G..R. No.
156978 May 2, 2006 loss occurred during the transshipment with petitioner and so
ABOITIZ SHIPPING CORPORATION, Petitioner,
vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.
For review on certiorari are the Decision1 dated August 29,
2002 of the Court of Appeals in CA-G.R. CV No. 28770 and its
Resolution2 dated January 23, 2003 denying reconsideration.
The Court of Appeals affirmed the Decision3 dated November
20, 1989 of the Regional Trial Court of Manila in Civil Case No.
82-1475, in favor of respondent New India Assurance
Company, Ltd.
This petition stemmed from the action for damages against
petitioner, Aboitiz Shipping Corporation, arising from the
sinking of its vessel, M/V P. Aboitiz, on October 31, 1980.
The pertinent facts are as follows:
Societe Francaise Des Colloides loaded a cargo of textiles and
auxiliary chemicals from France on board a vessel owned by
Franco-Belgian Services, Inc. The cargo was consigned to
General Textile, Inc., in Manila and insured by respondent New
India Assurance Company, Ltd. While in Hongkong, the cargo
was transferred to M/V P. Aboitiz for transshipment to Manila.4
Before departing, the vessel was advised by the Japanese
Meteorological Center that it was safe to travel to its
destination.5 But while at sea, the vessel received a report of a
typhoon moving within its general path. To avoid the typhoon,
the vessel changed its course. However, it was still at the fringe
of the typhoon when its hull leaked. On October 31, 1980, the
vessel sank, but the captain and his crew were saved.
On November 3, 1980, the captain of M/V P. Aboitiz filed his
"Marine Protest", stating that the wind force was at 10 to 15
knots at the time the ship foundered and described the weather
as "moderate breeze, small waves, becoming longer, fairly
frequent white horses."6
Thereafter, petitioner notified7 the consignee, General Textile,
of the total loss of the vessel and all of its cargoes. General
Textile, lodged a claim with respondent for the amount of its
loss. Respondent paid General Textile and was subrogated to
the rights of the latter.8
✕Powered by ExploreadsRespondent hired a surveyor, Perfect,
Lambert and Company, to investigate the cause of the sinking.
In its report,9 the surveyor concluded that the cause was the
flooding of the holds brought about by the vessel’s
questionable seaworthiness. Consequently, respondent filed a
complaint for damages against petitioner Aboitiz, Franco-
Belgian Services and the latter’s local agent, F.E. Zuellig, Inc.
(Zuellig). Respondent alleged that the proximate cause of the
loss of the shipment was the fault or negligence of the master
and crew of the vessel, its unseaworthiness, and the failure of
defendants therein to exercise extraordinary diligence in the
transport of the goods. Hence, respondent added, defendants
therein breached their contract of carriage.101avvphil.net
Franco-Belgian Services and Zuellig responded, claiming that
they exercised extraordinary diligence in handling the shipment
while it was in their possession; its vessel was seaworthy; and
the proximate cause of the loss of cargo was a fortuitous event.
They also filed a cross-claim against petitioner alleging that the
liability should rest with petitioner.
For its part, petitioner also raised the same defense that the
ship was seaworthy. It alleged that the sinking of M/V P.
Aboitiz was due to an unforeseen event and without fault or
negligence on its part. It also alleged that in accordance with
the real and hypothecary nature of maritime law, the sinking
of M/V P. Aboitiz extinguished its liability on the loss of the
cargoes.11
Meanwhile, the Board of Marine Inquiry (BMI) conducted its
own investigation to determine whether the captain and crew
were administratively liable. However, petitioner neither
informed respondent nor the trial court of the investigation. The
BMI exonerated the captain and crew of any administrative
liability; and declared the vessel seaworthy and concluded that
the sinking was due to the vessel’s exposure to the
approaching typhoon.
On November 20, 1989, the trial court, citing the Court of
Appeals decision in General Accident Fire and Life Assurance
Corporation v. Aboitiz Shipping Corporation12 involving the
same incident, ruled in favor of respondent. It held petitioner
liable for the total value of the lost cargo plus legal interest,
thus:
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered in favor of New India and against Aboitiz
ordering the latter to pay unto the former the amount of
P142,401.60, plus legal interest thereon until the same is fully
paid, attorney’s fees equivalent to fifteen [percent] (15%) of the
total amount due and the costs of suit.
The complaint with respect to Franco and Zuellig is dismissed
and their counterclaim against New India is likewise dismissed
SO ORDERED.131avvphil.net
Petitioner elevated the case to the Court of Appeals and
presented the findings of the BMI. However, on August 29,
2002, the appellate court affirmed in toto the trial court’s
decision. It held that the proceedings before the BMI was only
for the administrative liability of the captain and crew, and was
unilateral in nature, hence not binding on the courts. Petitioner
moved for reconsideration but the same was denied on
January 23, 2003.
Hence, this petition for review, alleging that the Court of
Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE HONORABLE
SUPREME COURT ON THE APPLICATION OF THE RULE
ON LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837
OF THE CODE OF COMMERCE TO CASES INVOLVING THE
SINKING OF THE M/V "P. ABOITIZ;
A.
x x x NOT APPLYING THE RULINGS IN THE CASES
OF MONARCH INSURANCE CO., INC. ET AL. V. COURT OF
APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION
V. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD.;
 B.
x x x RULING THAT THE ISSUE ON THE APPLICATION OF
THE RULE ON LIMITED LIABILITY UNDER ARTICLES 587,
590 AND 837 OF THE CODE OF COMMERCE HAD BEEN
CONSIDERED AND PASSED UPON IN ITS DECISION;
II.
x x x NOT LIMITING THE AWARD OF DAMAGES TO
RESPONDENT TO ITS PRO-RATA SHARES IN THE
INSURANCE PROCEEDS FROM THE SINKING OF THE M/V
"P. ABOITIZ".14
Stated simply, we are asked to resolve whether the limited
liability doctrine, which limits respondent’s award of damages
to its pro-rata share in the insurance proceeds, applies in this
case.
Petitioner, citing Monarch Insurance Co. Inc. v. Court of
Appeals, 15 contends that respondent’s claim for damages
should only be against the insurance proceeds and limited to
its pro-rata share in view of the doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary
nature of maritime law is not applicable in the present case
because petitioner was found to have been negligent. Hence,
according to respondent, petitioner should be held liable for the
total value of the lost cargo.
It bears stressing that this Court has variedly applied the
doctrine of limited liability to the same incident – the sinking
of M/V P. Aboitiz on October 31, 1980. Monarch, the latest
ruling, tried to settle the conflicting pronouncements of this
Court relative to the sinking of M/V P. Aboitiz. In Monarch, we
said that the sinking of the vessel was not due to force
majeure, but to its unseaworthy condition.16 Therein, we found
petitioner concurrently negligent with the captain and
crew.17 But the Court stressed that the circumstances therein
still made the doctrine of limited liability applicable.18
In the present case, petitioner has the burden of showing that it
exercised extraordinary diligence in the transport of the goods
it had on board in order to invoke the limited liability doctrine.
Differently put, to limit its liability to the amount of the insurance
proceeds, petitioner has the burden of proving that the
unseaworthiness of its vessel was not due to its fault or
negligence. Considering the evidence presented and the
circumstances obtaining in this case, we find that petitioner
failed to discharge this burden. It initially attributed the sinking
to the typhoon and relied on the BMI findings that it was not at
fault. However, both the trial and the appellate courts, in this
case, found that the sinking was not due to the typhoon but to
its unseaworthiness. Evidence on record showed that the
weather was moderate when the vessel sank. These factual
findings of the Court of Appeals, affirming those of the trial
court are not to be disturbed on appeal, but must be accorded
great weight. These findings are conclusive not only on the
parties but on this Court as well.24
In contrast, the findings of the BMI are not deemed always
binding on the courts.25 Besides, exoneration of the vessel’s
officers and crew by the BMI merely concerns their respective
administrative liabilities.26 It does not in any way operate to
absolve the common carrier from its civil liabilities arising from
its failure to exercise extraordinary diligence, the determination
of which properly belongs to the courts.27
Where the shipowner fails to overcome the presumption of
negligence, the doctrine of limited liability cannot be
applied.28 Therefore, we agree with the appellate court in
sustaining the trial court’s ruling that petitioner is liable for the
total value of the lost cargo.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision dated August 29, 2002 and Resolution dated January
23, 2003 of the Court of Appeals in CA-G.R. CV No. 28770
are AFFIRMED.

Our ruling in Monarch may appear inconsistent with the

exception of the limited liability doctrine, as explicitly stated in
the earlier part of the Monarch decision. An exception to the
limited liability doctrine is when the damage is due to the fault
of the shipowner or to the concurrent negligence of the
shipowner and the captain. In which case, the shipowner shall
be liable to the full-extent of the damage.19 We thus find it
necessary to clarify now the applicability here of the decision
in Monarch.

From the nature of their business and for reasons of public

policy, common carriers are bound to observe extraordinary
diligence over the goods they transport according to all the
circumstances of each case.20 In the event of loss, destruction
or deterioration of the insured goods, common carriers are
responsible, unless they can prove that the loss, destruction or
deterioration was brought about by the causes specified in
Article 1734 of the Civil Code.21 In all other cases, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence.22 Moreover, where the vessel is found unseaworthy,
the shipowner is also presumed to be negligent since it is
tasked with the maintenance of its vessel. Though this duty can
be delegated, still, the shipowner must exercise close
supervision over its men.23