THIRD DIVISION

[G.R. No. 156978. May 2, 2006.]

ABOITIZ SHIPPING CORPORATION , petitioner, vs . NEW INDIA

ASSURANCE COMPANY, LTD. , respondent.

DECISION

QUISUMBING , J : p

For review on certiorari are the Decision 1 dated August 29, 2002 of the Court of
Appeals in CA-G.R. CV No. 28770 and its Resolution 2 dated January 23, 2003 denying
reconsideration. The Court of Appeals a rmed the Decision 3 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. TIaEDC

On November 3, 1980, the captain of M/V P. Aboitiz led 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 notified 7 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
Respondent 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 ooding
of the holds brought about by the vessel's questionable seaworthiness. Consequently,
respondent led 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
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 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. 1 0
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 led a cross-claim against petitioner alleging that the loss occurred during the
transshipment with petitioner and so 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. 1 1
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 Corporation 1 2
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 fteen [percent] (15%) of the total amount due and
the costs of suit. cHAaCE

The complaint with respect to Franco and Zuellig is dismissed and their
counterclaim against New India is likewise dismissed

SO ORDERED. 1 3

Petitioner elevated the case to the Court of Appeals and presented the ndings of
the BMI. However, on August 29, 2002, the appellate court a rmed 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.

. . . 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.
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 . . . 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.

. . . 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.
. . . 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". 1 4

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 , 1 5 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 con icting 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. 1 6 Therein, we found petitioner
concurrently negligent with the captain and crew. 1 7 But the Court stressed that the
circumstances therein still made the doctrine of limited liability applicable. 1 8
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. 1 9 We thus nd it necessary
to clarify now the applicability here of the decision in Monarch. cHaCAS

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. 2 0 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 speci ed in Article 1734 of
the Civil Code. 2 1 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. 2 2
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
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 delegated, still, the shipowner must exercise close supervision over its men. 2 3
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 nd 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 ndings of
the Court of Appeals, a rming those of the trial court are not to be disturbed on appeal,
but must be accorded great weight. These ndings are conclusive not only on the parties
but on this Court as well. 2 4

In contrast, the ndings of the BMI are not deemed always binding on the courts. 2 5
Besides, exoneration of the vessel's o cers and crew by the BMI merely concerns their
respective administrative liabilities. 2 6 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. 2 7
Where the shipowner fails to overcome the presumption of negligence, the doctrine
of limited liability cannot be applied. 2 8 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.
Costs against petitioner.
SO ORDERED.
Carpio, Carpio Morales, Tinga and Velasco, Jr., JJ., concur.

Footnotes
1. Rollo, pp. 84-97. Penned by Associate Justice Romeo J. Callejo, Sr. (now a member of
this Court), with Associate Justices Remedios Salazar-Fernando, and Danilo B. Pine
concurring.

2. Id. at 99. Penned by Associate Justice Danilo B. Pine, with Associate Justices Godardo
A. Jacinto, and Remedios Salazar-Fernando concurring.

3. Id. at 149-166.
4. Id. at 84-85, 150.
5. Id. at 65.
6. Id. at 163-164.

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 7. Exhibit "F-1," folder of exhibits, p. 8.
8. Exhibits "G, G-1, G-2," Id. at 11.
9. Records, pp. 562-580.

10. Id. at 5-6.

11. Id. at 18-19, 23-24.
12. CA-G.R. C.V. No. 10609, March 9, 1989 (Now SC G.R No. 89757, August 6, 1990, 188
SCRA 387).

13. Records, p. 859.

14. Rollo, pp. 68-69.
15. G.R. No. 92735, June 8, 2000, 333 SCRA 71.

16. Id. at 98-99.

17. Id. at 101.
18. Id. at 103.
19. Id. at 97.
20. CIVIL CODE, Art. 1733. Common 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.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the
safety of the passengers is further set forth in articles 1755 and 1756.

21. Id. at Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.

22. Id. at Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in article 1733.
23. Philippine American General Insurance Co., Inc. v. Court of Appeals, G.R. No. 116940,
June 11, 1997, 273 SCRA 262, 272.
24. Prudential Bank v. Chonney Lim, G.R. No. 136371, November 11, 2005, p. 5.
25. See Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, August 6, 1990,
188 SCRA 387, 390-391.
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 26. Delsan Transport Lines, Inc. v. Court of Appeals, G.R. No. 127897, November 15, 2001,
369 SCRA 24, 33.
27. Id. at 33-34.
28. Central Shipping Company, Inc. v. Insurance Company of North America, G.R. No.
150751, September 20, 2004, 438 SCRA 511, 523-524.

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