2006

Loadstar Shipping vs. Pioneer Asia Insurance

January 24, 2006

Facts:

Loadstar entered into a voyage-charter with Northern Mindanao Transport Company, Inc. for the
carriage of 65,000 bags of cement from Iligan City to Manila. The shipper was Iligan Cement
Corporation, while the consignee in Manila was Market Developers, Inc.

67,500 bags of cement were loaded on board M/V Weasel and stowed in the cargo holds for
delivery to the consignee.

Prior to the voyage, the consignee insured the shipment of cement with respondent Pioneer Asia
Insurance Corporation for P1.4M.

M/V Weasel left Iligan City for Manila in good weather. However, in the morning, Captain Vicente
C. Montera, master of M/V Weasel, ordered the vessel to be forced aground. Consequently, the
entire shipment of cement was good as gone due to exposure to sea water. Petitioner thus failed
to deliver the goods to the consignee in Manila.

Issues:

1. Won petitioner a common or a private carrier.

2. Won the loss of the cargo was due to force majeure.

Held:

1. COMMON CARRIER
2. NO. Records showed that in the evening of June 24, 1984, the sea and weather conditions in
the vicinity of Negros Occidental were calm. The records revealed that petitioner took a shortcut
route, instead of the usual route, which exposed the voyage to unexpected hazard. Petitioner
had only itself to blame for its misjudgment.

The petition is DENIED.

Common Carriers; The voyage-charter agreement between petitioner and Northern Mindanao
Transport Company, Inc. did not in any way convert the common carrier into a private carrier.—
Petitioner is a corporation engaged in the business of transporting cargo by water and for
compensation, offering its services indiscriminately to the public. Thus, without doubt, it is a
common carrier. However, petitioner entered into a voyage-charter with the Northern Mindanao
Transport Company, Inc. Now, had the voyage-charter converted petitioner into a private carrier?
We think not. The voyage-charter agreement between petitioner and Northern Mindanao
Transport Company, Inc. did not in any way convert the common carrier into a private carrier.
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We have already resolved this issue with finality in Planters Products, Inc. v. Court of Appeals
where we ruled that: 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. It is only
when the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control
of the ship, although her holds may, for the moment, be the property of the charterer.

Same; As a common carrier, petitioner is required to observe extraordinary diligence in the

vigilance over the goods it transports.—As a common carrier, petitioner is required to observe
extraordinary diligence in the vigilance over the goods it transports. When the goods placed in
its care are lost, petitioner is presumed to have been at fault or to have acted negligently.
Petitioner therefore has the burden of proving that it observed extraordinary diligence in order
to avoid responsibility for the lost cargo.

Same; Instances When a Carrier Might be Exempt from Liability for the Loss of the Goods.—Article
1734 enumerates the instances when a carrier might be exempt from liability for the loss of the
goods. These are: (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; and (5) Order or act of competent public authority.
2006

Aboitiz Shipping Corporation vs. New India Assurance Company, Ltd

Facts:

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.

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 weather as
“moderate breeze, small waves, becoming longer, fairly frequent white horses.”

Thereafter, petitioner notified 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.

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 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.

Petitioner raised the 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.

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
2006

any administrative liability; and declared the vessel seaworthy and concluded that the sinking
was due to the vessel’s exposure to the approaching typhoon.

Issue:

Whether the Petitioner is liable for failure to exercise extraordinary diligence in transporting the
goods

Held:

Yes. 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. 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. 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. 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.

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, the Court found
that petitioner failed to discharge this burden.
2006

Estacion vs. Bernardo

Facts:

Noe Bernardo was a passenger of jeepney driven by Geminiano Quinquillera, owned by

Respondent Cecilia Bandoquillo, Noe hung or stood on the left rear carrier of the vehicle. The
jeepney stopped by the right shoulder of the road to pick up passengers. Suddenly, an Isuzu cargo
truck, owned by the Petitioner and driven by Gerosano, which was traveling in the same
direction, hit the rear end portion of the fiera, the cargo truck smashed respondent Noe against
the Fiera crushing his legs and feet which made him fall to the ground. Noe was brought to
hospital where his lower left leg was amputated. Noe, through his guardian ad litem, Arlie
Bernardo, filed with the RTC of Dumaguete City a complaint for damages arising from quasi-delict
against the registered owner of the cargo truck and his driver Gerosano. And prayed for actual
damages, loss of income, moral and exemplary damages, attorney’s fees, litigation expenses and
costs of suit.

Petitioner and his driver Gerosano filed their Answer4 denying the material allegations in the
complaint. They, in turn, filed a third party complaint5 against respondents Bandoquillo and
Quinquillera, as owner and driver respectively of the Fiera. They alleged that it was the reckless
imprudence of respondent driver Quinquillera and his clear violation of the traffic rules and
regulations which was the proximate cause of the accident and asked for indemnification for
whatever damages they would be sentenced to pay. Respondents Bandoquillo and Quinquillera
filed their Answer to the third party complaint asking for the dismissal of the third party
complaint and for payment of attorney’s fees.

Driver Gerosano was charged criminally for reckless imprudence resulting to multiple physical
injuries with damage to property to MCTC. The MCTC rendered its decision6 finding him guilty of
the crime charged and was sentenced to four months and one day to two years and four months
and to pay the costs. RTC rendered its judgment in the Civil case ordering defendants Gerosano
and Estacion, to pay plaintiff, jointly or solidarily to the actual damages, moral damages,
attorney’s fee and the litigation expenses. Petitioner appealed to the CA. CA rendered the
assailed decision which affirmed in toto the decision of the trial court. Petitioner’s motion for
reconsideration was denied. Hence, the herein petition for review.

Issues:
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1. WON the CA erred in not finding that Estacion exercised a due diligence as of a good
father of the family to prevent damage despite the abundance of evidence to that effect.

2. WON the CA erred in not holding that Larry Estacion exercised due diligence in the
selection and supervision of his employee and in maintain his cargo truck roadworthy and in good
condition.

3. WON the CA erred in exonerating respondents Cecilia Bandoquillio and Germiniano

Quinquillera.

Held:

1. The court held that petitioner failed to overcome the presumption of negligence thus he
is liable for the negligence of his driver Gerosano; the respondents failed to prove it otherwise.
The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions,
but also for those of persons for whom one is responsible.

2. There was also no proof that he exercised diligence in maintaining his cargo truck
roadworthy and in good operating condition. While petitioner’s mechanic driver testified that he
made a routine check-up on Oct 15 1982, one day before the mishap happened, and found the
truck operational, there was no record of such inspection.

3. Modification for the ruling of the CA that respondents Bandoquillo and Quinquillera are
liable for the negligent act of their driver. The judgment was ordering defendants Gerosano and
Estacion, as well as third party defendants Bandoquillo and Quinquillera, to pay plaintiff, jointly
and solidarily, the award of damages, since there was contributory negligence on the part of
respondent Noe, petitioner’s liability should be mitigated in accordance with Art. 2179
2006

VILLAMARIA, JR. v. CA

SUMMARY:
Villamaria is the owner of the jeepney being driven by Bustamate on a boundary setup. They had
an agreement that Bustamante would pay Php550, including the boundary, every day for 4 years
to own the jeepney, subject to other conditions. When Bustamante failed to pay, Villamaria took
back the jeepney. Bustamante filed a Complaint for Illegal Dismissal. Bustamante said that he
was not able to pay because he was arrested and his license was confiscated because the engine
of the jeepney was apparently taken from a stolen vehicle. Villamaria claims that there is no
employer-employee relationship between him and Bustamante.

FACTS:
Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged
in assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-
Sucat route. By 1995, Villamariastopped assembling jeepneys and retained only nine, four of
which he operated by employing drivers on a “boundary basis.” One of those drivers was
respondent Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted
P450.00 a day toVillamaria as boundary and kept the residue of his daily earnings as
compensation for driving the vehicle. In August 1997, Villamaria verbally agreed to sell the
jeepney to Bustamante under the “boundary-hulogscheme,” where Bustamante would remit to
Villarama P550.00 a day for a period of four years; Bustamante would then become the owner
of the vehicle and continue to drive the same underVillamaria’s franchise. It was also agreed that
Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled “Kasunduan ng Bilihan ng Sasakyan sa

Pamamagitan ng Boundary-Hulog” 5 over the passenger jeepney with Plate No. PVU-660, Chassis
No. EVER95-38168- C and Motor No. SL-26647. The parties agreed that if Bustamante failed to
pay the boundary-hulog for three days,Villamaria Motors would hold on to the vehicle until
Bustamante paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to
remit the daily boundary-hulog for a period of one week, the Kasunduan would cease to have
legal effect and Bustamante would have to return the vehicle toVillamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior
authority from Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to
transport passengers only and not for other purposes. He was also required to display an
identification card in front of the windshield of the vehicle; in case of failure to do so, any fine
that may be imposed by government authorities would be charged against his account.
Bustamante further obliged himself to pay for the cost of replacing any parts of the vehicle that
2006

would be lost or damaged due to his negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before commencing repairs. Bustamante
was not allowed to wear slippers, short pants or undershirts while driving. He was required to be
polite and respectful towards the passengers. He was also obliged to notify Villamaria Motors in
case the vehicle was leased for two or more days and was required to attend any meetings which
may be called from time to time. Aside from the boundary hulog, Bustamante was also obliged
to pay for the annual registration fees of the vehicle and the premium for the vehicle’s
comprehensive insurance. Bustamante promised to strictly comply with the rules and regulations
imposed by Villamaria for the upkeep and maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of Villamaria. As
agreed upon, he made daily remittances of P550.00 in payment of the purchase price of the
vehicle. Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria
allowed him to continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria
Motors failed to pay their respective boundary-hulog. This prompted Villamaria to serve a
“Paalala,” reminding them that under the Kasunduan, failure to pay the daily boundary-hulog for
one week, would mean their respective jeepneys would be returned to him without any
complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced and
urged them to comply with their obligation to avoid litigation.
On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter
from driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint for Illegal Dismissal against Villamaria and
his wife Teresita. In his Position Paper, Bustamante alleged that he was employed by Villamaria
in July 1996 under the boundary system, where he was required to remit P450.00 a day. After
one year of continuously working for them, the spouses Villamaria presented the Kasunduan for
his signature, with the assurance that he (Bustamante) would own the jeepney by March 2001
after paying P550.00 in daily installments and that he would thereafter continue driving the
vehicle along the same route under the same franchise. He further narrated that in July 2000, he
informed the Villamaria spouses that the surplus engine of the jeepney needed to be replaced,
and was assured that it would be done. However, he was later arrested and his driver’s license
was confiscated because apparently, the replacement engine that was installed was taken from
a stolen vehicle. Due to negotiations with the apprehending authorities, the jeepney was not
impounded. The Villamaria spouses took the jeepney from him on July 24, 2000, and he was no
longer allowed to drive the vehicle since then unless he paid them P70,000.00.
2006

ISSUES:
WON THERE EXISTS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN JEEPNEY
OWNER/OPERATOR AND DRIVER IN A BOUNDARY SYSTEM
YES.
WON PETITIONER IS GUILTY OF ILLEGAL DISMISSAL YES.

As early as 1956, the Court ruled in National Labor Union v. Dinglasan, 98 Phil. 649 (1956), that
the jeepney owner/operator-driver relationship under the boundary system is that of employer
employee and not lessor-lessee. This doctrine was affirmed, under similar factual settings, in
Mag-boo v. Bernardo, 7 SCRA 952 (1963), and Lantaco, Sr. v. Llamas, 108 SCRA 502 (1981), and
was analogously applied to govern the relationships between auto-calesa owner/operator and
driver, bus owner/operator and conductor, and taxi owner/operator and driver.

The boundary system is a scheme by an owner/operator engaged in transporting passengers as

a common carrier to primarily govern the compensation of the driver, that is, the latter’s daily
earnings are remitted to the owner/operator less the excess of the boundary which represents
the driver’s compensation. Under this system, the owner/operator exercises control and
supervision over the driver. It is unlike in lease of chattels where the lessor loses complete control
over the chattel leased but the lessee is still ultimately responsible for the consequences of its
use. The management of the business is still in the hands of the owner/operator, who, being the
holder of the certificate of public convenience, must see to it that the driver follows the route
prescribed by the franchising and regulatory authority, and the rules promulgated with regard to
the business operations. The fact that the driver does not receive fixed wages but only the excess
of the “boundary” given to the owner/operator is not sufficient to change the relationship
between them. Indubitably, the driver performs activities which are usually necessary or
desirable in the usual business or trade of the owner/operator.

As respondent’s employer, it was the burden of petitioner to prove that respondent’s

termination from employment was for a lawful or just cause, or, at the very least, that respondent
failed to make his daily remittances of P550.00 as boundary. However, petitioner failed to do so.
2006

Diaz vs. Court of Appeals

July 25, 2006

Facts:

Petitioner Agapita Diaz operated a common carrier, a Tamaraw FX taxi plying the route of
Cagayan de Oro City to any point in Region 10. Petitioner's taxi, driven by one Arman Retes, was
moving at an excessive speed when it rammed into the rear portion of a Hino cargo truck owned
by private respondent Teodoro Lantoria and driven by private respondent Rogelio Francisco. As
a result, nine passengers of the taxi died including Sherly Moneño.

The heirs of Sherly Moneño filed with the Regional Trial Court of Malaybalay City, an action for
breach of contract of carriage and damages against petitioner and her driver, Arman Retes.

Petitioner filed a third-party complaint against private respondents Teodorio Lantoria and
Rogelio Francisco.

The trial court rendered a decision holding petitioner and Arman Retes jointly and severally liable
to pay private respondent heirs of Sherly Moneño P50,000 for her death, P50,000 as moral
damages, P20,000 as exemplary damages and P20,000 as attorney's fees.

On appeal, the trial court's decision was affirmed by the Court of Appeals. The motion for
reconsideration was denied, hence, this petition.

Issue:

Whether or not there was a liability on the part of the petitioner for breach of contract.

Held:

YES.

Petition was DISMISSED.

Common Carriers; Presumption of Negligence; In a contract of carriage, it is presumed that the

common carrier is at fault or is negligent when a passenger dies or is injured.—“A common carrier
is bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances.” In a
contract of carriage, it is presumed that the common carrier is at fault or is negligent when a
passenger dies or is injured. In fact, there is even no need for the court to make an express finding
of fault or negligence on the part of the common carrier. This statutory presumption may only
be overcome by evidence that the carrier exercised extraordinary diligence. In the case at bar,
petitioner, as common carrier, failed to establish sufficient evidence to rebut the presumption of
negligence. The findings of the trial court, as affirmed by the Court of Appeals, showed that the
2006

accident which led to the death of Sherly Mone o was caused by the reckless speed and gross
negligence of petitioner’s driver who demonstrated no regard for the safety of his passengers. It
was thus correct to hold petitioner guilty of breach of the contract of carriage.
2006

Delsan Transport Lines, Inc. vs. American Home Assurance Corporation

Facts:

Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other
hand, respondent American Home Assurance Corporation (AHAC for brevity) is a foreign
insurance company duly licensed to do business in the Philippines through its agent, the
American-International Underwriters, Inc. (Phils.).

On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l
Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation and
delivery to the bulk depot in Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a Contract of
Afreightment. The shipment was insured by respondent AHAC against all risks under Inland
Floater Policy.

On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading
operations commenced. The discharging of the diesel oil started at about 1:30 PM of the same
day. However, at about 10:30 PM, the discharging had to be stopped on account of the discovery
that the port bow mooring of the vessel was intentionally cut or stolen by unknown persons.
Because there was nothing holding it, the vessel drifted westward, dragged and stretched the
flexible rubber hose attached to the riser, broke the elbow into pieces, severed completely the
rubber hose connected to the tanker from the main delivery line at sea bed level and ultimately
caused the diesel oil to spill into the sea. To avoid further spillage, the vessel’s crew tried water
flushing to clear the line of the diesel oil but to no avail. In the meantime, the shore tender, who
was waiting for the completion of the water flushing, was surprised when the tanker signaled a
“red light” which meant stop pumping. Unaware of what happened, the shore tender, thinking
that the vessel would, at any time, resume pumping, did not shut the storage tank gate valve. As
all the gate valves remained open, the diesel oil that was earlier discharged from the vessel into
the shore tank back-flowed.

As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan,
but the latter refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage.
On February 19, 1985, AHAC, as Caltex’s subrogee, instituted civil case against Delsan before the
Manila RTC for loss caused by the spillage.

The trial court rendered its decision in favor of AHAC holding Delsan liable for the loss of the
cargo for its negligence in its duty as a common carrier.

Issue:

Whether the petitioner was liable for the loss of the cargo caused by the spillage
2006

Held:

Yes. Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. They are presumed to have been at fault or to have acted negligently
if the goods are lost, destroyed or deteriorated. To overcome the presumption of negligence in
case of loss, destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the
Civil Code enumerates the instances when the presumption of negligence does not attach: 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.

Delsan’s argument that it should not be held liable for the loss of diesel oil due to backflow
because the same had already been actually and legally delivered to Caltex at the time it entered
the shore tank holds no water. It had been settled that the subject cargo was still in the custody
of Delsan because the discharging thereof has not yet been finished when the backflow occurred.
Since the discharging of the cargo into the depot has not yet been completed at the time of the
spillage when the backflow occurred, there is no reason to imply that there was actual delivery
of the cargo to the consignee. Delsan is straining the issue by insisting that when the diesel oil
entered into the tank of Caltex on shore, there was legally, at that moment, a complete delivery
thereof to Caltex. To be sure, the extraordinary responsibility of common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by, the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to a person who has the right to receive them. The discharging of oil products to
Caltex Bulk Depot has not yet been finished; Delsan still has the duty to guard and to preserve
the cargo. The carrier still has in it the responsibility to guard and preserve the goods, a duty
incident to its having the goods transported.
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PRUDENTIAL GUARANTEE VS. TRANS-ASIA SHIPPING LINES

Facts:

TRANS-ASIA is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums,
PRUDENTIAL insured M/V Asia Korea for loss/damage of the hull and machinery arising from
perils, inter alia, of fire and explosion for the sum of P40 Million, beginning from the period of
July 1, 1993 up to July 1, 1994. On October 25, 1993, while the policy was in force, a fire broke
out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993
TRANS-ASIA filed its notice of claim for damage sustained by the vessel evidenced by a
letter/formal claim. TRANS-ASIA reserved its right to subsequently notify PRUDENTIAL as to the
full amount of the claim upon final survey and determination by average adjuster Richard Hogg
International (Phil.) of the damage sustained by reason of fire.

TRANS-ASIA executed a document denominated “Loan and Trust receipt” a portion of which
states that

“Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION
ONLY (P3, 000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable
only in the event and to the extent that any net recovery is made by Trans-Asia Shipping
Corporation, from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable occasioned by the 25 October 1993:
Fire on Board. “

PRUDENTIAL later on denied Trans-Asia’s claim in stated in a letter that

“After a careful review and evaluation of your claim arising from the above-captioned incident,
it has been ascertained that you are in breach of policy conditions, among them “WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED”. Accordingly, we regret to advise that your claim is
not compensable and hereby DENIED.” and asked for the return of the 3,000,000.

TRANS-ASIA filed a Complaint for Sum of Money against PRUDENTIAL with the RTC of Cebu City,
wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the
same represents the balance of the indemnity due upon the insurance policy in the total amount
of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 243 of
Presidential Decree No. 1460, otherwise known as the “Insurance Code,” as amended.

The RTC ruled in favor of Prudential. It ruled that a determination of the parties’ liabilities hinged
on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is
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required to maintain the vessel at a certain class at all times pertinent during the life of the policy.
According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the
warranty, the violation thereof entitled PRUDENTIAL to rescind the contract.

The court of appeals reversed the decision. It ruled that PRUDENTIAL, as the party asserting the
non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the
warranty, which burden it failed to discharge. It considered PRUDENTIAL’s admission that at the
time the insurance contract was entered into between the parties, the vessel was properly
classed by Bureau Veritas, a classification society recognized by the industry. It similarly gave
weight to the fact that it was the responsibility of Richards Hogg International (Phil’s.) Inc., the
average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its
conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim
under the insurance policy. Also the C.A. ruled that TRANS-ASIA is entitled to the unpaid claims
covered by Marine Policy, or a total amount of P8, 395,072.26 however even if there was
unreasonable denial or withholding of the payment of the claims due Trans-Asia is still not
entitled to pay for attorney’s fees for it can only be awarded in the cases enumerated in Article
2208 of the Civil Code. But Trans-Asia is entitled to double interest on the policy for the duration
of the delay of payment of the unpaid balance, citing Section 244 of the Insurance Code.

Issue:

1. WON Prudential should pay Trans-Asia the unpaid claims covered by the marine policy
including attorney’s fees.

2. WON Trans-Asia breached a material warranty that the vessel is classed and class
maintained.

Ruling:

1. Yes. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other
expenses incurred by the insured after a finding by the Insurance Commissioner or the Court, as
the case may be, of an unreasonable denial or withholding of the payment of the claims due.
Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on
the amount of the claim due the insured from the date following the time prescribed in Section
242 or in Section 243, as the case may be, until the claim is fully satisfied. Finally, Section 244
considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when
applicable, as prima facie evidence of unreasonable delay in payment.
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To the mind of this Court, Section 244 does not require a showing of bad faith in order that
attorney’s fees be granted. As earlier stated, under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim
within the time fixed in both Sections 242 and 243 of the Insurance Code.

As established in Section 244, by reason of the delay and the consequent filing of the suit by the
insured, the insurers shall be adjudged to pay damages which shall consist of attorney’s fees and
other expenses incurred by the insured.

Section 244 reads:

“In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorney’s fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the insured, from the date following the
time prescribed in section two hundred forty-two or in section two hundred forty-three, as the
case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim
within the time prescribed in said sections shall be considered prima facie evidence of
unreasonable delay in payment.”

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay
or refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in “M/V
Asia

Korea”, TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg
International (Phils.), Inc., completed its survey report recommending the amount of P11,
395,072.26 as the total indemnity due to TRANS-ASIA. On 21 April 1997, PRUDENTIAL, in a letter
addressed to TRANS-ASIA denied the latter’s claim for the amount of P8, 395,072.26 representing
the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter to TRANS-
ASIA seeking a return of the amount of P3, 000,000.00. On 13 August 1997, TRANS-ASIA was
constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the
sum of P8, 395,072.26 representing the balance of the proceeds of the insurance claim. As can
be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to
pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims, from the time
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proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster.
Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims compelled
the latter to file a suit for collection. Succinctly, an award equivalent to ten percent (10%) of the
unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable under the
circumstances, or otherwise stated, ten percent (10%) of P8, 395,072.26. In the case of Cathay
Insurance, Co., Inc. v. Court of Appeals, where a finding of an unreasonable delay under Section
244 of the Insurance Code was made by this Court, we grant an award of attorney’s fees
equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this
judicial precedent in the case at bar.

2. No. The SC held that Trans-Asia did not breach a material warranty that the vessel is classed
and class maintained. Prudential Guaranty was not successful in discharging the burden of
evidence that Trans-Asia breached the subject policy condition on CLASSED and CLASS
MAINTAINED. Foremost, Prudential through the Senior Manager of its Marine and Aviation
Division, Lucio Fernandez, made a categorical admission that at the time of the procurement of
the insurance, Trans-Asia’s vessel, “M/V Asia Korea” was properly classed by Bureau Veritas, a
classification society recognized in the marine industry.

As it is undisputed that Trans-Asia was properly classed at the time the contract of insurance was
entered into, thus, it becomes incumbent upon Prudential to shoe evidence that the status of
Trans-Asia being properly CLASSED by Bureau Veritas had shifted in violation of the warranty.
Unfortunately, Prudential failed to support the allegation.
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CARGOLIFT SHIPPING, INC. v. L. ACUARIO MARKETING CORP.

SUMMARY:
Acuario owns the barge which Skyland rented. The barges are to be towed by Cargolift’s vessels.
Acuario later finds out that one barge is damaged. Repairs are done on the barge. Acuario seeks
indemnity from Skyland since it is stipulated in the contract that the charterer shall be liable for
any damages caused on the barge due to the fault or negligence of the charterer. Skyland alleges
that Cargolift is liable for the damage. However, Cargolift says that the damage was due to strong
winds and large waves.

FACTS:
Sometime in March 1993, respondent L. Acuario Marketing Corp., (“Acuario”) and respondent
Skyland
Brokerage, Inc., (“Skyland”) entered into a time charter agreement whereby Acuario leased to
Skyland its L. Acuario II barge for use by the latter in transporting electrical posts from Manila to
Limay, Bataan. At the same time, Skyland also entered into a separate contract with petitioner
Cargolift, for the latter’s tugboats to tow the aforesaid barge.

In accordance with the foregoing contracts, petitioner’s tug-boat M/T Beejay left the Manila
South Harbor on April 1, 1993 with Acuario’s barge in tow. It reached the port of Li-may, Bataan
on April 3, 1993, whereupon M/T Beejay disengaged and once again set sail for Manila.
Petitioner’s other tugboat, the M/T Count, remained in Bataan to secure the barge for unloading.

Off-loading operations went underway until April 7, 1993, when operations were interrupted for
the next two days to give way to the observance of the lenten season. The unloading of the cargo
was concluded on April 12, 1993, by which time M/T Beejay had gone back to Bataan for the
return trip. The M/T Beejay and the barge returned to the port of Manila on April 13, 1993.

On the same day, the barge was brought to Acuario’s ship-yard where it was allegedly discovered
by Acuario’s dry-docking officer, Guillermo Nacu, Jr., that the barge was listing due to a leak in its
hull. According to Nacu, he was informed by the skipper of the tugboat that the damage was
sustained in Bataan. To confirm the same, Nacu ordered an underwater survey of the barge and
prepared a damage report dated April 14, 1993. No representative of Skyland was present during
the inspection although it was furnished with a copy of the said report.

The barge was consequently dry-docked for repairs at the Western Shipyard from April 16 to April
26, 1993. Acuario spent the total sum of P97,021.20 for the repairs.
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Pursuant to its contract with Skyland which provided that “(a)ny damage or loss on the barge due
to the fault or negligence of charterers shall be the responsibility of the (c)harterer or his
representative,” Acuario wrote Skyland seeking reimbursement of its repair costs, failing which,
it filed a complaint for damages against Skyland before the Regional Trial Court of Caloocan City,
where the case was docketed as Civil Case No. C-16120 and raffled to Branch 121. Skyland, in
turn, filed a third-party complaint against petitioner alleging that it was responsible for the
damage sustained by the barge.

According to Acuario and its witnesses, the weather in Bataan shifted drastically at dawn of April
7, 1993 while the barge was docked at the Limay port eight meters away from the stone wall.
Due to strong winds and large waves, the barge repeatedly hit its hull on the wall, thus prompting
the barge patron to alert the tugboat captain of the M/T Count to tow the barge farther out to
sea. However, the tugboat failed to pull the barge to a safer distance due to engine malfunction,
thereby causing the barge to sustain a hole in its hull. Fortunately, no part of the cargo was lost
even if only half of it had been unloaded at that time.

On the other hand, petitioner and Skyland denied that the barge had been damaged. One of its
witnesses, Salvador D. Ocampo, claimed that he was involved in all aspects of the operation and
that no accident of any sort was brought to his knowledge. He alleged that the barge patron and
tug master made no mention of any maritime casualty during the clearing of the vessels at the
Philippine Ports Authority in Limay, Bataan. The barge was in good condition and was not
damaged when it was turned over to Acuario on April 13, 1993.

ISSUE:
WON PETITIONER CARGOLIFT IS LIABLE YES.

In the performance of its contractual obligation to Skyland, petitioner was required to observe
the due diligence of a good father of the family. This much was held in the old but still relevant
case of Baer Senior & Co.’s Successors v. La Compania Maritima, 6 Phil. 215, 217-218 (1906),
where the Court explained that a tug and its owners must observe ordinary diligence in the
performance of its obligation under a contract of towage.

The negligence of the obligor in the performance of the obligation renders him liable for damages
for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his
failure to exercise due care and prudence in the performance of the obligation as the nature of
the obligation so demands.

In the case at bar, the exercise of ordinary prudence by petitioner means ensuring that its tugboat
is free of mechanical problems. While adverse weather has always been a real threat to maritime
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commerce, the least that petitioner could have done was to ensure that the M/T Count or any of
its other tugboats would be able to secure the barge at all times during the engagement. This is
especially true when considered with the fact that Acuario’s barge was wholly dependent upon
petitioner’s tugboat for propulsion. The barge was not equipped with any engine and needed a
tugboat for maneuvering.

That petitioner’s negligence was the proximate cause of the damage to the barge cannot be
doubted. Had its tugboat been serviceable, the barge could have been moved away from the
stone wall with facility. It is too late in the day for petitioner to insist that the proximate cause of
the damage was the barge patron’s negligence in not objecting to the position of the barge by
the stone wall. Aside from the fact that the position of the barge is quite understandable since
offloading operations were then still underway, the alleged negligence of the barge patron is a
matter that is also being raised for the first time before this Court. Thus, the damage to the barge
could have been avoided had it not been for the tugboat’s inability to tow it away from the stone
wall.

Considering that a barge has no power of its own and is totally defenseless against the ravages
of the sea, it was incumbent upon petitioner to see to it that it could secure the barge by
providing a seaworthy tugboat. Petitioner’s failure to do so did not only increase the risk that
might have been reasonably anticipated during the shipside operation but was the proximate
cause of the damage.

Hence, as correctly found by the courts below, it should ultimately be held liable therefor.
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Eastern Shipping Lines, Inc. vs. N.V. The Netherlands Insurance Company
July 27, 2006

Facts:

Sunglobe International Corporation shipped five cases containing a total of 5,000 pieces of
presensitized printing plates from Yokohama, Japan on board the vessel M/S Eastern Venus,
owned and operated by herein petitioner Eastern Shipping Lines, Inc. The shipment was bound
for Manila for delivery to the consignee, Liwayway Publishing, Inc.

The shipment was insured by respondent N.V. Netherlands Insurance Company.

The shipment arrived in Manila and was unloaded from the vessel to the custody of arrastre
operator Metro Port. Three of the five cases, Cases Nos. 1, 2,and 4 were accepted by Metro Port
in good order condition with receipts accomplished and signed by the representative of the vessel
and the Metroport.

As Cases Nos. 3 and 5 were found to be in bad order, two receipts were accomplished and duly
signed also by the representative of the vessel and that of Metro Port.

After the entire shipment was withdrawn from the pier and delivered to the consignee’s
warehouse, the consignee engaged the services of a surveyor, Audemus Adjustment Corporation,
to inspect the shipment. The consignee later claimed to the petitioner damages for total loss in
the amount of P41,065.88 sustained by Case No. 4.

Petitioner denied the consignee’s claim as the cargo claimed to have been damaged was, per its
records of discharge, intact and in good condition.

Meanwhile, respondent issued a check in favor of the consignee in the amount of P35,501.38
representing claim covered by the insurance. Respondent sought reimbursement from the
petitioner but failed, hence, it filed a complaint with Regional Trial Court (RTC), Makati.

The RTC dismissed respondent’s complaint.

On appeal by respondent, the Court of Appeals (CA) reversed the RTC’s decision and further
denied petitioner’s reconsideration, thus, this petition.

Issue:

Whether or not there was liability on the part of the petitioner.

Held:

NO.
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The petition was GRANTED. The assailed decision and resolution of the CA were REVERSED and
SET ASIDE. The decision of the RTC Makati was REINSTATED.

Maritime Law; Ships and Shipping; The ship owner cannot be held liable for any damages that
may have been discovered after delivery of the cargo to the consignee.—Case No. 4 was not in a
damaged state when petitioner discharged it to arrastre operator Metro Port. Petitioner cannot
thus be held liable for any damages on Case No. 4 that may have been discovered after its delivery
to the consignee.