COASTWISE LIGHTERAGE CORPORATION, 

petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL
INSURANCE COMPANY, respondents.
RESOLUTION

FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court
of Appeals, dated December 17, 1993, affirming Branch 35 of
the Regional Trial Court, Manila in holding that herein
petitioner is liable to pay herein private respondent the amount
of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses
from the province of Negros to Manila with Coastwise
Lighterage Corporation (Coastwise for brevity), using the latter's
dumb barges. The barges were towed in tandem by the tugboat
MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of
the barges, "Coastwise 9", struck an unknown sunken object.
The forward buoyancy compartment was damaged, and water
gushed in through a hole "two inches wide and twenty-two
inches long"1 As a consequence, the molasses at the cargo tanks
were contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales, Inc. to
reject the shipment of molasses as a total loss. Thereafter, Pag-
asa Sales, Inc. filed a formal claim with the insurer of its lost
cargo, herein private respondent, Philippine General Insurance
Company (PhilGen, for short) and against the carrier, herein
petitioner, Coastwise Lighterage. Coastwise Lighterage denied
the claim and it was PhilGen which paid the consignee, Pag-asa
Sales, Inc., the amount of P700,000.00, representing the value of
the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise
Lighterage before the Regional Trial Court of Manila, seeking to
recover the amount of P700,000.00 which it paid to Pag-asa
Sales, Inc. for the latter's lost cargo. PhilGen now claims to be
subrogated to all the contractual rights and claims which the
consignee may have against the carrier, which is presumed to
have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On
Coastwise Lighterage's appeal to the Court of Appeals, the
award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether
or not petitioner Coastwise Lighterage was transformed into a
private carrier, by virtue of the contract of affreightment which
it entered into with the consignee, Pag-asa Sales, Inc.
Corollarily, if it were in fact transformed into a private carrier,
did it exercise the ordinary diligence to which a private carrier is
in turn bound? Second, whether or not the insurer was
subrogated into the rights of the consignee against the carrier,
upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the
Court of Appeals erred in finding that it was a common carrier.
It stresses the fact that it contracted with Pag-asa Sales, Inc. to
transport the shipment of molasses from Negros Oriental to
Manila and refers to this contract as a "charter agreement". It
then proceeds to cite the case of Home Insurance Company vs.
American Steamship Agencies, Inc.2 wherein this Court held: ". .
. a common carrier undertaking to carry a special cargo or
chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In
its entirety, the conclusions of the court are as follows:
Accordingly, the charter party contract is one of
affreightment over the whole vessel, rather than a
demise. As such, the liability of the shipowner for acts
or negligence of its captain and crew, would remain in
the absence of stipulation.3
The distinction between the two kinds of charter parties (i.e.
bareboat or demise and contract of affreightment) is more
clearly set out in the case of Puromines, Inc. vs. Court of
Appeals,4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for
the voyage or service stipulated. The charterer mans
the vessel with his own people and becomes the
owner pro hac vice, subject to liability to others for
damages caused by negligence. To create a demise,
the owner of a vessel must completely and exclusively
relinquish possession, command and navigation
 thereof to the charterer, anything short of such a
complete transfer is a contract of affreightment (time
or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in
which the owner of the vessel leases part or all of its
space to haul goods for others. It is a contract for
special service to be rendered by the owner of the
vessel and under such contract the general owner
retains the possession, command and navigation of the
ship, the charterer or freighter merely having use of
the space in the vessel in return for his payment of the
charter hire. . . . .
. . . . An owner who retains possession of the ship
though the hold is the property of the charterer,
remains liable as carrier and must answer for any
breach of duty as to the care, loading and unloading of
the cargo. . . .
Although a charter party may transform a common carrier into a
private one, the same however is not true in a contract of
affreightment on account of the aforementioned distinctions
between the two.
Petitioner admits that the contract it entered into with the
consignee was one of affreightment.5 We agree. Pag-asa Sales,
Inc. only leased three of petitioner's vessels, in order to carry
cargo from one point to another, but the possession, command
and navigation of the vessels remained with petitioner Coastwise
Lighterage.
Pursuant therefore to the ruling in the
aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private
carrier, but remained a common carrier and was still liable as
such.
The law and jurisprudence on common carriers both hold that
the mere proof of delivery of goods in good order to a carrier
and the subsequent arrival of the same goods at the place of
destination in bad order makes for a prima facie case against the
carrier.
It follows then that the presumption of negligence that attaches
to common carriers, once the goods it transports are lost,
destroyed or deteriorated, applies to the petitioner. This
presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the
cargo of molasses was caused by its hitting an unknown sunken
object as it was heading for Pier 18. The object turned out to be
a submerged derelict vessel. Petitioner contends that this
navigational hazard was the efficient cause of the accident.
Further it asserts that the fact that the Philippine Coastguard
"has not exerted any effort to prepare a chart to indicate the
location of sunken derelicts within Manila North Harbor to
avoid navigational accidents"6 effectively contributed to the
happening of this mishap. Thus, being unaware of the hidden
danger that lies in its path, it became impossible for the
petitioner to avoid the same. Nothing could have prevented the
event, making it beyond the pale of even the exercise of
extraordinary diligence.
However, petitioner's assertion is belied by the evidence on
record where it appeared that far from having rendered service
with the greatest skill and utmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its
duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9"
admitted that he was not licensed. The Code of Commerce,
which subsidiarily governs common carriers (which are
primarily governed by the provisions of the Civil Code)
provides:
Art. 609. — Captains, masters, or patrons of vessels
must be Filipinos, have legal capacity to contract in
accordance with this code, and prove the skill capacity
and qualifications necessary to command and direct
the vessel, as established by marine and navigation
laws, ordinances or regulations, and must not be
disqualified according to the same for the discharge of
the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a
voyage with an unlicensed patron violates this rule. It cannot
safely claim to have exercised extraordinary diligence, by
placing a person whose navigational skills are questionable, at
the helm of the vessel which eventually met the fateful accident.
It may also logically, follow that a person without license to
navigate, lacks not just the skill to do so, but also the utmost
familiarity with the usual and safe routes taken by seasoned and
legally authorized ones. Had the patron been licensed, he could
be presumed to have both the skill and the knowledge that
would have prevented the vessel's hitting the sunken derelict
ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the
contract of carriage, having failed to overcome the presumption
of negligence with the loss and destruction of goods it
transported, by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as
inapplicable in this case, we once more rule against the
petitioner. We have already found petitioner liable for breach of
the contract of carriage it entered into with Pag-asa Sales, Inc.
However, for the damage sustained by the loss of the cargo
which petitioner-carrier was transporting, it was not the carrier
which paid the value thereof to Pag-asa Sales, Inc. but the
latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who
violated the contract. . . .
This legal provision containing the equitable principle of
subrogation has been applied in a long line of cases
including Compania Maritima v. Insurance Company of North
America;7 Fireman's Fund Insurance Company v. Jamilla &
Company, Inc.,8 and Pan Malayan Insurance Corporation v.
Court of Appeals,9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-
settled principle of subrogation. If the insured property
is destroyed or damaged through the fault or
negligence of a party other than the assured, then the
insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from
the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the
assured operated as an equitable assignment to the
former of all remedies which the latter may have
against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim
by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of
the amount of P700,000.00 to Pag-asa Sales, Inc., the consignee
of the cargo of molasses totally damaged while being
transported by petitioner Coastwise Lighterage, the former was
subrogated into all the rights which Pag-asa Sales, Inc. may have
had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED
and the appealed decision affirming the order of Branch 35 of
the Regional Trial Court of Manila for petitioner Coastwise
Lighterage to pay respondent Philippine General Insurance
Company the "principal amount of P700,000.00 plus interest
thereon at the legal rate computed from March 29, 1989, the
date the complaint was filed until fully paid and another sum of
P100,000.00 as attorney's fees and costs"10 is likewise hereby
AFFIRMED
SO ORDERED.