[G.R. No. 119197.

May 16, 1997]

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE, INC.,

and NEW ZEALAND INSURANCE CO., LTD., petitioners, vs. NORTH FRONT
SHIPPING SERVICES, INC., and COURT OF APPEALS, respondents.
Facts:

Sacks of grains were loaded on board a vessel owned by North Front Shipping (common
carrier); the consignee: Republic Floor Mills. The vessel was inspected by representatives
of the shipper prior to the transport and was found fitting to carry the cargo; it was also
issued a Permit to Sail. The goods were successfully delivered but it was not immediately
unloaded by the consignee. There were a shortage of 23.666 metric tons and some of
the merchandise was already moldy and deteriorating. Hence, the consignee rejected all
the cargo and demanded payment of damages from the common carrier. Upon refusal,
the insurance companies (petitioners) were obliged to pay. Petitioners now allege that
there was negligence on the part of the carrier. The trial court ruled that only ordinary
diligence was required since the charter-party agreement converted North Front Shipping
into a private carrier.

Issues:

WON North Front Shipping is a common carrier. If indeed, did it fail to exercise the
required diligence and thus should be held liable?

Held:

North Front Shipping is a common carrier. Thus, it has the burden of proving that it
observed extraordinary diligence in order to avoid responsibility for the lost cargo.
The charter-party agreement between North Front Shipping Services, Inc., and Republic
Flour Mills Corporation did not in any way convert the common carrier into a private
carrier. A “charter-party” is defined as a contract by which an entire ship, or some principal
part thereof, is let by the owner to another person for a specified time or usex x x

Having been in the service since 1968, the master of the vessel would have known at the
outset that corn grains that were farm wet and not properly dried would eventually
deteriorate when stored in sealed and hot compartments as in hatches of a ship.
Equipped with this knowledge, the master of the vessel and his crew should have
undertaken precautionary measures to avoid or lessen the cargo’s possible deterioration
as they were presumed knowledgeable about the nature of such cargo.
But none of such measures was taken.
It did not even endeavor to establish that the loss, destruction or deterioration of the goods
was due to the following: (a) flood, storm, earthquake, lightning, or other natural disaster
or calamity; (b) act of the public enemy in war, whether international or civil; © act or
omission of the shipper or owner of the goods; (d) the character of the goods or defects
in the packing or in the containers; (e) order or act of competent public authority. This is
a closed list. If the cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is rightly liable therefor.

However, the destruction, loss or deterioration of the cargo cannot be attributed solely to
the carrier. The consignee Republic Flour Mills Corporation is guilty of contributory
negligence. It was seasonably notified of the arrival of the barge but did not immediately
start the unloading operations.

[G.R. No. 116940. June 11, 1997]

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

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

FACTS:
1. On 6 July 1983 Coca-Cola Bottlers Philippines, Inc. (Coca-Cola Bottlers), loaded
on board "MV Asilda," a vessel owned and operated by respondent Felman
Shipping Lines (FELMAN), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers
Philippines, Inc., Cebu. The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN)
2. In a joint statement, the Captain as well as the chief mate of the vessel confirmed
that the weather was fine when "MV Asilda" left the port of Zamboanga at 8 p.m.
on 6 July. The ship captain stated that around 4 a.m. of 7 July 1983 he was
awakened by the officer on duty to inform him that the vessel had hit a floating log.
3. At that time he noticed that the weather had deteriorated with strong southeast
winds inducing big waves. After 30 minutes, he observed that the vessel was listing
slightly to starboard and would not correct itself despite the heavy rolling and
pitching. He then ordered his crew to shift the cargo from starboard to portside until
the vessel was balanced. At about 7 a.m., the master of the vessel stopped the
engine because the vessel was listing dangerously to portside. He ordered his
crew to shift the cargo back to starboard (right). The shifting of cargo took about
an hour after which he rang the engine room to resume full speed.
4. At around 8:45 a.m., the vessel suddenly listed to portside and before the captain
could decide on his next move, some of the cargo on deck were thrown overboard
and seawater entered the engine room and cargo holds of the vessel. At that
instance, the master of the vessel ordered his crew to abandon ship.
5. Shortly thereafter, "MV Asilda" capsized and sank in the waters of Zamboanga del
Norte bringing down her entire cargo with her including the subject 7,500 cases of
1-liter Coca-Cola softdrink bottles.
6. The Ship Captain ascribed the sinking to the entry of seawater through a hole in
the hull caused by the vessel's collision with a partially submerged log.
7. On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant,
filed a claim with respondent FELMAN for recovery of damages. FELMAN denied
the claim thus prompting the consignee to file an insurance claim with
PHILAMGEN which paid its claim of P755,250.00.
8. Claiming its right of subrogation PHILAMGEN sought recourse against respondent
FELMAN which disclaimed any liability for the loss. Consequently, on 29
November 1983 PHILAMGEN sued the shipowner for sum of money and
damages, alleging that the total loss of cargo was due to the vessel’s
unseaworthiness as she was put to sea in an unstable condition. FELMAN, on the
other hand, filed a motion to dismiss contending that there was no right of
subrogation in favor of PHILAMGEN since it had abandoned all its rights, interests
and ownership over the vessel together with her freight and appurtenances for the
purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce.
 9. The RTC dismissed PHILAMGEN’s complaint and appealed to the CA which
remanded the case and denied its motion for reconsideration. The RTC then ruled
that the vessel was seaworthy and even if assumed unseaworthy, PHILAMGEN
still could not recover from FELMAN since Coca-Cola Bottlers had breached its
implied warranty on the vessel’s seaworthiness.
10. On appeal, the CA ruled that the vessel was unseaworthy for being top-heavy as
2,500 cases of Coca-Cola softdrinks bottles were improperly stowed on deck. Even
though the vessel possessed the necessary Coast Guard certification indicating
its seaworthiness with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. However, it denied the money claim of
PHILAMGEN because of the implied breach of warranty of seaworthiness by
Coca-Cola Bottlers. Furthermore, the filing of notice of abandonment had absolved
FELMAN from liability under the limited liability rule.

ISSUES:
1. Whether MV Asilda was seaworthy when it left port of Zamboanga
2. Whether the limited liability under Article 587 of the Code of Commerce should
apply

RULING:
1. NO. The Supreme Court subscribe to the findings of the Elite Adjusters and the
Court of Appeals that the proximate cause of the sinking of the MV Asilda was its
being top-heavy. As according to the report submitted by the Elite Adjusters, while
the vessel may not have been overloaded, the distribution or stowage of the cargo
on board was done in such a manner that the vessel was in top-heavy condition at
the time of its departure which rendered it unstable and unseaworthy for that
particular voyage. Furthermore, MV Asilda was designed as a fishing vessel and
was not designed to carry a substantial amount or quantity of cargo in deck and
from the moment it was utilized to load heavy cargo, the vessel was rendered
unseaworthy for the purpose of carrying the type of cargo and that the capsizing
and sinking of the vessel was bound to happen and an inevitable occurrence.
2. NO. The Supreme Court held that Article 587 of the Code of Commerce is not
applicable. The ship agent is liable for the negligent acts of the captain in the care
of the goods loaded on the vessel. This liability, although can be limited through
abandonment of the vessel, its equipment and freightage, as provided in Art. 587,
there exceptional circumstances wherein the ship agent could still be held
answerable, as where the loss or injury was due to the fault of the ship owner and
the captain. The international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a ship owner's liability, does not apply to cases
where the injury or average was occasioned by the ship owner's own fault. It must
be stressed at this point that Art. 587 speaks only of situations where the fault or
negligence is committed solely by the captain. Where the ship owner is likewise to
be blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier. Under Art 1733 of the Civil Code,
"(c)ommon carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them, according to all the
circumstances of each case . . ." In the event of loss of goods, common carriers
are presumed to have acted negligently. FELMAN, the ship owner, was not able
to rebut this presumption.