeals’ Decision and the body
thereof with respect to the amount of the maritime lien in favor of POLIAND. The dispositive portion ordered NDC to pay
POLIAND "the amount of US$1,920,298.56" plus interest72 despite a finding that NDC’s liability to POLIAND represents
the maritime lien73 which according to the complaint74 is the alternative cause of action of POLIAND in the smaller
amount of US$1,193,298.56, as prayed for by POLIAND in its complaint.
The general rule is that where there is conflict between the dispositive portion or the fallo and the body of the decision,
the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the body is merely a
statement ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as to
show that there was a mistake in the dispositive portion, the body of the decision will prevail.75 In the instant case, it is
clear from the trial court records and the Court of Appeals’ Rollo that the bigger amount awarded in the dispositive
portion of the Court of Appeals’ Decision was a typographical mistake. Considering that the appellate court’s Decision
merely affirmed the trial court’s finding with respect to the amount of maritime lien, the bigger amount stated in the
dispositive portion of the Court of Appeals’ Decision must have been awarded through indavertence.
WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development Company is liable to Poliand
Industrial Limited for the amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety Eight US
Dollars and Fifty-Six US Cents (US$ 1,193,298.56), plus interest of 12% per annum computed from 25 September 1991
until fully paid. In other respects, said Decision is AFFIRMED. No pronouncement as to costs.
G.R. No. 100446 January 21, 1993
ABOITIZ SHIPPING CORPORATION, petitioner, vs. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD., respondent.
This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated June
21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein petitioner,
Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court of the National
Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's prayer for
execution for the full amount of the judgment award. The trial court in so doing swept aside petitioner's opposition which
was grounded on the real and hypothecary nature of petitioner's liability as ship owner. The application of this
established principle of maritime law would necessarily result in a probable reduction of the amount to be recovered by
private respondent, since it would have to share with a number of other parties similarly situated in the insurance
proceeds on the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade
as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage
from Hongkong to the Philippines on October 31, 1980. Private respondent General Accident Fire and Life Assurance
Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of
several cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their
successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the
Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due to force
majeure and that subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding,
the trial court in said Civil Case No. 144425 found against the carrier on the basis that the loss subject matter therein
did not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later
awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz
v. Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering rough sailing. The
attempted execution of the judgment award in said case in the amount of P1,072,611.20 plus legal interest has given
rise to the instant petition.
On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was
seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was likewise
elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, et al., August
28, 1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the resulting apparent
contrary findings in cases originating out of a single set of facts.
It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine of limited
liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel M/V P. ABOITIZ, as
based on the real and hypothecary nature of maritime law. This is an issue which begs to be resolved considering that
a number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend and whose
resolution shall well-nigh result in more confusion than presently attends the instant case.
In support of the instant petition, the following arguments are submitted by the petitioner:
1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors'
shares;
2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and
3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)
On the other hand, private respondent opposes the foregoing contentions, arguing that:
1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587, 590, and 837 of the
Code of Commerce in the face of the facts found by the lower court (Civil Case No. 144425), upheld by the Appellate
Court (CA G.R. No. 10609), and affirmed in toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159
as the Law of the Case; and
2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly situated and the same
issues litigated should be decided in conformity therewith following the maxim stare decisis et non quieta movere. (pp.
225 to 279, Rollo.)
Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution of this
Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied Guaranty
Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant petition as argued by
respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the same
settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable
therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence
required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at
bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by
virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was
contained in Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the cargo whose
value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising
out of the real and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of
contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on
primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and
should no longer be touched, the instant case raises a completely different issue. It appears, therefore, that the
resolution in G.R. 88159 adverted to has no bearing other than factual to the instant case.
This brings us to the primary question herein which is whether or not respondent court erred in granting execution of
the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited
liability enunciated under the appropriate articles of the Code of Commerce. The articles may be ancient, but they are
timeless and have remained to be good law. Collaterally, determination of the question of whether execution of
judgments which have become final and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its
existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such shall result in the
subverting of substantial justice. The right to an execution after finality of a decision is certainly no exception to this.
Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that:
. . . It is a truism that every court has the power "to control, in the furtherance of justice, the conduct of its ministerial
officers, and of all other persons in any manner connected with a case before it, in every manner appertaining thereto.
It has also been said that:
. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise
equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed,
and will remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs
as may be necessary to carry out the judgment into effect and render it binding and operative, but also to such orders
and such writs as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be
perverted and made a medium of consummating a wrong the court on proper application can prevent it. (at p. 359)
and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that:
The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution,
admits of certain exceptions as in cases of special and exceptional nature where it becomes the imperative in the higher
interest of justice to direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary
to accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when certain facts and circumstances transpired after
the judgment became final which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354).
(at p. 201)
We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the real
and hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative.
In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757 upholding
private respondent's claims in that particular case, which the Court of Appeals took to mean that this Court has
"considered, passed upon and resolved Aboitiz's contention that all claims for the losses should first be determined
before GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily negated the application of the
limited liability principle" (p. 175, Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered
only the circumstances peculiar to that particular case, and was not meant to traverse the larger picture herein brought
to fore, the circumstances of which heretofore were not relevant. We must stress that the matter of the Limited Liability
Rule as discussed was never in issue in all prior cases, including those before the RTCs and the Court of Appeals. As
discussed earlier, the "limited liability" in issue before the trial courts referred to the package limitation clauses in the
bills of lading and not the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The
latter rule was never made a matter of defense in any of the cases a quo, as properly it could not have been made so
since it was not relevant in said cases. The only time it could come into play is when any of the cases involving the
mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has now
been brought before the Court.
The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses
related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as
the guaranty for their settlement. It has its origin by reason of the conditions and risks attending maritime trade in its
earliest years when such trade was replete with innumerable and unknown hazards since vessels had to go through
largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and to encourage people
and entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the
liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its
equipment, freight, and insurance, if any, which limitation served to induce capitalists into effectively wagering their
resources against the consideration of the large profits attainable in the trade.
It might be noteworthy to add in passing that despite the modernization of the shipping industry and the development of
high-technology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even
practically absolute in well-developed maritime countries such as the United States and England where it covers almost
all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both
international maritime conventions and generally accepted practices relative to maritime trade and travel. This is
highlighted by the following excerpts on the limited liability of vessel owners and/or agents;
Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss, or
destruction by any person of any person or any property, goods, or merchandise shipped or put on board such vessel,
or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or
owners shall not exceed the amount or value of the interest of such owner in such vessel, and her freight then pending.
(Section 183 of the US Federal Limitation of Liability Act).
—and—
1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims
arising, from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual
fault or privity of the owner;
(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on
board the ship.
(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other
property or infringement of any rights caused by the act, neglect or default the owner is responsible for, or any person
not on board the ship for whose act, neglect or default the owner is responsible: Provided, however, that in regard to
the act, neglect or default of this last class of person, the owner shall only be entitled to limit his liability when the act,
neglect or default is one which occurs in the navigation or the management of the ship or in the loading, carriage or
discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers.
(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in connection with
the raising, removal or destruction of any ship which is sunk, stranded or abandoned (including anything which may be
on board such ship) and any obligation or liability arising out of damage caused to harbor works, basins and navigable
waterways. (Section 1, Article I of the Brussels International Convention of 1957)
In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it
originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in
Articles 587, 590, and 837, hereunder quoted in toto:
Art. 587. The ship agent shall also be civilly liable for the 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 equipment and the freight it may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be understood
as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. (Emphasis
supplied)
Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of the
captain (Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near
absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen,
the reasons for its being are still apparently much in existence and highly regarded.
We now come to its applicability in the instant case. In the few instances when the matter was considered by this Court,
we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when
there is an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941];
Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186
SCRA 649 [1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the owner
in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well as the
entirety of the records in the instant case will show that there has been no actual finding of negligence on the part of
petitioner. In its Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were not lost due to
fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the Court of
Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and additional finding
of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the sinking of the vessel was
because of unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence. Indeed,
there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was
negligent, and no tribunal, including this Court will add or subtract to such evidence to justify a conclusion to the contrary.
The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is underscored
by the fact that in the Country Banker's case, supra, arising from the same sinking, the Court sustained the decision of
the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.
On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap,
absent a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has been ruled
to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter since Article 612 of the
Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to
comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the
Board of Marine Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained
for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite
appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of
"unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the BMI's findings,
but to the condition it was in at the time of the sinking, which condition was a result of the acts of the captain and the
crew.
The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of shareholders to
limited liability under our corporation law. Both are privileges granted by statute, and while not absolute, must be swept
aside only in the established existence of the most compelling of reasons. In the absence of such reasons, this Court
chooses to exercise prudence and shall not sweep such rights aside on mere whim or surmise, for even in the existence
of cause to do so, such incursion is definitely punitive in nature and must never be taken lightly.
More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those of
creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it.
While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims,
this does not mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims
sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be able to gain
access to the assets of the individual shareholders, but must limit their recovery to what is left in the name of the
corporation. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We held that:
In the instant case, the stay of execution of judgment is warranted by the fact that the respondent bank was placed
under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious
prejudice of other depositors and creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the
Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the
trustee of its assets for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or
preference over another by an attachment, execution or otherwise. (at p. 261).
In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to
the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the
corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending
freightage for the particular voyage.
In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus,
execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending
completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously
settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to 183, Rollo),
together with the corresponding claims and the pro-rated share of each. We likewise note that some of these cases are
still with the Court of Appeals, and some still with the trial courts and which probably are still undergoing trial. It would
not, therefore, be entirely correct to preclude the trial courts from making their own findings of fact in those cases and
deciding the same by allotting shares for these claims, some of which, after all, might not prevail, depending on the
evidence presented in each. We, therefore, rule that the pro-rated share of each claim can only be found after all the
cases shall have been decided.
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. Moreover, petitioner should institute the necessary limitation and distribution action before
the proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds
from the insurance company and pending freightage in order to safeguard the same pending final resolution of all
incidents, for final pro-rating and settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch IV
dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby
directed to desist from proceeding with the execution of the judgment rendered in Civil Case No. 144425 pending
determination of the totality of claims recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is
directed to institute the necessary action and to deposit the proceeds of the insurance of subject vessel as abovedescribed within fifteen (15) days from finality of this decision. The temporary restraining order issued in this case dated
August 7, 1991 is hereby made permanent.
G.R. No. 92735
June 8, 2000
MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and Hon. Judge AMANTE PURISIMA,
petitioners, vs. COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 94867
ALLIED GUARANTEE INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24 and
ABOITIZ SHIPPING CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 95578
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.
Before us are three consolidated petitions. G.R. No. 92735 is a petition for review filed under Rule 45 of the Rules of
Court assailing the decision of the Court of Appeals dated March 29, 1990 in CA-G.R. SP. Case No. 17427 which set
aside the writ of execution issued by the lower court for the full indemnification of the claims of the petitioners, Monarch
Insurance Company (hereafter "Monarch") and Tabacalera Insurance Company, Incorporated (hereafter "Tabacalera")
against private respondent, Aboitiz Shipping Corporation (hereafter "Aboitiz") on the ground that the latter is entitled to
the benefit of the limited liability rule in maritime law; G.R. No. 94867 is a petition for certiorari under Rule 65 of the
Rules of Court to annul and set aside the decision of the Court of Appeals dated August 15, 1990 in CA-G.R. SP No.
20844 which ordered the lower court to stay the execution of the judgment in favor of the petitioner, Allied Guarantee
Insurance Company (hereafter "Allied") against Aboitiz insofar as it impairs the rights of the other claimants to their prorata share in the insurance proceeds from the sinking of the M/V P. Aboitiz, in accordance with the rule on limited liability;
and G.R. No. 95578 is a petition for review under Rule 45 of the Rules of Court seeking a reversal of the decision of the
Court of Appeals dated August 24, 1990 and its resolution dated October 4, 1990 in C.A. G.R. Civil Case No. 15071
which modified the judgment of the lower court's award of actual damages to petitioner Equitable Insurance Corporation
(hereafter "Equitable") to its pro-rata share in the insurance proceeds from the sinking of the M/V P. Aboitiz.
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. Seeking indemnification for
the loss of their cargoes, the shippers, their successors-in-interest, and the cargo insurers such as the instant petitioners
filed separate suits against Aboitiz before the Regional Trial Courts. 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. To this day, some of these claims, including those of herein
petitioners, have not yet been settled.
G.R. No. 92735.
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, the cargo carrier. 1 Because Aboitiz refused to
compensate Monarch, it filed two complaints against Aboitiz, docketed as Civil Cases Nos. 82-2767 and 82-2770. For
its part, Tabacalera also filed two complaints against the same defendant, docketed as Civil Cases Nos. 82-2768 and
82-2769. As these four (4) cases had common causes of action, they were consolidated and jointly tried. 2
In Civil Case No. 82-2767 where Monarch also named Malaysian International Shipping Corporation and Litonja
Merchant Shipping Agency as Aboitiz's co-defendants, Monarch sough recovery of P29,719.88 representing the value
of three (3) pallets of glass tubing that sank with the M/V P. Aboitiz, plus attorney's fees of not less than P5,000.00,
litigation expenses, interest at the legal rate on all these amounts, and the cost of suit. 3 Civil Case. No. 82-2770 was a
complaint filed by Monarch against Aboitiz and co-defendants Compagnie Maritime des Chargeurs Reunis and F.E.
Zuellig (M), Inc. for the recovery of P39,597.00 representing the value of the one case motor vehicle parts which was
lost when the M/V P. Aboitiz sank on her way to Manila, plus Attorney's fees of not less than P10,000.00 and cost of
suit.
Tabacalera sought against Franco Belgian Services, F.E. Zuellig and Aboitiz in Civil Case No. 82-2768 the recovery of
P284,218.00 corresponding to the value of nine (9) cases of Renault spare parts, P213,207.00 for the value of twentyfive (25) cases of door closers and P42,254.00 representing the value of eighteen (18) cases of plastic spangle, plus
attorney's fees of not less than P50,000.00 and cost of suit. 5 In Civil Case No. 82-2769, Tabacalera claimed from Hong
Kong Island Shipping Co., Ltd., Citadel Lines and Aboitiz indemnification in the amount of P75,058.00 for the value of
four (4) cartons of motor vehicle parts foundered with the M/V P. Aboitiz, plus attorney's fees of not less than P20,000.00
and cost of suit.
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. 7 Aboitiz was subsequently declared as in default for its failure to
appear during the pre-trial. Its counsel fried a motion to set aside the order of default with notice of his withdrawal as
such counsel. Before the motion could be acted upon, Judge Bienvenido Ejercjto, the presiding judge of the trial court,
was promoted to the then intermediate Appellate Court. The cases were thus re-raffled to Branch VII of the RTC of
Manila presided by Judge Amante P. Purisima, the co-petitioner in G.R. No. 92735. Without resolving the pending
motion to set aside the order of default, the trial court set the cases for hearing. However, since Aboitiz had repeatedly
failed to appear in court, the trial court denied the said motion and allowed Monarch and Tabacalera to present evidence
ex-parte.
Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert, a surveyor commissioned to investigate
the possible cause of the sinking of the cargo vessel. 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. In his
note of protest, the master of M/V P. Aboitiz described the wind force encountered by the vessel as from ten (10) to
fifteen (15) knots, a weather condition classified as typical and moderate in the South China Sea at that particular time
of the year. 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." 9
In due course, the trial court rendered judgment against Aboitiz but the complaint against all the other defendants was
dismissed. Aboitiz was held liable for the following: (a) in Civil Case No. 82-2767, P29,719.88 with legal interest from
the filing of the complaint until fully paid plus attorney's fees of P30,000.00 and cost of suit; (b) in Civil Case No. 822768, P539,679.00 with legal interest of 12% per annum from date of filing of the complaint until fully paid, plus attorney's
fees of P30,000.00, litigation expenses and cost of suit; (c) in Civil Case No. 82-2769, P75,058.00 with legal interest of
12% per annum from date of filing of the complaint until-fully paid, plus P5,000.00 attorney's fees, litigation expenses
and cost of suit, and (d) in Civil Case No. 82-2770, P39,579.66 with legal interest of 12% per annum from date of filing
of the complaint until fully paid, plus attorney's fees of P5,000.00, litigation expenses and cost of suit.
Aboitiz filed a motion for reconsideration of the decision and/or for new trial to lift the order of default. The court denied
the motion on August 27, 1986. 10 Aboitiz appealed to the Court of Appeals but the appeal was dismissed for its failure
to file appellant's brief. It subsequently filed an urgent motion for reconsideration of the dismissal with prayer for the
admission of its attached appellant's brief. The appellate court denied that motion for lack of merit in a Resolution dated
July 8, 1988. 11
Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No. 84158, the petition was denied in the
Resolution of October 10, 1988 for being filed out of time. Aboitiz's motion for the reconsideration of said Resolution
was similarly denied. 12 Entry of judgment was made in the case. 13
Consequently, Monarch and Tabacalera moved for execution of judgment. The trial court granted the motion on April 4,
1989 14 and issued separate writs of execution. However, on April 12, 1989, Aboitiz, invoking the real and hypothecary
nature of liability in maritime law, filed an urgent motion to quash the writs of execution. 15 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. Monarch and
Tabacalera opposed the motion to quash. 16
On April 17, 1989, before the motion to quash could be heard, the sheriff levied upon five (5) heavy equipment owned
by Aboitiz for the public auction sale. At said sale, Monarch was the highest bidder for one (1) unit FL-151 Fork Lift (big)
and one (1) unit FL-25 Fork Lift (small). Tabacalera was also the highest bidder for one (1) unit TCH TL-251 Hyster
Container Lifter, one (1) unit Hyster Top Lifter (out of order), and one (1) unit ER-353 Crane. The corresponding
certificates of sale 17 were issued to Monarch and Tabacalera.
On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz filed a supplement to its motion, to add the
fact that an auction sale had taken place. On April 19, 1989, Judge Purisima issued an order denying the motion to
quash but freezing execution proceedings for ten (10) days to give Aboitiz time to secure a restraining order from a
higher court. 18 Execution was scheduled to resume to fully satisfy the judgment when the grace period shall have
lapsed without such restraining order having been obtained by Aboitiz.
Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with prayer for preliminary injunction and/or
temporary restraining order under CA-G.R. No. SP-17427. 19 On March 29, 1990, the appellate court rendered a
Decision the dispositive portion of which reads:
WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs of execution, auction sale, certificates
of sale, and the assailed orders of respondent Judge dated April 4 and April 19, 1989 insofar as the money value of
those properties of Aboitiz, levied on execution and sold at public auction, has exceeded the pro-rata shares of Monarch
and Tabacalera in the insurance proceeds of Aboitiz in relation to the pro-rata shares of the 106 other claimants.
The writ of prohibition is also granted to enjoin respondent Judge, Monarch and Tabacalera from proceeding further
with execution of the judgments in question insofar as the execution would satisfy the claims of Monarch and Tabacalera
in excess of their pro-rata shares and in effect reduce the balance of the proceeds for distribution to the other claimants
to their prejudice.
The question of whether or how much of the claims of Monarch and Tabacalera against the insurance proceeds has
already been settled through the writ of execution and auction sale in question, being factual issues, shall be threshed
out before respondent judge.
The writ of preliminary injunction issued in favor of Aboitiz, having served its purpose, is hereby lifted. No pronouncement
as to costs.
Hence, the instant petition for review on certiorari where petitioners Monarch, Tabacalera and Judge Purisima raise the following
assignment of errors:
1. The appellate court grievously erred in re-opening the Purisima decisions, already final and executory, on the alleged ground that
the issue of real and hypothecary liability had not been previously resolved by Purisima, the appellate court, and this Hon. Supreme
Court;
2. The appellate court erred when it resolved that Aboitiz is entitled to the limited real and hypothecary liability of a ship owner,
considering the facts on record and the law on the matter.
3. The appellate court erred when it concluded that Aboitiz does not have to present evidence to prove its entitlement to the limited
real and hypothecary liability.
4. The appellate court erred in ignoring the case of "Aboitiz Shipping Corporation v. CA and Allied Guaranty Insurance Co., Inc. (G.R.
No. 88159), decided by this Honorable Supreme Court as early as November 13, 1989, considering that said case, now factual and
executory, is in pari materia with the instant case.
5. The appellate court erred in not concluding that irrespective of whether Aboitiz is entitled to limited hypothecary liability or not,
there are enough funds to satisfy all the claimants.
6. The appellate court erred when it concluded that Aboitiz had made an "abandonment" as envisioned by Art. 587 of the Code of
Commerce.
7. The appellate court erred when it concluded that other claimants would suffer if Tabacalera and Monarch would be fully paid.
8. The appellate court erred in concluding that certiorari was the proper remedy for Aboitiz.
G.R. NOS. 94867 & 95578
Allied as insurer-subrogee of consignee Peak Plastic and Metal Products Limited, filed a complaint against Aboitiz for
the recovery of P278,536.50 representing the value of 676 bags of PVC compound and 10 bags of ABS plastic lost on
board the M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus attorney's fees, exemplary
damages and costs. 22 Docketed as Civil Case No. 138643, the case was heard before the Regional Trial Court of
Manila, Branch XXIV, presided by Judge Sergio D. Mabunay.
On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel Manufacturing Corporation, filed an
amended complaint against Franco Belgian Services, F.E. Zuellig, Inc. and Aboitiz for the recovery of P194,794.85
representing the value of 76 drums of synthetic organic tanning substances and 1,000 kilograms of optical bleaching
agents which were also lost on board the M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus
25% attorney's fees, exemplary damages, litigation expenses and costs of suit.23 Docketed as Civil Case No. 138396,
the complaint was assigned to the Regional Trial Court of Manila, Branch VIII.
In its answer with counterclaim in the two cases, Aboitiz disclaimed responsibility for the amounts being recovered,
alleging that the loss was due to a fortuitous event or an act of God. It prayed for the dismissal of the cases and the
payment of attorney's fees, litigation expenses plus costs of suit. It similarly relied on the defenses of force mejeure,
seaworthiness of the vessel and exercise of due diligence in the carriage of goods as regards the cross-claim of its codefendants. 24
In support of its position, Aboitiz presented the testimonies of Capt. Gerry N. Racines, master mariner of the M/V P.
Aboitiz, and Justo C. Iglesias, a meteorologist of the Philippine Atmospheric Geophysical and Astronomical Services
Administration (PAGASA). The gist of the testimony of Capt. Racines in the two cases follows:
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. At about 8:00 o'clock in the morning of October 30, 1980, after more than twelve
(12) hours of navigation, the vessel suddenly encountered rough seas with waves about fifteen to twenty-five feet high.
He ordered his chief engineer to check the cargo holds. The latter found that sea water had entered cargo hold Nos. 1
and 2. He immediately directed that water be pumped out by means of the vessel's bilge pump, a device capable of
ejecting 180 gallons of water per minute. They were initially successful in pumping out the water.
At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report from his chief engineer that the water level
in the cargo holds was rapidly rising. He altered the vessel's course and veered towards the northern tip of Luzon to
prevent the vessel from being continuously pummeled by the waves. Despite diligent efforts of the officers and crew,
however, the vessel, which was approximately 250 miles away from the eye of the storm, began to list on starboard side
at 27 degrees. Capt. Racines and his crew were not able to make as much headway as they wanted because by 12:00
noon of the same day, the cargo holds were already flooded with sea water that rose from three to twelve feet, disabling
the bilge pump from containing the water.
The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18 degrees North, longitude 170 degrees
East in the South China Sea in between Hong Kong, the Philippines and Taiwan with the nearest land being the northern
tip of Luzon, around 270 miles from Cape Bojeador, Bangui, Ilocos Norte. Responding to the captain's distress call, the
M/V Kapuas (Capuas) manned by Capt. Virgilio Gonzales rescued the officers and crew of the ill-fated M/V P. Aboitiz
and brought them to Waileen, Taiwan where Capt. Racines lodged his marine protest dated November 3, 1980.
Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz, 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." 25 PAGASA issued
weather bulletins from October 28-30, 1980 while the storm was still within Philippine territory. No domestic bulletins
were issued the following day when the storm which hit Eastern Samar, Southern Quezon and Southern Tagalog
provinces, had made its exit to the South China Sea through Bataan.
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 as well as on the Beaufort Scale of Wind. In his marine protest under
oath, Capt. Racines affirmed that the wind force an October 29-30, 1980 was only ten (10) to fifteen (15) knots. Under
the Beaufort Scale of Wind, said wind velocity falls under scale No. 4 that describes the sea condition as "moderate
breeze," and "small waves becoming longer, fairly frequent white horses." 26
To fortify its position, Equitable presented Rogelio T. Barboza who testified that as claims supervisor and processor of
Equitable, he recommended payment to Axel Manufacturing Corporation as evidenced by the cash voucher, return
check and subrogation receipt. Barboza also presented a letter of demand to Aboitiz which, however, the latter ignored.
27
On April 24, 1984, the trial court rendered a decision that disposed of Civil Case No. 138643 as follows:
WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz Shipping Company to pay plaintiff Allied Guarantee
Insurance Company, Inc. the sum of P278,536.50, with legal interest thereon from March 10, 1981, then date of the filing of the
complaint, until fully paid, plus P30,000.00 as attorney's fees, with costs of suit.
A similar decision was arrived at in Civil Case No. 138396, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, this Court hereby renders judgment in favor of plaintiff and against defendant Aboitiz Shipping
Corporation, to pay the sum of P194,794.85 with legal rate of interest thereon from February 27, 1981 until fully paid; attorney's fees
of twenty-five (25%) percent of the total claim, plus litigation expenses and costs of litigation.
In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CA-G.R. CV No. 04121. On March 23, 1987,
the Court of Appeals affirmed the decision of the lower court. A motion for reconsideration of the said decision was
likewise denied by the Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then filed a petition for review with this Court
docketed as G.R. No. 88159 which was denied for lack merit. Entry of judgment was made and the lower court's decision
in Civil Case No. 138643 became final and executory. Allied prayed for the issuance of a writ of execution in the lower
court which was granted by the latter on April 4, 1990. To stay the execution of the judgment of the lower court, Aboitiz
filed a petition for certiorari and prohibition with preliminary injunction with the Court of Appeals docketed as CA-G.R.
SP No. 20844. 30 On August 15, 1990, the Court of Appeals rendered the assailed decision, the dispositive portion of
which reads as follows.
WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990 granting the execution is hereby set aside. The
respondent Judge is further ordered to stay the execution of the judgment insofar as it impairs the rights of the 100 other claimants
to the insurance proceeds including the rights of the petitioner to pay more than the value of the vessel or the insurance proceeds
and to desist from executing the judgment insofar as it prejudices the pro-rata share of all claimants to the insurance proceeds. No
pronouncement as to costs.
Hence, Allied filed the instant petition for certiorari, mandamus and injunction with preliminary injunction and/or
restraining order before this Court alleging the following assignment of errors:
1. Respondent Court of Appeals gravely erred in staying the immediate execution of the judgment of the lower court as it has no
authority nor jurisdiction to directly or indirectly alter, modify, amend, reverse or invalidate a final judgment as affirmed by the
Honorable Supreme Court in G.R. No. 88159.
2. Respondent Court of Appeals with grave abuse of discretion amounting to lack or excess of jurisdiction, brushed aside the doctrine
in G.R. No. 88159 which is now the law of the case and observance of time honored principles of stare decisis, res adjudicata and
estoppel by judgment.
3. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis of the questioned decision
(Annex "C" hereof) is without application in the face of the facts found by the lower court, sustained by the Court of Appeals in CAG.R. No. 04121 and affirmed in toto by the Supreme Court in G.R. No. 88159.
4. Certiorari as a special remedy is unavailing for private respondent as there was no grave abuse of discretion nor lack or excess of
jurisdiction for Judge Mabunay to issue the order of April 4, 1990 which was in accord with law and jurisprudence, nor were there
intervening facts and/or supervening events that will justify respondent court to issue a writ of certiorari or a restraining order on a
final and executory judgment of the Honorable Supreme Court.
From the decision of the trial court in Civil Case No. 138396 that favored Equitable, Aboitiz likewise appealed to the
Court of Appeals through CA-G.R. CV No. 15071. On August 24, 1990, the Court of Appeals rendered the Decision
quoting extensively its Decision in CA-G.R. No. SP-17427 (now G.R. No. 92735) and disposing of the appeal as follows:
WHEREFORE, we hereby affirm the trial court's awards of actual damages, attorney's fees and litigation expenses, with the exception
of legal interest, in favor of plaintiff-appellee Equitable Insurance Corporation as subrogee of the consignee for the loss of its shipment
aboard the M/V "P. Aboitiz" and against defendant-appellant Aboitiz Shipping Corporation. However, the amount and payment of
those awards shall be subject to a determination of the pro-rata share of said appellee in relation to the pro-rata shares of the 109
other claimants, which determination shall be made by the trial court. This case is therefore hereby ordered remanded to the trial
court which shall reopen the case and receive evidence to determine appellee's pro-rata share as aforesaid. No pronouncement as
to costs.
On September 12, 1990, Equitable moved to reconsider the Court of Appeals' Decision. The Court of Appeals denied
the motion for reconsideration on October 4, 1990. 34 Consequently, Equitable filed with this Court a petition for review
alleging the following assignment of errors:
1. Respondent Court of Appeals, with grave abuse of discretion amounting to lack or excess of jurisdiction, erroneously
brushed aside the doctrine in G.R. No. 88159 which is now the law of the case as held in G.R. No. 89757 involving the
same and identical set of facts and cause of action relative to the sinking of the M/V "P. Aboitiz" and observance of the
time honored principles of stare decisis, and estoppel by judgment.
2. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis of the
assailed decision and resolution is without application in the face of the facts found by the trial court which conforms to
the conclusion and finding of facts arrived at in a similar and identical case involving the same incident and parties
similarly situated in G.R. No. 88159 already declared as the "law of the case" in a subsequent decision of this Honorable
Court in G.R. No. 89757 promulgated on August 6, 1990.
3. Respondent Court of Appeals gravely erred in concluding that limited liability rule applies in case of loss of cargoes
when the law itself does not distinguish; fault of the shipowner or privity thereto constitutes one of the exceptions to the
application of limited liability under Article 587, 590 and 837 of the Code of Commerce, Civil Code provisions on common
carriers for breach of contract of carriage prevails. 35
These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated in the Resolution of August 5, 1991 on
the ground that the petitioners "have identical causes of action against the same respondent and similar reliefs are
prayed for."
The threshold issue in these consolidated petitions is the applicability of the limited liability rule in maritime law in favor
of Aboitiz in order to stay the execution of the judgments for full indemnification of the losses suffered by the petitioners
as a result of the sinking of the M/V P. Aboitiz. Before we can address this issue, however, there are procedural matters
that need to be threshed out.
First. At the outset, the Court takes note of the fact that in G.R. No. 92735, Judge Amante Purisima, whose decision in
the Regional Trial Court is sought to be upheld, is named as a co-petitioner. In Calderon v. Solicitor General, 37 where
the petitioner in the special civil action of certiorari and mandamus was also the judge whose order was being assailed,
the Court held that said judge had no standing to file the petition because he was merely a nominal or formal partyrespondent under Section 5 of Rule 65 of the Rules of Court. He should not appear as a party seeking the reversal of a
decision that is unfavorable to the action taken by him. The Court there said:
Judge Calderon should be-reminded of the well-known doctrine that a judge should detach himself from cases where
his decision is appealed to a higher court for review. The raison d'etre for such doctrine is the fact that a judge is not an
active combatant in such proceeding and must leave the opposing parties to contend their individual positions and for
the appellate court to decide the issues without his active participation. By filing this case, petitioner in a way ceased to
be judicial and has become adversarial instead. 38
While the petition in G.R. No. 92735 does not expressly show whether or not Judge Purisima himself is personally
interested in the disposition of this petition or he was just inadvertently named as petitioner by the real parties in interest,
the fact that Judge Purisima is named as petitioner has not escaped this Court's notice. Judges and litigants should be
reminded of the basic rule that courts or individual judges are not supposed to be interested "combatants" in any litigation
they resolve.
Second. The petitioners contend that the inapplicability of the limited liability rule to Aboitiz has already been decided
on by no less than this Court in G.R. No. 88159 as early as November 13, 1989 which was subsequently declared as
"law of the case" in G.R. No. 89757 on August 6, 1990. Herein petitioners cite the aforementioned cases in support of
their theory that the limited liability rule based on the real and hypothecary nature of maritime law has no application in
the cases at bar.
The existence of what petitioners insist is already the "law of the case" on the matter of limited liability is at best illusory.
Petitioners are either deliberately misleading this Court or profoundly confused. As elucidated in the case of Aboitiz
Shipping Corporation vs. General Accident Fire and Life Assurance Corporation, 39
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280-282, Rollo) shows that the same
settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable
therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence
required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at
bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by
virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was
contained in Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the cargo whose
value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising
out of the real and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of
contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on
primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and
should no longer be touched, the instant case raises a completely different issue. 40
Third. Petitioners asseverate that the judgments of the lower courts, already final and executory, cannot be directly or
indirectly altered, modified, amended, reversed or invalidated.
The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, is
not an absolute one: We have allowed the suspension of execution in cases of special and exceptional nature when it
becomes imperative in the higher interest of justice. 41 The unjust and inequitable effects upon various other claimants
against Aboitiz should we allow the execution of judgments for the full indemnification of petitioners' claims impel us to
uphold the stay of execution as ordered by the respondent Court of Appeals. We reiterate our pronouncement in Aboitiz
Shipping Corporation vs. General Accident Fire and Life Assurance Corporation on this very same issue.
This brings us to the primary question herein which is whether or not respondent court erred in granting execution of
the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited
liability enunciated under the appropriate articles of the Code of Commerce. . . . . Collaterally, determination of the
question of whether execution of judgments which have become final and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its
existence is to see the accomplishment of the ends of justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural consideration is sancrosanct if such shall result in the
subverting of justice. The right to execution after finality of a decision is certainly no exception to this. Thus, in Cabrias
v. Adil (135 SCRA 355 [1885]), this Court ruled that:
xxx
xxx
xxx
. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise
equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed,
and will remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs
as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and
made a medium of consummating a wrong the court on proper application can prevent it. 42
Fourth. Petitioners in G.R. No. 92735 ever that it was error for the respondent Court of Appeals to allow Aboitiz the
benefit of the limited liability rule despite its failure to present evidence to prove its entitlement thereto in the court below.
Petitioners Monarch and Tabacalera remind this Court that from the inception of G.R. No. 92735 in the lower court and
all the way to the Supreme Court, Aboitiz had not presented an iota of evidence to exculpate itself from the charge of
negligence for the simple reason that it was declared as in default. 43
It is true that for having been declared in default, Aboitiz was precluded from presenting evidence to prove its defenses
in the court a quo. We cannot, however, agree with petitioners that this circumstance prevents the respondent Court of
Appeals from taking cognizance of Aboitiz' defenses on appeal.
It should be noted that Aboitiz was declared as in default not for its failure to file an answer but for its absence during
pre-trial and the trial proper. In Aboitiz' answer with counterclaim, it claimed that the sinking of the M/V P. Aboitiz was
due to an act of God or unforeseen event and that the said ship had been seaworthy and fit for the voyage. Aboitiz also
alleged that it exercised the due diligence required by law, and that considering the real and hypothecary nature of
maritime trade, the sinking justified the extinguishment of its liability for the lost shipment. 44
A judgment of default does not imply a waiver of rights except that of being heard and presenting evidence in defendant's
favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal
section 45 requires the latter to adduce evidence in support of his allegations as an indispensable condition before final
judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiff's
causes of action find support in the law or that the latter is entitled to the relief prayed for. 46 This is especially true with
respect to a defendant who had filed his answer but had been subsequently declared in default for failing to appear at
the trial since he has had an opportunity to traverse, via his answer, the material averments contained in the complaint.
Such defendant has a better standing than a defendant who has neither answered nor appeared at trial. 47 The former
should be allowed to reiterate all affirmative defenses pleaded in his answer before the Court of Appeals. Likewise, the
Court of Appeals may review the correctness of the evaluation of the plaintiffs evidence by the lower court.
It should also be pointed out that Aboitiz is not raising the issue of its entitlement to the limited liability rule for the first
time on appeal thus, the respondent Court of Appeals may properly rule on the same.
However, 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 is an altogether different matter which shall be discussed below.1awphi1
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.
The principle of limited liability is enunciated in the following provisions of the Code of Commerce:
Art. 587. The shipagent shall also be civilly liable for the indemnities in favor of third persons which may arise from the
conduct of the captain in the care of goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all the equipments and the freight it may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from his liability by the abandonment, before a notary, of the part of the vessel
belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited
to the value of the vessel with all its appurtenances and the freightage served during the voyage.
Art. 837 appeals the principle of limited liability in cases of collision hence, Arts. 587 and 590 embody the universal
principle of limited liability in all cases. In Yangco v. Laserna, 48 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. 49
"No vessel, no liability," expresses in a nutshell the limited liability rule. The shipowner's or agent's liability is merely coextensive 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. 50 This doctrine is based
on the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade
and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these
adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the
liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if
any.
Contrary to the petitioners' theory that the limited liability rule has been rendered obsolete by the advances in modern
technology which considerably lessen the risks involved in maritime trade, this Court continues to apply the said rule in
appropriate cases. This is not to say, however, that the limited liability rule is without exceptions, namely: (1) where the
injury or death to a passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner
and the captain; (2) where the vessel is insured; and (3) in workmen's compensation claims.
We have categorically stated that Article 587 speaks only of situations where the fault or negligence is committed solely
by the captain. 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.
In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving Monarch's and Tabacalera's evidence, the
trial court found that the complete loss of the shipment on board the M/V P. Aboitiz when it sank was neither due to a
fortuitous event nor a storm or natural cause. For Aboitiz' failure to present controverting evidence, the trial court also
upheld petitioners' allegation that the M/V P. Aboitiz was unseaworthy. However, on appeal, respondent Court of
Appeals exculpated Aboitiz from fault or negligence and ruled that:
. . ., even if she (M/V P. Aboitiz) was found to be unseaworthy, this fault (distinguished from civil liability) cannot be laid
on the shipowner's door. Such fault was directly attributable to the captain. This is so, because under Art. 612 of the
Code of Commerce, among the inherent duties of a captain, are to examine the vessel before sailing and to comply with
the laws on navigation.
and that:
. . . although the shipowner may be held civilly liable for the captain's fault . . . having abandoned the vessel in question,
even if the vessel was unseaworthy due to the captain's fault, Aboitiz is still entitled to the benefit under the rule of limited
liability accorded to shipowners by the Code of Commerce.
Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial court, which found that the sinking of
the M/V P. Aboitiz was not due to an act of God or force majeure. It added that the evidence presented by the petitioner
Equitable demonstrated the negligence of Aboitiz Shipping Corporation in the management and operation of its, vessel
M/V P. Aboitiz.
However, Aboitiz' appeal was favorably acted upon by the respondent Court of Appeals which reiterated its ruling in
G.R. No. 92735 that the unseaworthiness of the M/V P. Aboitiz was not a fault directly attributable to Aboitiz but to the
captain, and that Aboitiz is entitled to the benefit of the limited liability rule for having abandoned its ship.
Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held that the M/V P. Aboitiz was not lost due to a
fortuitous event or force majeure, and that Aboitiz had failed to satisfactorily establish that it had observed extraordinary
diligence in the vigilance over the goods transported by it. 60
In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz and found that the sinking of the vessel
was due to its unseaworthiness and the failure of its crew and master to exercise extraordinary diligence. 61
Subsequently, however, Aboitiz' petition before the Court of Appeals, docketed as CA-G.R. SP No. 20844 (now G.R.
No. 94867) to annul and set aside the order of execution issued by the lower court was resolved in favor of Aboitiz. 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." 62 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." 63
It should be pointed out that the issue of whether or not the M/V P. Aboitiz sank by reason of force majeure is not a
novel one for that question has already been the subject of conflicting pronouncements by the Supreme Court. In Aboitiz
Shipping Corporation v. Court of Appeals, 64 this Court approved the findings of the trial court and the appellate court
that the sinking of the M/V P. Aboitiz was not due to the waves caused by tropical storm "Yoning" but due to the fault
and negligence of Aboitiz, its master and crew. 65 On the other hand, in the later case of Country Bankers Insurance
Corporation v. Court of Appeals, 66 this Court issued a Resolution on August 28, 1991 denying the petition for review
on the ground that the Court of Appeals committed no reversible error, thereby affirming and adopting as its own, the
findings of the Court of Appeals that force majeure had caused the M/V P. Aboitiz to founder.
In view of these conflicting pronouncements, we find that now is the opportune time to settle once and for all the issue
or whether or not force mejeure had indeed caused the M/V P. Aboitiz to sink. 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."
It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, 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". 67 But even Aboitiz' own evidence in the form of the
marine protest filed by Captain Racines affirmed that the wind force when the M/V P. Aboitiz foundered on October 31,
1980 was only ten (10) to fifteen (15) knots which, under the Beaufort Scale or Wind, falls within scale No. 4 that
describes the wind velocity as "moderate breeze," and characterizes the waves as "small . . . becoming longer, fairly
frequent white horses." 68 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. 69
The issue of negligence on the part of Aboitiz, and the captain and crew of the M/V P. Aboitiz has also been subject of
conflicting rulings by this Court. In G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, this
Court found no error in the findings of the Court of Appeals that the M/V P. Aboitiz sank by reason of force majeure, and
that there was no negligence on the part of its officers and crew. In direct contradiction is this Court's categorical
declaration in Aboitiz Shipping Corporation v. Court of Appeals," 70 to wit:
The trial court and the appellate court found that the sinking of the M/V P. Aboitiz was not due to the waves caused by
tropical storm "Yoning" but due to the fault and negligence of petitioner, its master and crew. The court reproduces with
approval said findings . . . . 71
However, in the subsequent case of Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd., 72 this Court exculpated Aboitiz from fault and/or negligence while holding that the unseaworthiness
of the M/V P. Aboitiz was only attributable to the negligence of its captain and crew. Thus,
On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap,
absent a factual basis for such conclusion. The unseaworthiness found in some cases where the same has been ruled
to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter since Article 612 of the
Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to
comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the
Board of Marine Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained
for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite
appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of
"unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the BMI's findings,
but to the condition it was in at the time of the sinking, which condition was a result of the acts of the captain and the
crew. 73
It therefore becomes incumbent upon this Court to answer with finality the nagging question of whether or not it was the
concurrent fault and/or negligence of Aboitiz and the captain and crew of the ill-fated vessel that had caused it to go
under water.
Guided by our previous pronouncements and illuminated by the evidence now on record, we reiterate our findings in
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. 74 , that the
unseaworthiness of the M/V P. Aboitiz had caused it to founder. We, however, take exception to the pronouncement
therein that said unseaworthiness could not be attributed to the ship owner but only to the negligent acts of the captain
and crew of the M/V P. Aboitiz. On the matter of Aboitiz' negligence, we adhere to our ruling in Aboitiz Shipping
Corporation v. Court of Appeals, 75 that found Aboitiz, and the captain and crew of the M/V P. Aboitiz to have been
concurrently negligent.
During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735), petitioners Monarch and Tabacalera
presented a survey from Perfect Lambert, a surveyor based in Hong Kong that conducted an investigation on the
possible cause of the sinking of the vessel. The said survey established that the cause of the sinking of the vessel was
the leakage of water into the M/V P. Aboitiz which probably started in the forward part of the No. 1 hull, although no
explanation was proffered as to why the No. 2 hull was likewise flooded. Perfect Lambert surmised that the flooding was
due to a leakage in the shell plating or a defect in the water tight bulk head between the Nos. 1 and 2 holds which
allowed the water entering hull No. 1 to pass through hull No. 2. The surveyor concluded that whatever the cause of the
leakage of water into these hulls, the seaworthiness of the vessel was definitely in question because the breaches of
the hulls and serious flooding of the two cargo holds occurred simultaneously in seasonal weather. 76
We agree with the uniform finding of the lower courts that Aboitiz had failed to prove that it observed the extraordinary
diligence required of it as a common carrier. We therefore reiterate our pronouncement in Aboitiz Corporation v. Court
of Appeals 77 on the issue of Aboitiz' liability in the sinking of its vessel, to wit:
In accordance with Article 1732 of the Civil Code, the defendant common carrier from the nature of its business and for
reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by it according to all circumstances of the case. While the goods are in the possession
of the carrier, it is but fair that it exercise extraordinary diligence in protecting them from loss or damage, and if loss
occurs, the law presumes that it was due to the carrier's fault or negligence; that is necessary to protect the interest of
the shipper which is at the mercy of the carrier . . . In the case at bar, the defendant failed to prove hat the loss of the
subject cargo was not due to its fault or negligence. 78
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. 79 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., 80 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." 81 To do so, the Court
set out in that case the procedural guidelines:
In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of having completed its action earlier than the rest. Thus,
execution of judgment in earlier completed cases, even these already final and executory must be stayed pending
completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously
settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.
xxx
xxx
xxx
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. Moreover, petitioner should institute the necessary limitation and distribution action before
the proper admiralty court within 15 days from finality of this decision, and thereafter deposit with it the proceeds from
the insurance company and pending freightage in order to safeguard the same pending final resolution of all incidents,
for final pro-rating and settlement thereof. 82 (Emphasis supplied.)
There is no record that Aboitiz. has instituted such action or that it has deposited in trust the insurance proceeds and
freightage earned. The pendency of the instant cases before the Court is not a reason for Aboitiz to disregard the
aforementioned order of the Court. In fact, had Aboitiz complied therewith, even these cases could have been terminated
earlier. We are inclined to believe that instead of filing the suit as directed by this Court, Aboitiz tolerated the situation
of several claimants waiting to gel hold of its insurance proceeds, which, if correctly handled must have multiplied in
amount by now. By its failure to abide by the order of this Court, it had caused more damage to the claimants over and
above that which they have endured as a direct consequence of the sinking of the M/V P. Aboitiz. It was obvious that
from among the many cases filed against it over the years, Aboitiz was waiting for a judgment that might prove favorable
to it, in blatant violation of the basic provisions of the Civil Code on abuse of rights.
Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims singly rather than exert effort towards
the consolidation of all claims. Consequently, courts have arrived at conflicting decisions while claimants waited over
the years for a resolution of any of the cases that would lead to the eventual resolution of the rest. Aboitiz failed to give
the claimants their due and to observe honesty and good faith in the exercise of its rights. 83
Aboitiz' blatant disregard of the order of this Court in Aboitiz Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd. 84 cannot be anything but, willful on its part. An act is considered willful if it is done with
knowledge of its injurious effect; it is not required that the act be done purposely to produce the injury. 85 Aboitiz is well
aware that by not instituting the said suit, it caused the delay in the resolution of all claims against it. Having willfully
caused loss or injury to the petitioners in a manner that is contrary to morals, good customs or public policy, Aboitiz is
liable for damages to the latter. 86
Thus, for its contumacious act of defying the order of this Court to file the appropriate action to consolidate all claims for
settlement, Aboitiz must be held liable for moral damages which may be awarded in appropriate cases under the Chapter
on human relations of the Civil Code (Articles 19 to 36). 87
On account of Aboitiz' refusal to satisfy petitioners' claims in accordance with the directive of the Court in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., it acted in gross and evident bad faith.
Accordingly, pursuant to Article 2208 of the Civil Code, 88 petitioners should be granted attorney's fees.
WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED. The decisions of the Court of Appeals
in CA-G.R. No. SP-17427 dated March 29, 1990, CA-G.R. SP No. 20844 dated August 15, 1990, and CA-G.R. CV No.
15071 dated August 24, 1990 are AFFIRMED with the MODIFICATION that respondent Aboitiz Shipping Corporation
is ordered to pay each of the respective petitioners the amounts of P100,000.00 as moral damages and P50,000.00 as
attorney's fees, and treble the cost of suit.
Respondent Aboitiz Shipping Corporation is further directed to comply with the Order promulgated by this Court on
January 21, 1993 in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., G.R.
No. 100446, January 21, 1993, to (a) institute the necessary limitation and distribution action before the proper Regional
Trial Court, acting as admiralty court, within fifteen (15) days from the finality of this decision, and (b) thereafter to deposit
with the said court the insurance proceeds from the loss of the vessel, M/V P. Aboitiz, and the freightage earned in order
to safeguard the same pending final resolution of all incidents relative to the final pro-rating thereof and to the settlement
of all claims.
G.R. No. 110398 November 7, 1997
NEGROS NAVIGATION CO., INC., petitioner, vs. THE COURT OF APPEALS, RAMON MIRANDA, SPS.
RICARDO and VIRGINIA DE LA VICTORIA, respondents.
This is a petition for review on certiorari of the decision of the Court of Appeals affirming with modification the Regional
Trial Court's award of damages to private respondents for the death of relatives as a result of the sinking of petitioner's
vessel.
In April of 1980, private respondent Ramon Miranda purchased from the Negros Navigation Co., Inc. four special cabin
tickets (#74411, 74412, 74413 and 74414) for his wife, daughter, son and niece who were going to Bacolod City to
attend a family reunion. The tickets were for Voyage No. 457-A of the M/V Don Juan, leaving Manila at 1:00 p.m. on
April 22, 1980.
The ship sailed from the port of Manila on schedule.
At about 10:30 in the evening of April 22, 1980, the Don Juan collided off the Tablas Strait in Mindoro, with the M/T
Tacloban City, an oil tanker owned by the Philippine National Oil Company (PNOC) and the PNOC Shipping and
Transport Corporation (PNOC/STC). As a result, the M/V Don Juan sank. Several of her passengers perished in the
sea tragedy. The bodies of some of the victims were found and brought to shore, but the four members of private
respondents' families were never found.
Private respondents filed a complaint on July 16, 1980 in the Regional Trial Court of Manila, Branch 34, against the
Negros Navigation, the Philippine National Oil Company (PNOC), and the PNOC Shipping and Transport Corporation
(PNOC/STC), seeking damages for the death of Ardita de la Victoria Miranda, 48, Rosario V. Miranda, 19, Ramon V.
Miranda, Jr., 16, and Elfreda de la Victoria, 26.
In its answer, petitioner admitted that private respondents purchased ticket numbers 74411, 74412, 74413 and 74414;
that the ticket numbers were listed in the passenger manifest; and that the Don Juan left Pier 2, North Harbor, Manila
on April 22, 1980 and sank that night after being rammed by the oil tanker M/T Tacloban City, and that, as a result of
the collision, some of the passengers of the M/V Don Juan died. Petitioner, however, denied that the four relatives of
private respondents actually boarded the vessel as shown by the fact that their bodies were never recovered. Petitioner
further averred that the Don Juan was seaworthy and manned by a full and competent crew, and that the collision was
entirely due to the fault of the crew of the M/T Tacloban City.
On January 20, 1986, the PNOC and petitioner Negros Navigation Co., Inc. entered into a compromise agreement
whereby petitioner assumed full responsibility for the payment and satisfaction of all claims arising out of or in connection
with the collision and releasing the PNOC and the PNOC/STC from any liability to it. The agreement was subsequently
held by the trial court to be binding upon petitioner, PNOC and PNOC/STC. Private respondents did not join in the
agreement.
After trial, the court rendered judgment on February 21, 1991, the dispositive portion of which leads as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs, ordering all the defendants to pay
jointly and severally to the plaintiffs damages as follows:
To Ramon Miranda: P42,025.00 for actual damages; P152,654.55 as compensatory damages for loss of earning capacity of his wife;
P90,000.00 as compensatory damages for wrongful death of three (3) victims; P300,000.00 as moral damages; P50,000.00 as
exemplary damages, all in the total amount of P634,679.55; and P40,000.00 as attorney's fees.
To Spouses Ricardo and Virginia de la Victoria: P12,000.00 for actual damages; P158,899.00 as compensatory damages for loss of
earning capacity; P30,000.00 as compensatory damages for wrongful death; P100,000.00 as moral damages; P20,000.00 as
exemplary damages, all in the total amount of P320,899.00; and P15,000.00 as attorney's fees.
On appeal, the Court of Appeals1 affirmed the decision of the Regional Trial Court with modification —
1. Ordering and sentencing defendants-appellants, jointly and severally, to pay plaintiff-appellee Ramon Miranda the
amount of P23,075.00 as actual damages instead of P42,025.00;
2. Ordering and sentencing defendants-appellants, jointly and severally, to pay plaintiff-appellee Ramon Miranda the
amount of P150,000.00, instead of P90,000.00, as compensatory damages for the death of his wife and two children;
3. Ordering and sentencing defendants-appellants, jointly and severally, to pay plaintiffs-appellees Dela Victoria
spouses the amount of P50,000.00, instead of P30,000.00, as compensatory damages for the death of their daughter
Elfreda Dela Victoria;
Hence this petition, raising the following issues:
(1) whether the members of private respondents' families were actually passengers of the Don Juan;
(2) whether the ruling in Mecenas v. Court of Appeals,2 finding the crew members of petitioner to be grossly negligent
in the performance of their duties, is binding in this case;
(3) whether the total loss of the M/V Don Juan extinguished petitioner's liability; and
(4) whether the damages awarded by the appellate court are excessive, unreasonable and unwarranted.
First. The trial court held that the fact that the victims were passengers of the M/V Don Juan was sufficiently proven by
private respondent Ramon Miranda, who testified that he purchased tickets numbered 74411, 74412, 74413, and 74414
at P131.30 each from the Makati office of petitioner for Voyage No. 47-A of the M/V Don Juan, which was leaving Manila
on April 22, 1980. This was corroborated by the passenger manifest (Exh. E) on which the numbers of the tickets and
the names of Ardita Miranda and her children and Elfreda de la Victoria appear.
Petitioner contends that the purchase of the tickets does not necessarily mean that the alleged victims actually took the
trip. Petitioner asserts that it is common knowledge that passengers purchase tickets in advance but do not actually use
them. Hence, private respondent should also prove the presence of the victims on the ship. The witnesses who affirmed
that the victims were on the ship were biased and unreliable.
This contention is without merit. Private respondent Ramon Miranda testified that he personally took his family and his
niece to the vessel on the day of the voyage and stayed with them on the ship until it was time for it to leave. There is
no reason he should claim members of his family to have perished in the accident just to maintain an action. People do
not normally lie about so grave a matter as the loss of dear ones. It would be more difficult for private respondents to
keep the existence of their relatives if indeed they are alive than it is for petitioner to show the contrary. Petitioner's only
proof is that the bodies of the supposed victims were not among those recovered from the site of the mishap. But so
were the bodies of the other passengers reported missing not recovered, as this Court noted in the Mecenas3 case.
Private respondent Miranda's testimony was corroborated by Edgardo Ramirez. Ramirez was a seminarian and one of
the survivors of the collision. He testified that he saw Mrs. Miranda and Elfreda de la Victoria on the ship and that he
talked with them. He knew Mrs. Miranda who was his teacher in the grade school. He also knew Elfreda who was his
childhood friend and townmate. Ramirez said he was with Mrs. Miranda and her children and niece from 7:00 p.m. until
10:00 p.m. when the collision happened and that he in fact had dinner with them. Ramirez said he and Elfreda stayed
on the deck after dinner and it was there where they were jolted by the collision of the two vessels. Recounting the
moments after the collision, Ramirez testified that Elfreda ran to fetch Mrs. Miranda. He escorted her to the room and
then tried to go back to the deck when the lights went out. He tried to return to the cabin but was not able to do so
because it was dark and there was a stampede of passengers from the deck.
Petitioner casts doubt on Ramirez' testimony, claiming that Ramirez could not have talked with the victims for about
three hours and not run out of stories to tell, unless Ramirez had a "storehouse" of stories. But what is incredible about
acquaintances thrown together on a long journey staying together for hours on end, in idle conversation precisely to
while the hours away?
Petitioner also points out that it took Ramirez three (3) days before he finally contacted private respondent Ramon
Miranda to tell him about the fate of his family. But it is not improbable that it took Ramirez three days before calling on
private respondent Miranda to tell him about the last hours of Mrs. Miranda and her children and niece, in view of the
confusion in the days following the collision as rescue teams and relatives searched for survivors.
Indeed, given the facts of this case, it is improper for petitioner to even suggest that private respondents' relatives did
not board the ill-fated vessel and perish in the accident simply because their bodies were not recovered.
Second. In finding petitioner guilty of negligence and in failing to exercise the extraordinary diligence required of it in the
carriage of passengers, both the trial court and the appellate court relied on the findings of this Court in Mecenas v.
Intermediate Appellate Court,4 which case was brought for the death of other passengers. In that case it was found that
although the proximate cause of the mishap was the negligence of the crew of the M/T Tacloban City, the crew of the
Don Juan was equally negligent as it found that the latter's master, Capt. Rogelio Santisteban, was playing mahjong at
the time of collision, and the officer on watch, Senior Third Mate Rogelio De Vera, admitted that he failed to call the
attention of Santisteban to the imminent danger facing them. This Court found that Capt. Santisteban and the crew of
the M/V Don Juan failed to take steps to prevent the collision or at least delay the sinking of the ship and supervise the
abandoning of the ship.
Petitioner Negros Navigation was found equally negligent in tolerating the playing of mahjong by the ship captain and
other crew members while on board the ship and failing to keep the M/V Don Juan seaworthy so much so that the ship
sank within 10 to 15 minutes of its impact with the M/T Tacloban City.
In addition, the Court found that the Don Juan was overloaded. The Certificate of Inspection, dated August 27, 1979,
issued by the Philippine Coast Guard Commander at Iloilo City stated that the total number of persons allowed on the
ship was 864, of whom 810 are passengers, but there were actually 1,004 on board the vessel when it sank, 140 persons
more than the maximum number that could be safely carried by it.
Taking these circumstances together, and the fact that the M/V Don Juan, as the faster and better-equipped vessel,
could have avoided a collision with the PNOC tanker, this Court held that even if the Tacloban City had been at fault for
failing to observe an internationally-recognized rule of navigation, the Don Juan was guilty of contributory negligence.
Through Justice Feliciano, this Court held:
The grossness of the negligence of the "Don Juan" is underscored when one considers the foregoing circumstances in
the context of the following facts: Firstly, the "Don Juan" was more than twice as fast as the "Tacloban City." The "Don
Juan's" top speed was 17 knots; while that of the "Tacloban City" was 6.3. knots. Secondly, the "Don Juan" carried the
full complement of officers and crew members specified for a passenger vessel of her class. Thirdly, the "Don Juan"
was equipped with radar which was functioning that night. Fourthly, the "Don Juan's officer on-watch had sighted the
"Tacloban City" on his radar screen while the latter was still four (4) nautical miles away. Visual confirmation of radar
contact was established by the "Don Juan" while the "Tacloban City" was still 2.7 miles away. In the total set of
circumstances which existed in the instant case, the "Don Juan," had it taken seriously its duty of extraordinary diligence,
could have easily avoided the collision with the "Tacloban City." Indeed, the "Don Juan" might well have avoided the
collision even if it had exercised ordinary diligence merely.
It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the Road which requires two (2)
power-driven vessels meeting end on or nearly end on each to alter her course to starboard (right) so that each vessel
may pass on the port side (left) of the other. The "Tacloban City," when the two (2) vessels were only three-tenths (0.3)
of a mile apart, turned (for the second time) 15° to port side while the "Don Juan" veered hard to starboard. . . . [But]
"route observance" of the International Rules of the Road will not relieve a vessel from responsibility if the collision could
have been avoided by proper care and skill on her part or even by a departure from the rules.
In the petition at bar, the "Don Juan" having sighted the "Tacloban City" when it was still a long way off was negligent in
failing to take early preventive action and in allowing the two (2) vessels to come to such close quarters as to render the
collision inevitable when there was no necessity for passing so near to the "Tacloban City" as to create that hazard or
inevitability, for the "Don Juan" could choose its own distance. It is noteworthy that the "Tacloban City," upon turning
hard to port shortly before the moment of collision, signalled its intention to do so by giving two (2) short blasts with its
horn. The "Don Juan" gave no answering horn blast to signal its own intention and proceeded to turn hard to starboard.
We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross negligence in connection
with the collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan" leading to the death of
hundreds of passengers. . . .5
Petitioner criticizes the lower court's reliance on the Mecenas case, arguing that, although this case arose out of the
same incident as that involved in Mecenas, the parties are different and trial was conducted separately. Petitioner
contends that the decision in this case should be based on the allegations and defenses pleaded and evidence adduced
in it or, in short, on the record of this case.
The contention is without merit. What petitioner contends may be true with respect to the merits of the individual claims
against petitioner but not as to the cause of the sinking of its ship on April 22, 1980 and its liability for such accident, of
which there can only be one truth. Otherwise, one would be subscribing to the sophistry: truth on one side of the
Pyrenees, falsehood on the other!
Adherence to the Mecenas case is dictated by this Court's policy of maintaining stability in jurisprudence in accordance
with the legal maxim "stare decisis et non quieta movere" (Follow past precedents and do not disturb what has been
settled.) Where, as in this case, the same questions relating to the same event have been put forward by parties similarly
situated as in a previous case litigated and decided by a competent court, the rule of stare decisis is a bar to any attempt
to relitigate the same issue.6 In Woulfe v. Associated Realties Corporation,7 the Supreme Court of New Jersey held
that where substantially similar cases to the pending case were presented and applicable principles declared in prior
decisions, the court was bound by the principle of stare decisis. Similarly, in State ex rel. Tollinger v. Gill,8 it was held
that under the doctrine of stare decisis a ruling is final even as to parties who are strangers to the original proceeding
and not bound by the judgment under the res judicata doctrine. The Philadelphia court expressed itself in this wise:
"Stare decisis simply declares that, for the sake of certainty, a conclusion reached in one case should be applied to
those which follow, if the facts are substantially the same, even though the parties may be different."9 Thus, in J.M.
Tuason v. Mariano, supra, this Court relied on its rulings in other cases involving different parties in sustaining the validity
of a land title on the principle of "stare decisis et non quieta movere."
Indeed, the evidence presented in this case was the same as those presented in the Mecenas case, to wit:
Document Mecenas case This case
Decision of Commandant, Exh. 10 10 Exh. 11-B-NN/X
Phil. Coast Guard
in BMI Case No.
415-80 dated 3/26/81
Decision of the Minister Exh. 11 11 Exh. ZZ
of National Defense
dated 3/12/82
Resolution on the Exh. 13 12 Exh. AAA
motion for reconsideration (private
of the decision of the respondents)
Minister of National
defense dated 7/27/84
Certificate of Exh. 1-A 13 Exh. 19-NN
inspection dated
8/27/79
Certificate of Stability Exh. 6-A 14 Exh. 19-D-NN
dated 12/16/76
Nor is it true that the trial court merely based its decision on the Mecenas case. The trial court made its own independent
findings on the basis of the testimonies of witnesses, such as Senior Third Mate Rogelio de Vera, who incidentally gave
substantially the same testimony on petitioner's behalf before the Board of Marine Inquiry. The trial court agreed with
the conclusions of the then Minister of National Defense finding both vessels to be negligent.
Third. The next issue is whether petitioner is liable to pay damages notwithstanding the total loss of its ship. The issue
is not one of first impression. The rule is well-entrenched in our jurisprudence that a shipowner may be held liable for
injuries to passengers notwithstanding the exclusively real and hypothecary nature of maritime law if fault can be
attributed to the shipowner. 15
In Mecenas, this Court found petitioner guilty of negligence in (1) allowing or tolerating the ship captain and crew
members in playing mahjong during the voyage, (2) in failing to maintain the vessel seaworthy and (3) in allowing the
ship to carry more passengers than it was allowed to carry. Petitioner is, therefore, clearly liable for damages to the full
extent.
Fourth. Petitioner contends that, assuming that the Mecenas case applies, private respondents should be allowed to
claim only P43,857.14 each as moral damages because in the Mecenas case, the amount of P307,500.00 was awarded
to the seven children of the Mecenas couple. Under petitioner's formula, Ramon Miranda should receive P43,857.14,
while the De la Victoria spouses should receive P97,714.28.
Here is where the principle of stare decisis does not apply in view of differences in the personal circumstances of the
victims. For that matter, differentiation would be justified even if private respondents had joined the private respondents
in the Mecenas case. The doctrine of stare decisis works as a bar only against issues litigated in a previous case. Where
the issue involved was not raised nor presented to the court and not passed upon by the court in the previous case, the
decision in the previous case is not stare decisis of the question presently presented. 16 The decision in the Mecenas
case relates to damages for which petitioner was liable to the claimants in that case.
In the case at bar, the award of P300,000.00 for moral damages is reasonable considering the grief petitioner Ramon
Miranda suffered as a result of the loss of his entire family. As a matter of fact, three months after the collision, he
developed a heart condition undoubtedly caused by the strain of the loss of his family. The P100,000.00 given to Mr.
and Mrs. de la Victoria is likewise reasonable and should be affirmed.
As for the amount of civil indemnity awarded to private respondents, the appellate court's award of P50,000.00 per
victim should be sustained. The amount of P30,000.00 formerly set in De Lima v. Laguna Tayabas Co., 17 Heirs of
Amparo delos Santos v. Court of Appeals, 18 and Philippine Rabbit Bus Lines, Inc. v. Intermediate Appellate Court 19
as benchmark was subsequently increased to P50,000.00 in the case of Sulpicio Lines, Inc. v. Court of Appeals, 20
which involved the sinking of another interisland ship on October 24, 1988.
We now turn to the determination of the earning capacity of the victims. With respect to Ardita Miranda, the trial court
awarded damages computed as follows: 21
In the case of victim Ardita V. Miranda whose age at the time of the accident was 48 years, her life expectancy was
computed to be 21.33 years, and therefore, she could have lived up to almost 70 years old. Her gross earnings for 21.33
years based on P10,224.00 per annum, would be P218,077.92. Deducting therefrom 30% as her living expenses, her
net earnings would be P152,654.55, to which plaintiff Ramon Miranda is entitled to compensatory damages for the loss
of earning capacity of his wife. In considering 30% as the living expenses of Ardita Miranda, the Court takes into account
the fact that plaintiff and his wife were supporting their daughter and son who were both college students taking Medicine
and Law respectively.
In accordance with the ruling in Villa-Rey Transit, Inc. v. Court of Appeals, 22 we think the life expectancy of Ardita
Miranda was correctly determined to be 21.33 years, or up to age 69. Petitioner contends, however, that Mrs. Miranda
would have retired from her job as a public school teacher at 65, hence her loss of earning capacity should be reckoned
up to 17.33 years only.
The accepted formula for determining life expectancy is 2/3 multiplied by (80 minus the age of the deceased). It may be
that in the Philippines the age of retirement generally is 65 but, in calculating the life expectancy of individuals for the
purpose of determining loss of earning capacity under Art. 2206(1) of the Civil Code, it is assumed that the deceased
would have earned income even after retirement from a particular job. In this case, the trial court took into account the
fact that Mrs. Miranda had a master's degree and a good prospect of becoming principal of the school in which she was
teaching. There was reason to believe that her income would have increased through the years and she could still earn
more after her retirement, e.g., by becoming a consultant, had she not died. The gross earnings which Mrs. Miranda
could reasonably be expected to earn were it not for her untimely death was, therefore, correctly computed by the trial
court to be P218,077.92 (given a gross annual income of P10,224.00 and life expectancy of 21.33 years).
Petitioner contends that from the amount of gross earnings, 60% should be deducted as necessary living expenses, not
merely 30% as the trial court allowed. Petitioner contends that 30% is unrealistic, considering that Mrs. Miranda's
earnings would have been subject to taxes, social security deductions and inflation.
We agree with this contention. In Villa-Rey Transit, Inc. v. Court of Appeals, 23 the Court allowed a deduction of
P1,184.00 for living expenses from the P2,184.00 annual salary of the victim, which is roughly 54.2% thereof. The
deceased was 29 years old and a training assistant in the Bacnotan Cement Industries. In People v. Quilation, 24 the
deceased was a 26-year old laborer earning a daily wage. The court allowed a deduction of P120,000.00 which was
51.3% of his annual gross earnings of P234,000.00. In People v. Teehankee, 25 the court allowed a deduction of
P19,800.00, roughly 42.4% thereof from the deceased's annual salary of P46,659.21. The deceased, Maureen Hultman,
was 17 years old and had just received her first paycheck as a secretary. In the case at bar, we hold that a deduction
of 50% from Mrs. Miranda's gross earnings (P218,077.92) would be reasonable, so that her net earning capacity should
be P109,038.96. There is no basis for supposing that her living expenses constituted a smaller percentage of her gross
income than the living expenses in the decided cases. To hold that she would have used only a small part of her income
for herself, a larger part going to the support of her children would be conjectural and unreasonable.
As for Elfreda de la Victoria, the trial court found that, at the time of her death, she was 26 years old, a teacher in a
private school in Malolos, Bulacan, earning P6,192.00 per annum. Although a probationary employee, she had already
been working in the school for two years at the time of her death and she had a general efficiency rating of 92.85% and
it can be presumed that, if not for her untimely death, she would have become a regular teacher. Hence, her loss of
earning capacity is P111,456.00, computed as follows:
net earning = life x gross less reasonable
capacity (x) expectancy annual & necessary
income living expenses
(50%)
x = [2(80-26)] x [P6,192.00 - P3,096.00]
————
3
= 36 x 3,096.00
= P111,456.00
On the other hand, the award of actual damages in the amount of P23,075.00 was determined by the Court of Appeals
on the basis receipts submitted by private respondents. This amount is reasonable considering the expenses incurred
by private respondent Miranda in organizing three search teams to look for his family, spending for transportation in
going to places such as Batangas City and Iloilo, where survivors and the bodies of other victims were found, making
long distance calls, erecting a monument in honor of the four victims, spending for obituaries in the Bulletin Today and
for food, masses and novenas.
Petitioner's contention that the expenses for the erection of a monument and other expenses for memorial services for
the victims should be considered included in the indemnity for death awarded to private respondents is without merit.
Indemnity for death is given to compensate for violation of the rights of the deceased, i.e., his right to life and physical
integrity. 26 On the other hand, damages incidental to or arising out of such death are for pecuniary losses of the
beneficiaries of the deceased.
As for the award of attorney's fees, we agree with the Court of Appeals that the amount of P40,000.00 for private
respondent Ramon Miranda and P15,000.00 for the de la Victoria spouses is justified. The appellate court correctly
held:
The Mecenas case cannot be made the basis for determining the award for attorney's fees. The award would naturally
vary or differ in each case. While it is admitted that plaintiff-appellee Ramon Miranda who is himself a lawyer,
represented also plaintiffs-appellees Dela Victoria spouses, we note that separate testimonial evidence were adduced
by plaintiff-appellee Ramon Miranda (TSN, February 26, 1982, p. 6) and plaintiffs-appellees spouses Dela Victoria (TSN,
August 13, 1981, p. 43). Considering the amount of work and effort put into the case as indicated by the voluminous
transcripts of stenographic notes, we find no reason to disturb the award of P40,000.00 for plaintiff-appellee Ramon
Miranda and P15,000.00 for plaintiffs-appellees Dela Victoria spouses. 27
The award of exemplary damages should be increased to P300,000.00 for Ramon Miranda and P100,000.00 for the de
la Victoria spouses in accordance with our ruling in the Mecenas case:
Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious
in its consequence by creating negative incentives or deterrents against such behaviour. In requiring compliance with
the standard of extraordinary diligence, a standard which is in fact that of the highest possible degree of diligence, from
common carriers and in creating a presumption of negligence against them, the law seeks to compel them to control
their employees, to tame their reckless instincts and to force them to take adequate care of human beings and their
property. The Court will take judicial notice of the dreadful regularity with which grievous maritime disasters occur in our
waters with massive loss of life. The bulk of our population is too poor to afford domestic air transportation. So it is that
notwithstanding the frequent sinking of passenger vessels in our waters, crowds of people continue to travel by sea.
This Court is prepared to use the instruments given to it by the law for securing the ends of law and public policy. One
of those instruments is the institution of exemplary damages; one of those ends, of special importance in an archipelagic
state like the Philippines, is the safe and reliable carriage of people and goods by sea. 28
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with modification and petitioner is ORDERED to pay
private respondents damages as follows:
To private respondent Ramon Miranda: P23,075.00 for actual damages; P109,038.96 as compensatory damages for
loss of earning capacity of his wife; P150,000.00 as compensatory damages for wrongful death of three (3) victims;
P300,000.00 as moral damages; P300,000.00 as exemplary damages, all in the total amount of P882,113.96; and
P40,000.00 as attorney's fees.
To private respondents Spouses Ricardo and Virginia de la Victoria: P12,000.00 for actual damages; P111,456.00 as
compensatory damages for loss of earning capacity; P50,000.00 as compensatory damages for wrongful death;
P100,000.00 as moral damages; P100,000.00 as exemplary damages, all in the total amount of P373,456.00; and
P15,000.00 as attorney's fees.
Petitioners are further ordered to pay costs of suit.
In the event the Philippine National Oil Company and/or the PNOC Shipping and Transport Corporation pay or are
required to pay all or a portion of the amounts adjudged, petitioner Negros Navigation Co., Inc. shall reimburse either of
them such amount or amounts as either may have paid, and in the event of failure of Negros Navigation Co., Inc., to
make the necessary reimbursement, PNOC and/or PNOC/STC shall be entitled to a writ of execution without need of
filing another action.