1

G.R. No. L-18965 October 30, 1964 The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the carrier of the correctness and sufficiency of the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do so? 1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company contracted by telephone the services of petitioner to ship the hemp in question from the former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters to undertake the service. It also appears that the patrons of said lighters were employees of the carrier with due authority to undertake the transportation and to sign the documents that may be necessary therefor so much so that the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as follows: . Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the maritime law. In other words, here we have a complete contract of carriage the consummation of which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage. The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to the lighter. ... and, similarly, where there is a contract to carry goods from one port to another, and they cannot be loaded directly on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that the bill of landing is applicable to the goods as soon as they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied) ... The test as to whether the relation of shipper and carrier had been established is, Had the control and possession of the cotton

COMPAIA MARITIMA, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent. Rafael Dinglasan Ozaeta Gibbs & Ozaeta for respondent. BAUTISTA ANGELO, J.: Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on confirmed by a formal and written booking issued by Macleod's branch office in Sasa and handcarried to Compaia Maritima's branch office in Davao in compliance with which the latter sent to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952. These two lighters were manned each by a patron and an assistant patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part: Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which the hemp was to be loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking, grading, rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00, the total loss adds up to P60,421.02. All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss it suffered as above stated with said insurance company, and after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a document which aside from being a receipt of the amount paid, was a subrogation agreement between Macleod and the insurance company wherein the former assigned to the latter its rights over the insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02, which is the only amount supported by receipts, the insurance company instituted the present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with legal interest thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition for review. for petitioner.

2
been completely surrendered by the shipper to the railroad company? Whenever the control and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with certainty that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148). The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage. Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of lading, although article 350 of the Code of Commerce provides that "the shipper as well as the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that provided that there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to form." The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not demand, as necessary requisite in the contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13) The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to complete delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the bill of lading, actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288) 2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim offorce majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out. Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the Court of Appeals: Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered "thru tank man-holes", according to the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the barge was not seaworthy it should be noted that on the night of the nautical accident there was no storm, flood, or other natural disaster or calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167R, March 12, 1959). The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of LCT No. 1025 to the 'non-watertight conditions of various buoyancy compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals. 3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo that was damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting the following comments of the Court of Appeals: It was not imperative and necessary for the trial court to pass upon the question of whether or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a party nor privy to this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a valid reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy contained, if any, is deemed to have been waived by the subsequent payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity as a common carrier, and appellee is suing as the assignee of the shipper pursuant to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the Philippines for the los or damage to the 1,162 bales of hemp after these were received in good order and condition by the patron of appellant's LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as assignee of Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from appellant the payment for the loss and damage aforecited. 4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to order the production of the books of accounts of the Odell Plantation containing the charges it made for the loss of the damaged hemp for verification of its accountants, but later it desisted therefrom on the claim that it finds their production no longer necessary. This desistance notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered in connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the desistance of the carrier from producing the books of accounts of Odell Plantation implies an admission of the correctness of the statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous interpretation. There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell Plantation presented in court is tantamount to an admission that the statements contained therein are correct and their verification not necessary because its main defense here, as well as below, was that it is not liable for the loss because there was no

3
contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's theory, the correctness of the account representing the loss was not so material as would necessitate the presentation of the books in question. At any rate, even if the books of accounts were not produced, the correctness of the accounts cannot now be disputed for the same is supported by the original documents on which the entries in said books were based which were presented by the shipper as part of its evidence. And according to the Court of Appeals, these documents alone sufficiently establish the award of P60,412.02 made in favor of respondent. 5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action, we find the same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign corporation doing business in the Philippines with a personality to file the present action. WHEREFORE, the decision appealed from is affirmed, with costs against petitioner. G.R. No. 95900 July 23, 1992 JULIUS C. OUANO, petitioner, vs. COURT OF APPEALS, MARKET DEVELOPERS, INC., JULIAN O. CHUA, SUPREME MERCHANT CONSTRUCTION SUPPLY, INC., JOHNNY ANG, alias Chua Pek Giok, and FLORENTINO RAFOLS, JR.,respondent. payment or partial payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes goods his commitment" to petitioner. On October 20, 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the last installment of the freightage for the aforestated cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee, herein respondent SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre cargo of Rafols, or even of petitioner himself who was then in General Santos City Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand made on any of the respondents for a bond to secure payment of the freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCI to its customers in October and November, 1980. On January 6, 1981, petitioner filed a complaint in the Regional Trial Court of Cebu against MADE, as shipper; SMC, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney's fees and expenses of litigation. On March 10, 1981, MADE filed its answer, while Ang and Chua filed theirs on February 10 and May 31, 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of summons. On account of the subsequent dropping and impleading of parties defendant, the complaint underwent several amendments until the case was eventually tried on the third amended complaint, which alleged three causes of action against the aforenamed respondents as answering defendants therein. On May 25, 1985, the trial court rendered a decision in favor of petitioner, with the following disposition: WHEREFORE, premises considered, this Court render(s) judgment 1) under plaintiff's first cause of action, ordering defendant MADE (Market Developers, Inc.), Julian O. Chua, Supreme Merchant Construction Supply, Inc., Johnny Ang otherwise known as Chua Pek Giok and defaulted defendant Florentino Rafols, Jr., jointly and severally, to pay to plaintiff Julius C. Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on plaintiff's vessel "M/V Don Julio Ouano" included as part of the purchase price paid by defendant SMCSI to defendant MADE, plus legal interest from January 6, 1981 date of filing of the original complaint; 2) under the second cause of action, sentencing MADE (Market Developers), Julian O. Chua and Florentino Rafols, Jr., jointly and solidarily, to pay plaintiff P50,000.00 in concept of moral and exemplary damages, and P5,000.00 attorney's fees; and 3) under the third cause of action, sentencing defendant Supreme Merchant Construction Supply, Inc. and Johnny Ang alias Chua Pek Giok, jointly and severally, to pay plaintiff P200,000.00 attorney's fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by plaintiff for travel to General Santos City to coordinate with the plaintiff (sic) in serving an alias summons per sheriff's return of service (Exhibit 'S'), with costs against all the defendants. 2 On appeal, respondent Court of Appeals reversed the aforesaid decision, holding as follows: In the light of the foregoing, appellee Ouano has no cause of action against appellants MADE and SMCSI,

REGALADO, J.: This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 12693, promulgated on August 30, 1990, reversing the decision of the Regional Trial Court of Cebu, Branch XI, in Civil Case No. R20037 wherein judgment had been rendered for petitioner, as well as the resolution of said respondent court, dated October 15, 1990, denying petitioner's motion for reconsideration. 1 As found by respondent court, petitioner is the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On October 8, 1980, petitioner leased the said vessel to respondent Rafols under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the balance of P30,000.00 to be paid within twenty (20) days after actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and should not sublet or subcharter to the same without the knowledge and written consent of the owner. On October 11, 1980, Rafols contracted with respondent Market Developers, Inc. (hereafter, MADE) through its group manager, respondent Julian O. Chua, under an agreement denominated as a "Fixture Note" to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to respondent Supreme Merchant Construction Supply, Inc. (SMCSI, for brevity) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of petitioner. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On October 13, 1980, petitioner wrote a letter to MADE through its aforesaid manager, Chua, "to strongly request, if not demand to hold momentarily any

4
but only against defendant Rafols. Their principals not being liable to appellee for the payment of the freightage in question, the agents, appellants Julian O. Chua and Johnny Ang aliasChua Pek Giok who had acted within the scope of their authority, would accordingly not be liable to appellee. For the same reason that the defendants-appellants are not liable to pay the appellee the freightage in question, the award of moral and exemplary damages, attorney 's fees and expenses of litigation in favor of appellee has no factual and legal basis. WHEREFORE, premises considered, the decision appealed from is reversed and set aside with respect to the defendants-appellants who are hereby absolved from the complaint. The decision is affirmed with respect to defendant Florentino Rafols. 3 Petitioner filed a motion for reconsideration which, as already stated, was denied by the Court of Appeals, 4 hence the present petition with the following assignment of errors: 1. The Honorable Court of Appeals erred in not holding respondents MADE and Chua liable for damages to petitioner for quasi-delict under Art. 2176, New Civil Code, let alone for inducement to violate contract under Art. 1314 thereof. 2. The Court of Appeals erred in not holding respondents MADE and Chua liable for all damages which are the natural and probable consequences of their act or omission, the term "all damages" being broad enough to embrace the P150,000.00 moral and exemplary damages claimed by petitioner, as well as P10,000.00 attorney's fees likewise claimed by him (Art. 2202, N.C.C.). 3. The Court of Appeals erred in not holding respondents MADE and Chua liable jointly and solidarily (Art. 2194, N.C.C.) for the foregoing damages and attorney's fee, as well as actual damages of P23,075.00 representing unpaid freight on petitioner's vessel. 4. The Court of Appeals erred in not holding that in contracts and quasidelicts the defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, more so if attended with fraud, bad faith, malice or wanton attitude (Arts. 2201 and 2202, N.C.C.). 5. The Court of Appeals erred in not holding, in accord with the settled doctrine in Overseas Factors, Inc. vs.South Sea Shipping, 4 SCRA 401, that where freight is included in the purchase price, the carrier's lien exists if freight was not paid, hence, the continued liability of respondents MADE and Chua and respondents Supreme Merchant Construction Supply, Inc. and Chua Pek Giok. 5 We find no merit in this petition. Preliminarily, the thesis of petitioner that the aforestated fixture note executed by Rafols and MADE was in derogation of the prohibition against the subletting or sub-chartering of the vessel has been duly confuted by respondent court. It pointed out that Rafols did not, by entering into said contract of transportation of the cement cargo, thereby sublease the vessel. The possession, operation, and management of the vessel was not transferred to MADE but remained with Rafols as the lessee or charterer. Rafols, as such lessee, was the one who bound himself to transport, as he did transport, the cargo of cement for a fixed price. 6 On the other hand, even indulging petitioner in his argument that there was a sublease or sub-charter by reason of that one particular cargo of MADE, still no right of recovery exists in his favor against any of the private respondents, except respondent Rafols, as we shall hereunder demonstrate. It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. 7 It is undisputed that the charter contract was entered into only by and between petitioner and respondent Rafols, and the other private respondents were neither parties thereto nor were they aware of the provisions thereof. The aforesaid allegations of petitioner that Rafols violated the prohibition in the contract against the sublease or sub-charter of the vessel without his knowledge and written consent, even if true, does not give rise to a cause of action against the supposed sublease or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the contract, but the owner's right of recourse is against the original charterer, either for rescission or fulfillment, with the payment of damages in either case. 8 The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of assent by such person is necessary. 9 We likewise reject the contention of petitioner that MADE and Chua should be held liable for damages for a quasi-delict under Article 2176 of the Civil Code for having failed to obtain his consent before entering into an agreement with Rafols, and under Article 1314 of the same Code for inducing Rafols to violate the charter party. The obligation to obtain the written consent of petitioner before subleasing or sub-chartering the vessel was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith. Moreover, we cannot conceive of how MADE and Chua could be guilty of inducing Rafols to violate the original charter party. Firstly, there is no evidence on record to show that said respondents had knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel. Secondly, at the time the fixture note was entered into between Rafols and MADE, a written authorization signed by the wife of petitioner in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments, 10 was shown by the former to the latter. Although the said authorization may have been made by the wife, the same, however, can evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. Thirdly, as stated in the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the latter using either the "M/V Don Julio Ouano or substitute vessel at his discretion." 11 Hence, the decision to use the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols. Also, herein petitioner is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols when he demanded the payment of the second freight installment as provided in the agreement and, later, received the same by virtue of the decision of the Court of First Instance of Cebu in Civil Case No. R-19845, an interpleader case filed by MADE. 12 Contrary to petitioner's contestation, the act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice. Article 1240 of the Civil Code provides that "(p)ayment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols. Now, even on petitioner's theory that there was a sublease, it must be stressed that in a sublease arrangement, the basic principles of which are applicable in the present case, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and

5
obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The lessor is, in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lesseesublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due and payable to the lessee-sublessor. 13 MADE was, therefore, under no obligation to pay petitioner since the freightage was payable to Rafols. Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. However, in the case at bar, petitioner made no demand for payment from MADE. His letter dated October 13, 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio Ouano until respondent Rafols had made good his obligations to him. In the absence of any positive action on the part of petitioner, MADE could not withhold the payment of the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before October 9, 1980, 14hence on that date the first freight installment was already due and demandable. To further withhold the payment of said installment would constitute a breach of MADE's obligation under the foregoing contract. In addition, it is also worth noting that, as alleged in paragraph 6 of petitioner's basic complaint filed in the court below, payments were actually made after October 13, 1980 by Rafols to petitioner, to wit: (a) two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for P32,000.00 issued on November 9, 1980. 15 The fact that the said checks bounced for insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which petitioner seeks to impute to respondents MADE, SMCSI and their agents. Anent the issue on maritime lien on the cargo, it is the theory of petitioner that the first freight installment having remained unpaid to him as owner of M/V Don Julio Ouano, the maritime lien on the cargo subsists. The said contention is specious and untenable. Herein petitioner, as owner of the vessel, has no lien on the cargo. A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the owner and becomes the owner for the voyage. 16 This second type is also known as a bareboat charter or otherwise referred to as a demise of the vessel. 17 In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed; the charterer is substituted in his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the charterer. 18 Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on the cargo for the hire of the vessel, in the absence of an express provision therefor 19 as in the case at bar. Moreover, even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or constitutes a waiver of, the lien. 20 The lien of a carrier for the payment of freight charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession and dependent upon it. 21 The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an unconditional delivery of the goods to the consignee. 22 Furthermore, under Article 667 of the Code of Commerce, the period during which the lien shall subsist is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for thirty (30) days thereafter. During this period, the sale of the goods may be requested, even though there are other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien for unpaid freight. Petitioner's invocation of Overseas Factors, Inc., et al. v. South Sea Shipping Co., et al., 23 therefore, is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the cargo had already been unconditionally delivered to the consignee SMCI without protest. WHEREFORE, the petition is DENIED and the assailed judgment of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED. G.R. No. 77638 July 12, 1990 MARITIME AGENCIES & SERVICES, INC., petitioner, vs. COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON, LTD., respondents. G.R. No. 77674 July 12, 1990 UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner, vs. COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES & SERVICES, INC., and/or VIVA CUSTOMS BROKERAGE, respondents. Del Rosario & Del Rosario for petitioner in G.R. No. 77638. Zapa Aguillardo & Associates for petitioner in G.R. No. 77674. Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.

CRUZ, J.:

6
Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping Company of Hongkong the motor vessel named "Hongkong Island" for the shipment of 8073.35 MT (gross) bagged urea from Novorossisk, Odessa, USSR to the Philippines, the parties signing for this purpose a Uniform General Charter dated August 9, 1979. 1 Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee, 3,400.04 to be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The goods were insured by the consignee with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. 3 Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray Company, Inc. as the owner's agent. 4 The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's goods, then proceeded to Cebu on October 19, 1979, to discharge the rest of the cargo. On October 31, 1979, the consignee filed a formal claim against Maritime, copy furnished Macondray, for the amount of P87,163.54, representing C & F value of the 1,383 shortlanded bags. 5 On January 12, 1980, the consignee filed another formal claim, this time against Viva Customs Brokerage, for the amount of P36,030.23, representing the value of 574 bags of net unrecovered spillage. 6 These claims having been rejected, the consignee then went to Union, which on demand paid the total indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of the consignee, Union then filed on September 19, 1980, a complaint for reimbursement of this amount, with legal interest and attorney's fees, against Hongkong Island Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. 7 On April 20, 1981, the complaint was amended to drop Viva and implead Macondray Company, Inc. as a new defendant. 8 On January 4, 1984, after trial, the trial court rendered judgment holding the defendants liable as follows: (a) defendants Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay the plaintiff the sum of P87,163.54 plus 12% interest from April 20, 1981 until the whole amount is fully paid, P1,000.00 as attorney's fees and to pay one-half (1/2) of the costs; and (b) defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum of P36,030.23, plus 12% interest from April 20, 1981 until the whole amount is fully paid, P600.00 as attorney's fees and to pay onehalf (1/2) of the costs. 9 Petitioner appealed the decision to the Court of Appeals, which rendered a decision on November 28, 1986, the dispositive portion of which reads: WHEREFORE, the decision appealed from is modified, finding the charterer Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime Agencies & Services, Inc. liable for the amount of P87,163.54 plus interest at 12% plus attorney's fees of P1,000.00. Defendant Hongkong Island Co., Ltd. represented by Macondray Co., Inc. are accordingly exempted from any liability. 10 Maritime and Union filed separate motions for reconsideration which were both denied. The movants are now before us to question the decision of the respondent court. In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the charterer's agent and should not answer for whatever responsibility might have attached to the principal. It also argues that the respondent court erred in applying Articles 1734 and 1735 of the Civil Code in determining the charterer's liability. In G.R. No. 77674, Union asks for the modification of the decision of the respondent court so as to make Maritime solidarily and solely liable, its principal not having been impleaded and so not subject to the jurisdiction of our courts. These two cases were consolidated and given due course, the parties being required to submit simultaneous memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray Company, Inc., although they pointed out that they were not involved in the petitions. There are three general categories of charters, to wit, the demise or "bareboat charter," the time charter and the voyage charter. A demise involves the transfer of full possession and control of the vessel for the period covered by the contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while manning and supplying the ship as well. 11 A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the right to direct the movements of the vessel during the chartering period, although the owner retains possession and control. 12 A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the purpose of transporting goods for the charterer. The voyage charter is a contract of affreightment and is considered a private carriage. 13 Tested by those definitions, the agreement entered into in the cases at bar should be considered. This brings us to the basic question of who, in this kind of charter, shall be liable for the cargo. A voyage charter being a private carriage, the parties may freely contract respecting liability for damage to the goods and other matters. The basic principle is that "the responsibility for cargo loss falls on the one who agreed to perform the duty involved" in accordance with the terms of most voyage charters. 14 This is true in the present cases where the charterer was responsible for loading, stowage and discharging at the ports visited, while the owner was responsible for the care of the cargo during the voyage. Thus, Par. 2 of the Uniform General Charter read: 2. Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by the improper or negligent stowage of the goods or by personal want of due diligence on the part of the Owners or their Manager to make the vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied or by the personal act or default of the Owners or their Manager. And the Owners are responsible for no loss or damage or delay arising from any other cause whatsoever, even from the neglect or default of the Captain or crew or some other person employed by the Owners onboard or ashore for whose acts they would, but for this clause, be responsible, or from unseaworthiness of the vessel on loading or commencement of the voyage or at any time whatsoever. Damage caused by contact with or leakage, smell or evaporation from other goods or by the inflammable

7
or explosive nature or insufficient package of other goods not to be considered as caused by improper or negligent stowage, even if in fact so caused. while Clause 17 of Additional Clauses to Charter party provided: The cargo shall be loaded, stowed and discharged free of expense to the vessel under the Master's supervision. However, if required at loading and discharging ports the vessel is to give free use of winches and power to drive them gear, runners and ropes. Also slings, as on board. Shore winchmen are to be employed and they are to be for Charterers' or Shippers' or Receivers' account as the case may be. Vessel is also to give free use of sufficient light, as on board, if required for night work. Time lost through breakdown of winches or derricks is not to count as laytime. In Home Insurance Co. v. American Steamship Agencies, Inc., the trial court rejected similar stipulations as contrary to public policy and, applying the provisions of the Civil Code on common carriers and of the Code of Commerce on the duties of the ship captain, held the vessel liable in damages for loss of part of the cargo it was carrying. This Court reversed, declaring as follows: The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed valid. Such doctrine we find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case that the vessel was at fault. In the cases at bar, the trial court found that 1,383 bags were shortlanded, which could only mean that they were damaged or lost on board the vessel before unloading of the shipment. It is not denied that the entire cargo shipped by the charterer in Odessa was covered by a clean bill of lading. 16 As the bags were in good order when received in the vessel, the presumption is that they were damaged or lost during the voyage as a result of their negligent improper stowage. For this the ship owner should be held liable. But we do agree that the period for filing the claim is one year, in accordance with the Carriage of Goods by Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65 which, as a special law, prevails over the general provisions of the Civil Code on prescription of actions. Section 3(6) of that Act provides as follows: In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered; Provided, that if a notice of loss for damage; either apparent or concealed, is not given as provided for in this section, that fact shall
15

not effect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila Railroad Co., 17where it was held: Under the facts of this case, we held that the one-year period was correctly reckoned by the trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was barred by the statute of limitations. The one-year period in the cases at bar should commence on October 20, 1979, when the last item was delivered to the consignee. 18 Union's complaint was filed against Hongkong on September 19, 1980, but tardily against Macondray on April 20, 1981. The consequence is that the action is considered prescribed as far as Macondray is concerned but not against its principal, which is what matters anyway. As regards the goods damaged or lost during unloading, the charterer is liable therefor, having assumed this activity under the charter party "free of expense to the vessel." The difficulty is that Transcontinental has not been impleaded in these cases and so is beyond our jurisdiction. The liability imposable upon it cannot be borne by Maritime which, as a mere agent, is not answerable for injury caused by its principal. It is a well-settled principle that the agent shall be liable for the act or omission of the principal only if the latter is undisclosed. 19 Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the case of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that case is applicable. In that case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel owner and the charterer did not stipulate in the Charter party on their separate respective liabilities for the cargo. The loss/damage to the cargo was sustained while it was still on board or under the custody of the vessel. As the charterer was itself the carrier, it was made liable for the acts of the ship captain who was responsible for the cargo while under the custody of the vessel. As for the charterer's agent, the evidence showed that it represented the vessel when it took charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name. Claims against the vessel for the losses/damages sustained by that cargo were also received and processed by it. As a result, the charterer's agent was also considered a ship agent and so was held to be solidarily liable with its principal. The facts in the cases at bar are different. The charterer did not represent itself as a carrier and indeed assumed responsibility ability only for the unloading of the cargo, i.e, after the goods were already outside the custody of the vessel. In supervising the unloading of the cargo and issuing Daily Operations Report and Statement of Facts indicating and describing the dayto-day discharge of the cargo, Maritime acted in representation of the charterer and not of the vessel. It thus cannot be considered a ship agent. As a mere charterer's agent, it cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo outside the custody of the vessel. Notably, Transcontinental was disclosed as the charterer's principal and there is no question that Maritime acted within the scope of its authority. Hongkong and Macondray point out in their memorandum that the appealed decision is not assailed insofar as it favors them and so has become final as to them. We do not think so. First of all, we note that they were formally

8
impleaded as respondents in G.R No. 77674 and submitted their comment and later their memorandum, where they discussed at length their position vis-a-vis the claims of the other parties. Secondly, we reiterate the rule that even if issues are not formally and specifically raised on appeal, they may nevertheless be considered in the interest of justice for a proper decision of the case.itc-asl Thus, we have held that: Besides, an unassigned error closely related to the error properly assigned, or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error. At any rate, the Court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. 21 xxx xxx xxx Issues, though not specifically raised in the pleadings in the appellate court, may, in the interest of justice, be properly considered by said court in deciding a case, if they are questions raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or the lower court ignore(d). 22 xxx xxx xxx While an assignment of error which is required by law or rule of court has been held essential to appellate review, and only those assigned will be considered, there are a number of cases which appear to accord to the appellate court a broad discretionary power to waive this lack of proper assignment of errors and consider errors not assigned. 23 In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of Manila held: The Court, on the basis of the evidence, finds nothing to disprove the finding of the marine and cargo surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were "discharged ex-vessel" and there were "shortlanded" "1,383 bags", valued at P87,163.54. This sum should be the principal and primary liability and responsibility of the carrying vessel. Under the contract for the transportation of goods, the vessel's responsibility commence upon the actual delivery to, and receipt by the carrier or its authorized agent, until its final discharge at the port of Manila. Defendant Hongkong Island Co., Ltd., as "shipowner" and represented by the defendant Macondray & Co., Inc., as its local agent in the Philippines, should be responsible for the value of the bags of urea fertilizer which were shortlanded. The remainder of the claim in the amount of P36,030.23, representing the value of the 574 bags of unrecovered spillages having occurred after the shipment was discharged from the vessel unto the exlighters as well as during the discharge from the lighters to the truck which transported the shipment to the consignee's warehouses should be for the account of the defendant Maritime Agencies & Services, Inc. We affirm the factual findings but must modify the legal conclusions. As previously discussed, the liability of Macondray can no longer be enforced because the claim against it has prescribed; and as for Maritime, it cannot be held liable for the acts of its known principal resulting in injury to Union. The interest must also be reduced to the legal rate of 6%, conformably to our ruling in Reformina v. Tomol 24 and Article 2209 of the Civil Code, and should commence, not on April 20, 1981, but on September 19, 1980, date of the filing of the original complaint. WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is REINSTATED as above modified. The parties shall bear their respective costs. SO ORDERED. EN BANC [G.R. No. L-9534. September 29, 1956.] MANILA STEAMSHIP CO., INC., Petitioner, vs. INSA ABDULHAMAN (MORO) and LIM HONG TO,Respondents.

DECISION REYES, J. B. L., J.: This case was begun in the Court of First Instance of Zamboanga (Civil Case No. 170) by Insa Abdulhaman against the Manila Steamship Co., owner of the M/S Bowline Knot, and Lim Hong To, owner of the M/L Consuelo V, to recover damages for the death of his (Plaintiffs) five children and loss of personal properties on board the M/L Consuelo V as a result of a maritime collision between said vessel and the M/S Bowline Knot on May 4, 1948, a few kilometers distant from San Ramon Beach, Zamboanga City. On appeal, the Court of Appeals found the following facts to have been established:chanroblesvirtuallawlibrary From 7:chanroblesvirtuallawlibrary00 to 8:chanroblesvirtuallawlibrary00 oclock in the evening of May 4, 1948, the M/L Consuelo V, laden with cargoes and passengers left the port of Zamboanga City bound for Siokon under the command of Faustino Macrohon. She was then towing a kumpit, named Sta. Maria Bay. The weather was good and fair. Among her passengers were the Plaintiff Insa Abdulhaman, his wife Carimla Mora and their five children already mentioned. The Plaintiff and his wife paid their fare before the voyage started. On that same night the M/S Bowline Knot was navigating from Maribojoc towards Zamboanga. Between 9:chanroblesvirtuallawlibrary30 to 10:chanroblesvirtuallawlibrary00 in the evening the dark clouds bloated with rain began to fall and the gushing strong wind began to blow steadily harder, lashing the waves into a choppy and roaring sea. Such weather lasted for about an hour and then it became fair although it was showering and the visibility was good enough. When some of the passengers of the M/L Consuelo V were then sleeping and some were lying down awake, all of a sudden they felt the shocking collision of the M/L Consuelo V and a big motorship, which later on was identified as the M/V Bowline Knot. Because the M/L Consuelo V capsized, her crew and passengers, before realizing what had happened, found themselves swimming and floating on the crest of the waves and as a result of which nine (9) passengers were dead and missing and all the cargoes carried on said boat, including those of the Plaintiff as appear in the list, Exhibit A, were also lost. Among the dead passengers found were Maria, Amlasa, Bidoaya and Bidalla, all surnamed Inasa, while the body of the child Abdula Inasa of 6 years of age was never recovered. Before the collision, none of the passengers were warned or informed of the impending danger as the collision was so sudden and unexpected. All those rescued at sea were brought by the M/V Bowline Knot to Zamboanga City. (Decision of C. A., pp. 5-6).

9
As the cause of the collision, the Court of Appeals affirmed the findings of the Board of Marine Inquiry, that the commanding officer of the colliding vessels had both been negligent in operating their respective vessels. Wherefore, the Court held the owners of both vessels solidarily liable to Plaintiff for the damages caused to him by the collision, under Article 827 of the Code of Commerce; chan roblesvirtualawlibrarybut exempted Defendant Lim Hong To from liability by reason of the sinking and total loss of his vessel, the M/L Consuelo V, while the other Defendant, the Manila Steamship Co., owner of the M/S Bowline Knot, was ordered to pay all ofPlaintiffs damages in the amount of P20,784.00 plus one-half of the costs. It is from this judgment that Defendant Manila Steamship Co. had appealed to this Court. Petitioner Manila Steamship Co. pleads that it is exempt from any liability to Plaintiff under Article 1903 of the Civil Code because it had exercised the diligence of a good father of a family in the selection of its employees, particularly Third Mate Simplicio Ilagan, the officer in command of its vessels, the M/S Bowline Knot, at the time of the collision. This defense is untenable. While it is true that Plaintiffs action against Petitioner is based on a tort or quasi-delict, the tort in question is not a civil tort under the Civil Code but a maritime tort resulting in a collision at sea, governed by Articles 826-939 of the Code of Commerce. Under Article 827 of the Code of Commerce, in case of collision between two vessels imputable to both of them, each vessel shall suffer her own damage and both shall be solidarily liable for the damages occasioned to their cargoes. The characteristic language of the law in making the vessels solidarily liable for the damages due to the maritime collision emphasizes the direct nature of the responsibilities on account of the collision incurred by the shipowner under maritime law, as distinguished from the civil law and mercantile law in general. This direct responsibility is recognized in Article 618 of the Code of Commerce under which the captain shall be civilly liable to the ship agent, and the latter is the one liable to third persons, as pointed out in the collision case of Yueng Sheng Exchange & Trading Co. vs. Urrutia & Co., 12 Phil. 747, 753:chanroblesvirtuallawlibrary The responsibility involved in the present action is that derived from the management of the vessel, which was defective on account of lack of skill, negligence, or fault, either of the captain or of the crew, for which the captain is responsible to the agent, who in his turn is responsible to the third party prejudiced or damaged. (Article 618, Code of Commerce). In fact, it is a general principle, well established maritime law and custom, that shipowners and ship agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the indemnities due the third persons (Article 587); chan roblesvirtualawlibraryso that injured parties may immediately look for reimbursement to the owner of the ship, it being universally recognized that the ship master or captain is primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260). This direct liability, moderated and limited by the owners right of abandonment of the vessel and earned freight (Article 587), has been declared to exist, not only in case of breached contracts, but also in cases of tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511, 515):chanroblesvirtuallawlibrary In the second assignment of error, the Appellant contends that the Defendant ought not to be held liable for the negligence of his agents and employees. It is proven that the agents and employees, through whose negligence the explosion and fire in question occurred, were agents, employees and mandatories of the Defendant. Where the vessel is one of freight, a public concern or public utility, its owner or agents is liable for the tortious acts of his agents (Articles 587, 613, and 618 Code of Commerce; chan roblesvirtualawlibraryand Article 1902, 1903, 1908, Civil Code). This principle has been repeatedly upheld in various decisions of this court. The doctrines cited by the Appellant in support of his theory have reference to the relations between principal and agent in general, but not to the relations between ship agent and his agents and employees; chan roblesvirtualawlibraryfor this reason they cannot be applied in the present case. It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater protection of injured parties. Shipowners would be able to escape liability in practically every case, considering that the qualifications and licensing of ship masters and officers are determined by the State, and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To compel the parties prejudiced to look to the crew for indemnity and redress would be an illusory remedy for almost always its members are, from captains down, mere wage earners. We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of the Manila Steamship Co., that it is exempt from liability for the collision with the M/L Consuelo V due to absence of negligence on its parts in the selection and supervision of the officers and crew of the M/S Bowline Knot. The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil. 517, invoked byPetitioner, is not the point. Said case treated of a civil tort, in that the vessel of the Defendant, allegedly negligently managed by its captain in the course of its maneuvers to moor atPlaintiffs wharf, struck the same and partially demolished it, causing damage to Plaintiff. Because the tort allegedly committed was civil, the provisions of Article 1903 of the Civil Code were correctly applied. The present case, on the other hand, involves tortious conduct resulting in a maritime collision; chan roblesvirtualawlibrarywherefore, the liability of the shipowner is, as already stated, governed by the provisions of the Code of Commerce and not by the Civil Code. We agree, however, with Petitioner-Appellant, that the Court of Appeals was in error in declaring the Respondent Lim Hong To, owner of the M/L Consuelo V, exempt from liability to the original Plaintiff, Abdulhaman, in view of the total loss of his own vessel, that sank as a result of the collision. It is to be noted that both the master and the engineer of the motor launch Consuelo V were not duly licensed as such (Exh. 2). In applying for permission to operate, despite the lack of properly trained and experienced, crew, Respondent Lim Hong To gave as a reason that the income derived from the vessel is insufficient to pay licensed officers who demand high salaries, and expressly declared:chanroblesvirtuallawlibrary That in case of any accident, damage or loss, I shall assume full risk and responsibility for all the consequences thereof. (Exhibit 2). His permit to operate, in fact, stipulated that in case of any accident, damage or loss, the registered owner thereof shall assume full risk and responsibility for all the consequences thereof, and that said vessel shall be held answerable for any negligence, disregard or violation of any of the conditions herein imposed and for any consequence arising from such negligence, disregard or violations. (Exhibit 3.) The Court of Appeals held that neither the letter (Exhibit 2) nor the permit (Exhibit 3) contained any waiver of the right of Respondent Lim Hong To to limit his liability to the value of his motor launch and that he did not lose the statutory right to limit his liability by abandonment of the vessel, as conferred by Article 587 of the Code of Commerce. We find the ruling untenable. Disregarding the question whether mere inability to meet the salary demands of duly licensed masters and engineers constitutes non-availability thereof that would excuse noncompliance with the law and authorize operation without licensed officers under Act 3553, the fact remains that by operating with an unlicensed master, Lim Hong To deliberately increased the risk to which the passengers and shippers of cargo aboard the Consuelo V would be subjected. In his desire to reap greater benefits in the maritime trade, Lim Hong To willfully augmented the dangers and hazards to his vessels unwarry passengers, who would normally assume that the launch officers possessed the necessary skill and experience to evade the perils of the sea. Hence, the liability of said Respondentcannot be the identical to that of a shipowner who bears in mind the safety of the passengers and cargo by employing duly licensed officers. To hold, as the Court of Appeals has done, that Lim Hong To may limit his liability to the value of his vessels, is to erase all difference between compliance with law and the deliberate disregard thereof. To such proposition we cannot assent. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases

10
where the injury or the average is due to shipowners own fault. Faria (Derecho Comercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial precedents from various nations, sets the rule to be as follows:chanroblesvirtuallawlibrary Esta generalmente admitido que el propietario del buque no tiene derecho a la limitacion legal de responsibilidad si los daos o averias que dan origen a la limitacion provienen de sus propias culpas. El Convenio de Bruselas de 25 de agosto de 1924 tambien invalida la limitacion en el caso de culpa personal en los accidentes o averas sobrevenidos (Art. 2). To the same effect, a noted French author states:chanroblesvirtuallawlibrary La limitacion de la responsabilidad maritima ha sido admitida para proteger a los armadores contra los actos abusivos de sus encargados y no dejar su patrimonio entero a la discrecion del personal de sus buques, porque este personal cumple sus obligaciones en condiciones especiales; chan roblesvirtualawlibrarypero los armadores no tienen por sobre los demas derecho a ser amparados contra ellos mismos ni a ser protegidos contra sus propios actos. (Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.) That Lim Hong To understood that he would incur greater liability than that normally borne by shipowners, is clear from his assumption of full risk and responsibility for all the consequences of the operation of the M/L Consuelo V; chan roblesvirtualawlibrarya responsibility expressly assumed in his letter Exhibit 2, and imposed in his special permit, in addition to the vessel itself being held answerable. This express assumption of full risk and responsibility would be meaningless unless intended to broaden the liability of Respondent Lim Hong To beyond the value of his vessel. In resume, we hold:chanroblesvirtuallawlibrary (1) That the Manila Steamship Co., owner of the M/S Bowline Knot, is directly and primarily responsible in tort for the injuries caused to the Plaintiff by the collision of said vessel with the launch Consuelo V, through the negligence of the crews of both vessels, and it may not escape liability on the ground that it exercised due diligence in the selection and supervision of the officers and crew of the Bowline Knot; (2) That Lim Hong To, as owner of the motor launch Consuelo V, having caused the same to sail without licensed officers, is liable for the injuries caused by the collision over and beyond the value of said launch; (3) That both vessels being at fault, the liability of Lim Hong To and Manila Steamship Co. to the Plaintiff herein is in solidum, as prescribed by Article 827 of the Code of Commerce. In view of the foregoing, the decision of the Court of Appeals is modified, and that of the Court of First Instance affirmed, in the sense of declaring both original Defendants solidarily liable to Plaintiff Insa Abdulhaman in the sum of P20,784.00 and the cost of the litigation, without prejudice to the right of the one who should pay the judgment in full to demand contribution from his co-Defendant. Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Felix,JJ., concur. G.R. No. L-46340 April 28, 1983 SWEET LINES, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS, FR. JOSE BACATAN, S.J., MARCIANO CABRAS and ANDREA VELOSO, respondents. Felixberto Leonardo and Ramon Tuangco for petitioner. and Expedito P. Bugarin for respondents. RESOLUTION ART. 698. In case of interruption of a voyage already begun, the passengers shall only be obliged to pay the fare in proportion to the distance covered, without right to recover damages if the interruption is due to fortuitous event or force majeure, but with a right to indemnity, if the interruption should have been caused ART. 614. A captain who, having agreed to make a voyage, fails to fulfill his undertaking, without being prevented by fortuitous event or force majeure, shall indemnify all the losses which his failure may cause, without prejudice to criminal penalties which may be proper. MELENCIO-HERRERA, J.: For having by-passed a port of call without previous notice, petitioner shipping company and the ship captain were sued for damages by four of its passengers, private respondents herein, before the then Court of First Instance of Cebu, Branch VIII, Briefly, the facts of record show that private respondents purchased firstclass tickets from petitioner at the latter's office in Cebu City. They were to board petitioner's vessel, M/V Sweet Grace, bound for Catbalogan, Western Samar. Instead of departing at the scheduled hour of about midnight on July 8, 1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed back to Cebu due to engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs having been accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 A.M. Instead of docking at Catbalogan, which was the first port of call, the vessel proceeded direct to Tacloban at around 9:00 P.M. of July 10, 1972. Private respondents had no recourse but to disembark and board a ferryboat to Catbalogan. Hence, this suit for damages for breach of contract of carriage which the Trial Court, affirmed by respondent Appellate Court, awarded as follows: IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is rendered ordering the defendant Sweet Lines, Incorporated to pay to the plaintiffs the following: l) P175,000.00 as moral damages divided among the plaintiffs as follows: P30,000.00 for Mrs. Micaela B. Quintos, P26,000.00 for Jesuit Father Jose Bacatan; P10,000.00 for Mrs. Andrea Veloso and P10,000.00 for plaintiff Mike Cabras; 2) P30,000.00 as exemplary or corrective damages; 3) Interest at the legal rate of 6% per annum on the moral and exemplary damages as set forth above from the date of this decision until said damages are fully paid; 4) P5,000.00 as attorney's fees; and 5) The costs. Counterclaim dismissed. The governing provisions are found in the Code of Commerce and read as follows:

11
by the captain exclusively. If the interruption should be caused by the disability of the vessel, and the passenger should agree to wait for her repairs, he may not be required to pay any increased fare of passage, but his living expenses during the delay shall be for his own account. The crucial factor then is the existence of a fortuitous event or force majeure. Without it, the right to damages and indemnity exists against a captain who fails to fulfill his undertaking or where the interruption has been caused by the captain exclusively. As found by both Courts below, there was no fortuitous event or force majeure which prevented the vessel from fulfilling its undertaking of taking private respondents to Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso fortuito that exempts the carrier from responsibility. 1 In the second place, even granting arguendo that the engine failure was a fortuitous event, it accounted only for the delay in departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no longer anyforce majeure that justified by-passing a port of call. The vessel was completely repaired the following day after it was towed back to Cebu. In fact, after docking at Tacloban City, it left the next day for Manila to complete its voyage. 2 The reason for by-passing the port of Catbalogan, as admitted by petitioner's General Manager, was to enable the vessel to catch up with its schedule for the next week. The record also discloses that there were 50 passengers for Tacloban compared to 20 passengers for Catbalogan, 3 so that the Catbalogan phase could be scrapped without too much loss for the company. In defense, petitioner cannot rely on the conditions in small bold print at the back of the ticket reading. The passenger's acceptance of this ticket shall be considered as an acceptance of the following conditions: 3. In case the vessel cannot continue or complete the trip for any cause whatsoever, the carrier reserves the right to bring the passenger to his/her destination at the expense of the carrier or to cancel the ticket and refund the passenger the value of his/her ticket; xxx xxx xxx 11. The sailing schedule of the vessel for which this ticket was issued is subject to change without previous notice. (Exhibit "l -A") Even assuming that those conditions are squarely applicable to the case at bar, petitioner did not comply with the same. It did not cancel the ticket nor did it refund the value of the tickets to private respondents. Besides, it was not the vessel's sailing schedule that was involved. Private respondents' complaint is directed not at the delayed departure the next day but at the by- passing of Catbalogan, their destination. Had petitioner notified them previously, and offered to bring them to their destination at its expense, or refunded the value of the tickets purchased, perhaps, this controversy would not have arisen. Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 of the Code of Commerce heretofore quoted. The voyage to Catbalogan was "interrupted" by the captain upon instruction of management. The "interruption" was not due to fortuitous event or for majeure nor to disability of the vessel. Having been caused by the captain upon instruction of management, the passengers' right to indemnity is evident. The owner of a vessel and the ship agent shall be civilly liable for the acts of the captain. 4 Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract where the defendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate Court found that there was bad faith on the part of petitioner in that: (1) Defendants-appellants did not give notice to plaintiffs- appellees as to the change of schedule of the vessel; (2) Knowing fully well that it would take no less than fifteen hours to effect the repairs of the damaged engine, defendants-appellants instead made announcement of assurance that the vessel would leave within a short period of time, and when plaintiffs-appellees wanted to leave the port and gave up the trip, defendants-appellants' employees would come and say, 'we are leaving, already.' (3) Defendants-appellants did not offer to refund plaintiffs-appellees' tickets nor provide them with transportation from Tacloban City to Catbalogan. 5 That finding of bad faith is binding on us, since it is not the function of the Court to analyze and review evidence on this point all over again, 6 aside from the fact that we find it faithful to the meaning of bad faith enunciated thus: Bad faith means a breach of a known duty through some motive or interest or illwill. Self-enrichment or fraternal interest, and not personal illwill may have been the motive, but it is malice nevertheless. 7 Under the circumstances, however, we find the award of moral damages excessive and accordingly reduce them to P3,000.00, respectively, for each of the private respondents. The total award of attorney's fees of P5,000.00 is in order considering that the case has reached this Tribunal. Insofar as exemplary damages are concerned, although there was bad faith, we are not inclined to grant them in addition to moral damages. Exemplary damages cannot be recovered as a matter of right; the Court decides whether or not they should be adjudicated. 8 The objective to meet its schedule might have been called for, but petitioner should have taken the necessary steps for the protection of its passengers under its contract of carriage. Article 2215(2) of the Civil Code 9 invoked by petitioner is inapplicable herein. The harm done to private respondents outweighs any benefits they may have derived from being transported to Tacloban instead of being taken to Catbalogan, their destination and the vessel's first port of call, pursuant to its normal schedule. ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby sentenced to indemnify private respondents in the sum of P3,000.00 each, without interest, plus P1,250.00, each, by way of att/rney's fees and litigation expenses. Costs against petitioner. SO ORDERED. Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

12
G.R. No. L-4067 February 29, 1908 MOREY, plaintiff-appellee,

FREDERICK E. vs. LAO LAYCO, ET AL., defendants-appellants. Francisco Enage Thos. D. Aitken for appellee. WILLARD, J.:

for

appellants.

The plaintiff a resident of Thursday Island, in the Commonwealth of Australia, brought this action against the defendants, residents of the Province of Leyte, to recover a schooner in the possession of the defendant Florencio Bustillo. Judgment was rendered in the court below in favor of the plaintiff for the possession of the schooner, or for its value, P5,324. From that judgment the defendant Bustillo has appealed. The evidence shows that the plaintiff was the owner of a schooner called Gwendoline; that this schooner was stolen from him by certain Japanese in Thursday Island, and was afterwards found in the possession of the appellant at Tacloban. The only question in the case is as to the identity of the boat. We think it was sufficiently proven that the boat now in the possession of the appellant, which is now called theSalvadora, is the boat owned by the plaintiff and formerly called the Gwendoline. One of the witnesses who came from Thursday Island and saw the Salvadora positively identified it as the Gwendoline. He caused a photograph to be made of the boat while he was at Tacloban, which photograph was exhibited to the plaintiff when he gave his deposition and he positively identified it as the Gwendoline. The appellant testified that he bought the boat of a Japanese to whom he paid a thousand pesos and that he borrowed the thousand pesos from the other defendant, Leo Layco, and had not yet paid the loan. Among the errors assigned by the appellant is the admission in evidence of Exhibit D, which is a certificate of registry issued by the customs authorities of Thursday Island. Even if the admission of this document were error, it could not in any way have prejudiced the appellant, for eliminating the document from the record there is still sufficient evidence to support the judgment for the plaintiff. The appellant presented in the court below a certificate of the collector of customs of Cebu dated October 4, 1905 (Exhibit E), certifying that the ownership of the vessel called Salvadora had been transferred from Yamashita, to the appellant, and that the transfer had been recorded. He also presented a certificate (Exhibit F) issued by the same collector of customs on the same day, in pursuance of Chapter X, section 117 of the Philippine Customs Administrative Act (No 355 as amended). This apparently states that the sale by Yamashita to the appellant had been proven to the satisfaction of the collector of customs. The appellant also presented in evidence a coastwise license issued by the same collector of customs on the 24th of September, 1906 (Exhibit G). Whatever other effect these documents may produce, they certainly are not sufficient to show that the appellant had duly become the owner of the plaintiff's schooner Gwendoline. The collector of customs at Cebu had no jurisdiction to finally determine that question as against the plaintiff upon an ex parte application of which the plaintiff had no notice. The judgment of the court below is accordingly affirmed, with the costs of this instance against the appellant. So ordered. Arellano, C.J., Torres, Mapa, Johnson, Carson, and Tracey, JJ., concur.