FIRST DIVISION

[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.

DECISION
BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and New
Zealand Insurance Co., Ltd., in this petition for review on certiorari, assail the 22
December 1994 decision of the Court of Appeals and its Resolution of 16 February 1995
which affirmed the 1 June 1993 decision of the Regional Trial Court dismissing their
complaint for damages against North Front Shipping Services, Inc.
On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were
shipped on board North Front 777, a vessel owned by North Front
Shipping Services, Inc.The cargo was consigned to Republic Flour Mills Corporation in
Manila under Bill of Lading No. 001[1] and insured with the herein mentioned insurance
companies. The vessel was inspected prior to actual loading by representatives of the
shipper and was found fit to carry the merchandise. The cargo was covered with
tarpaulins and wooden boards. The hatches were sealed and could only be opened by
representatives of Republic Flour Mills Corporation.
The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16
August 1990. Republic Flour Mills Corporation was advised of its arrival but it did not
immediately commence the unloading operations. There were days when unloading had
to be stopped due to variable weather conditions and sometimes for no apparent reason
at all. When the cargo was eventually unloaded there was a shortage of 26.333 metric
tons. The remaining merchandise was already moldy, rancid and deteriorating.The
unloading operations were completed on 5 September 1990 or twenty (20) days after the
arrival of the barge at the wharf of Republic Flour Mills Corporation in Pasig City.
Precision Analytical Services, Inc., was hired to examine the corn grains and
determine the cause of deterioration. A Certificate of Analysis was issued indicating that
the corn grains had 18.56% moisture content and the wetting was due to contact with salt
water. The mold growth was only incipient and not sufficient to make the corn grains toxic
and unfit for consumption. In fact the mold growth could still be arrested by drying.
 Republic Flour Mills Corporation rejected the entire cargo and formally demanded
from North Front Shipping Services, Inc., payment for the damages suffered by it. The
demands however were unheeded. The insurance companies were perforce obliged to
pay Republic Flour Mills Corporation P2,189,433.40.
By virtue of the payment made by the insurance companies they were subrogated to
the rights of Republic Flour Mills Corporation. Thusly, they lodged a complaint for
damages against North Front Shipping Services, Inc., claiming that the loss was
exclusively attributable to the fault and negligence of the carrier. The Marine Cargo
Adjusters hired by the insurance companies conducted a survey and found cracks in the
bodega of the barge and heavy concentration of molds on the tarpaulins and wooden
boards. They did not notice any seals in the hatches. The tarpaulins were not brand new
as there were patches on them, contrary to the claim of North Front Shipping Services,
Inc., thus making it possible for water to seep in. They also discovered that the bulkhead
of the barge was rusty.
North Front Shipping Services, Inc., averred in refutation that it could not be made
culpable for the loss and deterioration of the cargo as it was never negligent. Captain
Solomon Villanueva, master of the vessel, reiterated that the barge was inspected prior
to the actual loading and was found adequate and seaworthy. In addition, they were
issued a permit to sail by the Coast Guard. The tarpaulins were doubled and brand new
and the hatches were properly sealed. They did not encounter big waves hence it was
not possible for water to seep in. He further averred that the corn grains were farm wet
and not properly dried when loaded.
The court below dismissed the complaint and ruled that the contract entered into
between North Front Shipping Services, Inc., and Republic Flour Mills Corporation was a
charter-party agreement. As such, only ordinary diligence in the care of goods was
required of North Front Shipping Services, Inc. The inspection of the barge by the shipper
and the representatives of the shipping company before actual loading, coupled with
the Permit to Sail issued by the Coast Guard, sufficed to meet the degree of diligence
required of the carrier.
On the other hand, the Court of Appeals ruled that as a common carrier required to
observe a higher degree of diligence North Front 777 satisfactorily complied with all the
requirements hence was issued a Permit to Sail after proper inspection. Consequently,
the complaint was dismissed and the motion for reconsideration rejected.
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. We have already resolved this issue with finality in Planters Products, Inc.
v. Court of Appeals[2] thus -

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 use; a
contract of affreightment by which the owner of a ship or other vessel lets the whole
or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight x x x x Contract of
affreightment may either be time charter, wherein the vessel is leased to the charterer
for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire of the vessel only, either
for a determinate period of time or for a single or consecutive voyage, the ship owner
to supply the ship's store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.

Upon the other hand, the term 'common or public carrier' is defined in Art. 1732 of the
Civil Code. The definition extends to carriers either by land, air or water which
hold themselves out as ready to engage in carrying goods or transporting passengers
or both for compensation as a public employment and not as a casual occupation x x x
x

It is therefore imperative that a public carrier shall remain as such, notwithstanding

the charter of the whole or portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a time-charter or voyage-
charter (underscoring supplied).

North Front Shipping Services, Inc., is a corporation engaged in the business of

transporting cargo and offers its services indiscriminately to the public. It is without doubt
a common carrier. As such it is required to observe extraordinary diligence in its vigilance
over the goods it transports.[3]. When goods placed in its care are lost or damaged, the
carrier is presumed to have been at fault or to have acted negligently. [4] North Front
Shipping Services, Inc., therefore has the burden of proving that it observed extraordinary
diligence in order to avoid responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the vessel was inspected prior to
actual loading by representatives of the shipper and was found fit to take a load of corn
grains. They were also issued Permit to Sail by the Coast
Guard. The master of the vessel testified that the corn grains were farm wet when
loaded. However, thistestimony was disproved by the clean bill of lading issued by North
Front Shipping Services, Inc., which did not contain a notation that the corn grains were
wet and improperly dried. 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.
In Compania Maritima v. Court of Appeals[5] we ruled -

x x x x Mere proof of delivery of the goods in good order to a common carrier, and of
their arrival at the place of destination in bad order, makes out prima facie case
against the common carrier, so that if no explanation is given as to how the loss,
deterioration or destruction of the goods occurred, the common carrier must be held
responsible. Otherwise stated, it is incumbent upon the common carrier to prove that
the loss, deterioration or destruction was due to accident or some other circumstances
inconsistent with its liability x x x x

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for safe carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and 'to use all reasonable means to ascertain the nature and characteristics of
goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires' (underscoring supplied).

In fine, we find that the carrier failed to observe the required extraordinary diligence in
the vigilance over the goods placed in its
care. The proofs presented by NorthFront Shipping Services, Inc., were insufficient to
rebut the prima facie presumption of private respondent's negligence, more so if we
consider the evidence adduced by petitioners.
It is not denied by the insurance companies that the vessel was indeed inspected
before actual loading and that North Front 777 was issued a Permit to Sail. They proved
the fact of shipment and its consequent loss or damage while in the actual possession of
the carrier. Notably, the carrier failed to volunteer any explanation why there was spoilage
and how it occurred. On the other hand, it was shown during the trial that the vessel had
rusty bulkheads and the wooden boards and tarpaulins bore heavy concentration of
molds. The tarpaulins used were not new, contrary to the claim of North Front Shipping
Services, Inc., as there were already several patches on them, hence, making it highly
probable for water to enter.
Laboratory analysis revealed that the corn grains were contaminated with salt
water. North Front Shipping Services, Inc., failed to rebut all these arguments. 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; (c) 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.[6] 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, we cannot attribute the destruction, loss or deterioration of the cargo solely
to the carrier. We find the consignee Republic Flour Mills Corporation guilty of
contributory negligence. It was seasonably notified of the arrival of the barge but did not
immediately start the unloading operations. No explanation was proffered by the
consignee as to why there was a delay of six (6) days. Had the unloading been
commenced immediately the loss could have been completely avoided or at least
minimized.As testified to by the chemist who analyzed the corn samples, the mold growth
was only at its incipient stage and could still be arrested by drying. The corn grains were
not yet toxic or unfit for consumption. For its contributory negligence, Republic Flour Mills
Corporation should share at least 40% of the loss.[7]
WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its
Resolution of 16 February 1995 are REVERSED and SET ASIDE. Respondent North
Front Shipping Services, Inc., is ordered to pay petitioners Tabacalera Insurance Co.,
Prudential Guarantee & Assurance, Inc., and New Zealand Insurance Co.
Ltd., P1,313,660.00 which is 60% of the amount paid by the insurance companies to
Republic Flour Mills Corporation, plus interest at the rate of 12% per annum from the time
this judgment becomes final until full payment.
SO ORDERED.
Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
Padilla, J., (Chairman), on leave.

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.

FIRST DIVISION

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

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,

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

DECISION
BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo due
to its failure to observe the extraordinary diligence required by Art. 1733 of the
Civil Code as well as the right of the insurer to be subrogated to the rights of
the insured upon payment of the insurance claim.
 On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV
Asilda, a vessel owned and operated by respondent Felman Shipping Lines
(FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-
Cola Bottlers Philippines, Inc., Cebu. The shipment was insured with petitioner
[1]

Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity),

under Marine Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the
evening of the same day. At around eight forty-five the following morning, 7 July
1983, the vessel sank in the waters of Zamboanga del Norte bringing down her
entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola
softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu
plant, filed a claim with respondent FELMAN for recovery of damages it
sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against
respondent FELMAN which disclaimed any liability for the loss. Consequently,
on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV
Asilda and its cargo were due to the vessels unseaworthiness as she was put
to sea in an unstable condition. It further alleged
that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby port or
beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the
affirmative defense that no right of subrogation in favor of PHILAMGEN was
transmitted by the shipper, and that, in any event, FELMAN had abandoned all
its rights, interests and ownership over MV Asilda together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under
Art. 587 of the Code of Commerce. [2]

On 17 February 1986 the trial court dismissed the complaint of

PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and
remanded the case to the lower court for trial on the merits. FELMAN filed a
petition for certiorari with this Court but it was subsequently denied on 13
February 1989.
 On 28 February 1992 the trial court rendered judgment in favor of
FELMAN. It ruled that MV Asilda was seaworthy when it left the port of
[3]

Zamboanga as confirmed by certificates issued by the Philippine Coast Guard

and the shipowners surveyor attesting to its seaworthiness. Thus the loss of the
vessel and its entire shipment could only be attributed to either a fortuitous
event, in which case, no liability should attach unless there was a stipulation to
the contrary, or to the negligence of the captain and his crew, in which case,
Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming MV Asilda was unseaworthy,
still PHILAMGEN could not recover from FELMAN since the assured (Coca-
Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessels
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured
was an undue, wrong and mistaken payment. Since it was not legally owing, it
did not give PHILAMGEN the right of subrogation so as to permit it to bring an
action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of
Appeals. On 29 August 1994 respondent appellate court rendered judgment
finding MV Asildaunseaworthy for being top- heavy as 2,500 cases of Coca-
Cola softdrink bottles were improperly stowed on deck. In other words, while
the vessel possessed the necessary Coast Guard certification indicating its
seaworthiness with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. Nonetheless, the appellate court denied
the claim of PHILAMGEN on the ground that the assureds implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not
properly subrogated to the rights and interests of the shipper. Furthermore,
respondent court held that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV Asilda was
seaworthy when it left the port of Zamboanga; (b) whether the limited liability
under Art. 587 ofthe Code of Commerce should apply; and, (c) whether
PHILAMGEN was properly subrogated to the rights and legal actions which the
shipper had against FELMAN, the shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint
statement, the captain as well as the chief mate of the vessel confirmed that the
weather was fine when they left the port of Zamboanga. According to them, the
vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300
sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of
empty boxes for fresh eggs. They loaded the empty boxes for eggs and about
500 cases of Coca-Cola bottles on deck. The ship captain stated that around
[4]
four oclock in the morning of 7 July 1983 he was awakened by the officer on
duty to inform him that the vessel had hit a floating log. At that time he noticed
that the weather had deteriorated with strong southeast winds inducing big
waves. After thirty minutes he observed that the vessel was listing slightly to
starboard and would not correct itself despite the heavy rolling and pitching. He
then ordered his crew to shift the cargo from starboard to portside until the
vessel was balanced. At about seven oclock in the morning, the master of the
vessel stopped the engine because the vessel was listing dangerously to
portside. He ordered his crew to shift the cargo back to starboard. The shifting
of cargo took about an hour afterwhich he rang the engine room to resume full
speed.
At around eight forty-five, the vessel suddenly listed to portside and before
the captain could decide on his next move, some of the
cargo on deck were thrownoverboard and seawater entered the engine room
and cargo holds of the vessel. At that instance, the master of the vessel ordered
his crew to abandon ship. Shortly thereafter, MV Asilda capsized and sank. He
ascribed the sinking to the entry of seawater through a hole in the hull caused
by the vessels collision with a partially submerged log. [5]

The Elite Adjusters, Inc., submitted a report regarding the sinking of MV

Asilda. The report, which was adopted by the Court of Appeals, reads -

We found in the course of our investigation that a reasonable explanation for the
series of lists experienced by the vessel that eventually led to her capsizing and
sinking, was that the vessel was top-heavy which is to say that while the vessel may
not have been overloaded, yet the distribution or stowage of the cargo on board was
done in such a manner that the vessel was in top-heavy condition at the time of her
departure and which condition rendered her unstable and unseaworthy for that
particular voyage.

In this connection, we wish to call attention to the fact that this vessel was designed as
a fishing vessel x x x x and it was not designed to carry a substantial amount or
quantity of cargo on deck. Therefore, we believe strongly that had her cargo been
confined to those that could have been accommodated under deck, her stability would
not have been affected and the vessel would not have been in any danger of capsizing,
even given the prevailing weather conditions at that time of sinking.

But from the moment that the vessel was utilized to load heavy cargo on its deck, the
vessel was rendered unseaworthy for the purpose of carrying the type of cargo
because the weight of the deck cargo so decreased the vessels metacentric height as to
cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be
pointed out that ships are precisely designed to be able to navigate safely even during
heavy weather and frequently we hear of ships safely and successfully weathering
encounters with typhoons and although they may sustain some amount of damage, the
sinking of ship during heavy weather is not a frequent occurrence and is not likely to
occur unless they are inherently unstable and unseaworthy x x x x

We believe, therefore, and so hold that the proximate cause of the sinking of
the M/V Asilda was her condition of unseaworthiness arising from her having
been top-heavy when she departedfrom the Port of Zamboanga. Her having capsized
and eventually sunk was bound to happen and was therefore in the category of an
inevitable occurrence (underscoring supplied). [6]

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of
Appeals that the proximate cause of the sinking of MV Asilda was its being top-
heavy. Contrary to the ship captains allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on deck. Several
days after MV Asilda sank, an estimated 2,500 empty Coca-Cola plastic cases
were recovered near the vicinity of the sinking. Considering that the ships
hatches were properly secured, the empty Coca-Cola cases recovered could
have come only from the vessels deck cargo. It is settled that carrying a deck
cargo raises the presumption of unseaworthiness unless it can be shown that
the deck cargo will not interfere with the proper management of the
ship. However, in this case it was established that MV Asilda was not designed
to carry substantial amount of cargo on deck. The inordinate loading of cargo
deck resulted in the decrease of the vessels metacentric height thus making it
[7]

unstable. The strong winds and waves encountered by the vessel are but the
ordinary vicissitudes of a sea voyage and as such merely contributed to its
already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable
to the case at bar. Simply put, the ship agent is liable for the negligent acts of
[8]

the captain in the care of goods loaded on the vessel. This liability however can
be limited through abandonment of the vessel, its equipment and freightage as
provided in Art. 587.Nonetheless, there are exceptional circumstances
wherein the ship agent could still be held answerable despite the abandonment,
as where the loss or injury was due to the fault of the shipowner and the
captain. The international rule is to the effect that the right of abandonment of
[9]

vessels, as a legal limitation of a shipowners liability, does not apply to cases

where the injury or average was occasioned by the shipowners own fault. It [10]

must be stressed at this point that Art. 587 speaks only of situations where the
fault or negligence is committed solely by the captain. Where the shipowner is
likewise to be blamed, Art. 587 will not apply, and such situation will be covered
by the provisions of the Civil Code on common carrier. [11]

It was already established at the outset that the sinking of MV Asilda was
due to its unseaworthiness even at the time of its departure from the port of
Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on
deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such,FELMAN was equally negligent. It cannot
therefore escape liability through the expedient of filing a notice of
abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each
case x x x x" In the event of loss of goods, common carriers are presumed to
have acted negligently. FELMAN, the shipowner, was not able to rebut this
presumption.
In relation to the question of subrogation, respondent appellate court
found MV Asilda unseaworthy with reference to the cargo and therefore ruled
that there was breach of warranty of seaworthiness that rendered the assured
not entitled to the payment of is claim under the policy. Hence, when
PHILAMGEN paid the claim of the bottling firm there was in effect a voluntary
payment and no right of subrogation accrued in its favor. In other words, when
PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured
impliedly warrants to the assurer that the vessel is seaworthy and such warranty
is as much a term of the contract as if expressly written on the face of the
policy. Thus Sec. 113 of the Insurance Code provides that (i)n every marine
[12]

insurance upon a ship or freight, or freightage, or upon anything which is the

subject of marine insurance, a warranty is implied that the ship is
seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to perform
the service, and to
encounter the ordinary perils of the voyage, contemplated by the parties to the
policy. Thus it becomes the obligation of the cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. He may have
no control over the vessel but he has full control in the selection of the common
carrier that will transport his goods. He also has full discretion in the choice of
assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by
the assured as painstakingly pointed out by FELMAN to stress that subrogation
will not work in this case. In policies where the law will generally imply a
warranty of seaworthiness, it can only be excluded by terms in writing in the
policy in the clearest language. And where the policy stipulates that the
[13]

seaworthiness of the vessel as between the assured and the assurer is

admitted, the question of seaworthiness cannot be raised by the assurer without
showing concealment or misrepresentation by the assured. [14]

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in

at least two (2) instances has dispensed with the usual warranty of
worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads
(t)he liberties as per Contract of Affreightment the presence of the Negligence
Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party
and/or Contract of Affreightment as between the Assured and
the Company shall not prejudice the insurance. The seaworthiness of the
vessel as between the Assured and the Assurers is hereby admitted. [15]

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.)
of the policy which states (t)he seaworthiness of the vessel as between the
Assured and Underwriters in hereby admitted x x x x" [16]

The result of the admission of seaworthiness by the assurer PHILAMGEN

may mean one or two things: (a) that the warranty of the seaworthiness is to be
taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company. The insertion of such waiver clauses in cargo policies is
[17]

in recognition of the realistic fact that cargo owners cannot control the state of
the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN
has accepted the risk of unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for
subrogation. PHILAMGENs action against FELMAN is squarely sanctioned by
Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals, we said that

[18]

payment by the assurer to the assured operates as an equitable assignment to

the assurer of all the remedies which the assured may have against the third
party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the insurance
claim.
The doctrine of subrogation has its roots in equity. It is designed to promote
and to accomplish justice and is the mode which equity adopts to compel the
ultimate payment of a debt by one who in justice, equity and good conscience
ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola
[19]

Bottlers Philippines, Inc., gave the former the right to bring an action as
subrogee against FELMAN. Having failed to rebut the presumption of fault, the
liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink
bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING
LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., Seven Hundred Fifty-five Thousand
Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon
counted from 29 November 1983, the date of judicial demand, pursuant to Arts.
2212 and 2213 of the Civil Code. [20]

SO ORDERED.

PhilAm vs. CA

Facts:

Coca-Cola Bottlers loaded on board MV Asilda, a vessel owned by respondent FELMAN, 7,500 cases
of 1-litter Coca-Cola softdrinks bottle to be transported from Zamboanga City to Cebu City. The
shipment was insured by petitioner PHILAMGEN. The vessel left Zamboanga in a fine weather but
the same sank in the waters of Zamboanga del Norte. Coca-Cola Bottlers filed a claim for damages
against FELMAN which it denied, thus, filed an insurance claim with PHILAMGEN. PHILAMGEN
now seeks recourse against FELMAN.

Issue: WON FELMAN is liable for loss of the cargo due to its failure to observe the extraordinary
diligence required by Art. 1733, NCC.

Held: YES.

Under Art 1733 of the Civil Code, “©ommon carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each case …”
In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the
shipowner, was not able to rebut this presumption.

The sinking of the vessel was due to its unseaworthiness even at the time of its departure from the port
of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck.