[5] ABOITIZ SHIPPING CORPORATION v.

GENERAL ACCIDENT
FIRE AND LIFE ASSURANCE CORPORATION, LTD. (Recio) FACTS:
January 21, 1993 | MELO, J. | Maritime Law 1. Petitioner Aboitiz is a corporation organized and operating under Philippine
laws and engaged in the business of maritime trade as a carrier. It owned and
PETITIONER: ABOITIZ SHIPPING CORPORATION operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on
RESPONDENTS: GENERAL ACCIDENT FIRE AND LIFE ASSURANCE a voyage from Hongkong to the Philippines on October 31, 1980.
CORPORATION, LTD. 2. Private respondent General Accident Fire and Life Assurance Corporation,
Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing
SUMMARY: Aboitiz Shipping is the owner of M/V P. Aboitiz, a vessel that sank on a its remedies as a subrogee of several cargo consignees whose respective
voyage from HK to PH. This sinking of the vessel gave rise to the filing of several suits for cargo sank with the said vessel and for which it has priorly paid.
recovery of the lost cargo either by the shippers, successors-in-interest, or the cargo insurers 3. The incident of said vessel's sinking gave rise to the filing of suits for
like herein respondent GAFLAC. BMI, on its initial investigation found that such sinking recovery of lost cargo either by the shippers, their successor-in-interest, or
was due to force majeure and that subject vessel, at the time of the sinking was seaworthy.
the cargo insurers like GAFLAC as subrogees
The trial court rules against the carrier on the ground that the loss did not occur as a result
of force majeure. This was affirmed by the CA and ordered the immediate execution of the 4. The sinking was initially investigated by the Board of Marine Inquiry (BMI
full judgement award. HOWEVER, other cases have resulted in the finding that the vessel Case No. 466, December 26, 1984), which found that such sinking was due
was seaworthy at the time of the sinking, and that such sinking was due to force majeure. to force majeure and that subject vessel, at the time of the sinking was
Due to these conflicting rulings, Aboitiz seeks a pronouncement as to the applicability of seaworthy.
the doctrine of limited liability on the totality of the claims vis a vis the losses brought about 5. [Okay so, FACT #6 and #7 talk about 2 conflicting SC decisions. Take note
by the sinking of the vessel, as based on the real and hypothecary nature of maritme law. nalang HAHA]
ISSUE 1: WoN the Limited Liability Rule arising out of the real and hypothecary nature of 6. CASE 1: Notwithstanding the BMI finding, the trial court in a Civil Case
maritime law should apply in this case and other related cases. - YES. The real and found against the carrier on the basis that the loss subject matter therein did
hypothecary nature of maritime law simply means that the liability of the carrier in
not occur as a result of force majeure. Thus, GAFLAC was awarded its claim.
connection with losses related to maritime contracts is confined to the vessel, which is
hypothecated for such obligations or which stands as the guaranty for their settlement. This particular decision was elevated all the way up to the SC in another case.
Thus, the liability of the vessel owner and agent arising from the operation of such vessel 7. CASE 2: On the other hand, other cases have resulted in findings upholding
were confined to the vessel itself, its equipment, freight, and insurance, if any, which the conclusion of the BMI that the vessel was seaworthy at the time of the
limitation served to induce capitalists into effectively wagering their resources against the sinking, and that such sinking was due to force majeure.
consideration of the large profits attainable in the trade. In this jurisdiction, its application 8. Due to these conflicting decisions, the SC is now tasked to reconcile the
has been well-nigh constricted by the very statute from which it originates. The Limited apparent contrary findings.
Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, 9. In this SC case, the Aboitiz seek the applicability of the Doctrine of Limited
particularly in Articles 587, 590, and 837. In view of the foregoing, this Court shall not take Liability on the totality of the claims vis a vis the losses brought about by
the application of such limited liability rule, which is a matter of near absolute application
the sinking of the vessel MV P. ABOITIZ, as based on the real and
in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could
be seen, the reasons for its being are still apparently much in existence and highly regarded. hypothecary nature of maritime law.
10. Aboitiz argues:
ISSUE 2: WoN there was a finding of negligence on the part of the petitioner. - NO. The a. 1. The Limited Liability Rule warrants immediate stay of execution
Court has consistently held that the only time the Limited Liability Rule does not apply is of judgment to prevent impairment of other creditors' shares;
when there is an actual finding of negligence on the part of the vessel owner or agent. A b. 2. The finding of unseaworthiness of a vessel is not necessarily
careful reading of the decision rendered by the trial court in Civil Case No. 144425 as well attributable to the shipowner; and
as the entirety of the records in the instant case will show that there has been no actual c. 3. The principle of "Law of the Case" is not applicable to the present
finding of negligence on the part of petitioner Aboitiz. The same is true of the decision of petition.
this Court in G.R. No. 89757 affirming the decision of the Court of Appeals in CA-G.R.
11. GAFLAC argues:
CV No. 10609 since both decisions did not make any new and additional finding of fact.
a. 1. There is no limited liability to speak of or applicable real and
DOCTRINE: (1) The real and hypothecary nature of maritime law simply means that the hypothecary rule under Articles 587, 590, and 837 of the Code of
liability of the carrier in connection with losses related to maritime contracts is confined to Commerce in the face of the facts found by the lower court upheld
the vessel, which is hypothecated for such obligations or which stands as the guaranty for by the Appellate Court and affirmed in toto by the Supreme Court
their settlement. (2) The only time the Limited Liability Rule does not apply is when there in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the
is an actual finding of negligence on the part of the vessel owner or agent. Case;
 b. Under the doctrine of the Law of the Case, cases involving the same maritime trade in its earliest years when such trade was replete with
incident, parties similarly situated and the same issues litigated innumerable and unknown hazards since vessels had to go through
should be decided in conformity therewith following the maxim largely uncharted waters to ply their trade.
stare decisis et non quieta movere. b. It was designed to offset such adverse conditions and to encourage
people and entities to venture into maritime commerce despite the
ISSUE: risks and the prohibitive cost of shipbuilding.
1. WoN the Limited Liability Rule arising out of the real and hypothecary nature c. Thus, the liability of the vessel owner and agent arising from the
of maritime law should apply in this case and other related cases. - YES. operation of such vessel were confined to the vessel itself, its
2. WoN there was a finding of negligence on the part of the petitioner. - NO. equipment, freight, and insurance, if any, which limitation
served to induce capitalists into effectively wagering their
RULING: ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial resources against the consideration of the large profits
Court of Manila, Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby attainable in the trade.
set aside. The trial court is hereby directed to desist from proceeding with the execution of the judgment
4. Philippine maritime law is of Anglo-American extraction, and is governed by
rendered in Civil Case No. 144425 pending determination of the totality of claims recoverable from the
petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to adherence to both international maritime conventions and generally accepted
deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15) days from practices relative to maritime trade and travel. This is highlighted by
finality of this decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby provisions on the limited liability of vessel owners and/or agents. [The Court
made permanent.
basically cited American provisions and provisions on the Brussels
International Convention on the Limited Liability Rule.]
RATIO: 5. In this jurisdiction, on the other hand, its application has been well-nigh
The Limited Liability Rule applies. constricted by the very statute from which it originates. The Limited
1. In deciding the instant case below, the Court of Appeals took refuge in this Liability Rule in the Philippines is taken up in Book III of the Code of
Court's decision in G.R. No. 89757 upholding private respondent's claims in Commerce, particularly in Articles 587, 590, and 837, hereunder quoted
that particular case, which the Court of Appeals took to mean that this Court in toto:
has "considered, passed upon and resolved Aboitiz's contention that all claims a. ARTICLE 587. The ship agent shall also be civilly liable for the indemnities in favor
for the losses should first be determined before GAFLAC's judgment may be of third persons which may arise from the conduct of the captain in the care of the
satisfied," and that such ruling "in effect necessarily negated the application goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight it may have earned
of the limited liability principle".
during the voyage.
a. Such conclusion is not accurate. ARTICLE 590. The co-owners of a vessel shall be civilly liable in the proportion of
b. The decision in G.R. No. 89757 considered only the circumstances their interests in the common fund for the results of the acts of the captain referred to
peculiar to that particular case, and was not meant to traverse the in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a
larger picture herein brought to fore, the circumstances of which
notary, of the part of the vessel belonging to him
heretofore were not relevant. ARTICLE 837. The civil liability incurred by shipowners in the case prescribed in
c. We must stress that the matter of the Limited Liability Rule as this section (on collisions), shall be understood as limited to the value of the vessel
discussed was never in issue in all prior cases, including those before with all its appurtenances and freightage served during the voyage.
the RTCs and the Court of Appeals. 6. Taken together with related articles, the foregoing cover only liability for
2. As discussed earlier, the "limited liability" in issue before the trial courts injuries to third parties (Art. 587), acts of the captain (Art. 590) and
referred to the package limitation clauses in the bills of lading and not collisions (Art. 837).
the limited liability doctrine arising from the real and hypothecary 7. In view of the foregoing, this Court shall not take the application of such
nature of maritime trade. limited liability rule, which is a matter of near absolute application in
a. The latter rule was never made a matter of defense in any of the other jurisdictions, so lightly as to merely "imply" its inapplicability,
cases a quo, as properly it could not have been made so since it was because as could be seen, the reasons for its being are still apparently much
not relevant in said cases. in existence and highly regarded.
3. The real and hypothecary nature of maritime law simply means that the
liability of the carrier in connection with losses related to maritime There is no actual finding of negligence on the part of Petitioner Aboitiz.
contracts is confined to the vessel, which is hypothecated for such 8. We now come to its applicability in the instant case. In the few instances
obligations or which stands as the guaranty for their settlement. when the matter was considered by this Court, we have consistently held that
a. It has its origin by reason of the conditions and risks attending the only time the Limited Liability Rule does not apply is when there is
 an actual finding of negligence on the part of the vessel owner or agent. compared to those of creditors against an insolvent corporation whose assets are not enough to
satisfy the totality of claims as against it. While each individual creditor may, and in fact shall,
9. A careful reading of the decision rendered by the trial court in Civil Case No.
be allowed to prove the actual amounts of their respective claims, this does not mean that they
144425 as well as the entirety of the records in the instant case will show that shall all be allowed to recover fully thus favoring those who filed and proved their claims sooner
there has been no actual finding of negligence on the part of petitioner to the prejudice of those who come later.
Aboitiz. In its Decision, the trial court merely held that: 14. In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are
limited in their recovery to the remaining value of accessible assets. In the case of an insolvent
"...Considering the foregoing reasons, the Court holds that the vessel
corporation, these are the residual assets of the corporation left over from its operations. In the
M/V 'Aboitiz' and its cargo were not lost due to fortuitous event or force case of a lost vessel, these are the insurance proceeds and pending freightage for the particular
majeure.” voyage.
10. The same is true of the decision of this Court in G.R. No. 89757 affirming 15. In the instant case, there is, therefore, a need to collate all claims preparatory to their
the decision of the Court of Appeals in CA-G.R. CV No. 10609 since both satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given precedence over the others by the
decisions did not make any new and additional finding of fact. Both simple expedience of having filed or completed its action earlier than the rest. Thus, execution
merely affirmed the factual findings of the trial court, adding that the cause of judgment in earlier completed cases, even those already final and executory, must be stayed
of the sinking of the vessel was because of unseaworthiness due to the failure pending completion of all cases occasioned by the subject sinking. Then and only then can all
such claims be simultaneously settled, either completely or pro-rata should the insurance
of the crew and the master to exercise extraordinary diligence. Indeed, there
proceeds and freightage be not enough to satisfy all claims.
appears to have been no evidence presented sufficient to form a conclusion
that petitioner shipowner itself was negligent, and no tribunal, including Final Note [I don’t think it’s impt, but adding it just in case]
this Court, will add or subtract to such evidence to justify a conclusion 16. Finally, the Court notes that petitioner has provided this Court with a list of all pending cases,
to the contrary. together with the corresponding claims and the pro-rated share of each. We likewise note that
some of these cases are still with the Court of Appeals, and some still with the trial courts and
11. On this point, it should be stressed that unseaworthiness is not a fault that can
which probably are still undergoing trial. It would not, therefore, be entirely correct to preclude
be laid squarely on petitioner Aboitiz' lap, absent a factual basis for such a the trial courts from making their own findings of fact in those cases and deciding the same by
conclusion. allotting shares for these claims, some of which, after all, might not prevail, depending on the
a. The unseaworthiness found in some cases where the same has evidence presented in each. We, therefore, rule that the pro-rated share of each claim can only
be found after all the cases shall have been decided.
been ruled to exist is directly attributable to the vessel's crew 17. In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and
and captain, more so on the part of the latter since Article 612 pending freightage should now be deposited in trust. Moreover, petitioner should institute the
of the Code of Commerce provides that among the inherent duties necessary limitation and distribution action before the proper admiralty court within 15 days
of a captain is to examine a vessel before sailing and to comply with from the finality of this decision, and thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the same pending final resolution of all
the laws of navigation. Such a construction would also put matters
incidents, for final pro-rating and settlement thereof.
to rest relative to the decision of the Board of Marine Inquiry.
b. While the conclusion therein exonerating the captain and crew of
the vessel was not sustained for lack of basis, the finding therein
contained to the effect that the vessel was seaworthy deserves
merit. Despite appearances, it is not totally incompatible with the
findings of the trial court and the Court of Appeals, whose
finding of "unseaworthiness" clearly did not pertain to the
structural condition of the vessel which is the basis of the BMI's
findings, but to the condition it was in at the time of the sinking,
which condition was a result of the acts of the captain and the
crew.

Re: Recovery of Claims

12. The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the
rights of shareholders to limited liability under our corporation law. Both are privileges granted
by statute, and while not absolute, must be swept aside only in the established existence of the
most compelling of reasons. In the absence of such reasons, this Court chooses to exercise
prudence and shall not sweep such rights aside on mere whim or surmise, for even in the
existence of cause to do so, such incursion is definitely punitive in nature and must never be
taken lightly.
13. More to the point, the rights of parties to claim against an agent or owner of a vessel may be