was later on identified as the M/V Bowline Knot. M/L Consuelo V capsized that resulted to the death of 9 passengers and the loss of the cargoes on board.

The Court held the owners of both vessels solidarily liable to plaintiff for damages caused to the latter under Article 827 of the Code of Commerce but exempted defendant Lim Hong To from liability due to the sinking and total loss of his vessel. While Manila steamship, owner of the Bowline Knot was ordered to pay all of plaintiff’s damages.

Petitioner Manila Steamship Co. pleads that it is exempt from any liability 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 the officer in command of the M/S Bowline Knot.

Issue: Whether or not petitioner Manila Steamship Co. is exempt from any liability under Art. 1903 of the Civil Code?

Held: NO. Petitioner is not exempted from liabilities. While it is true that plaintiff’s 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 Art. 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 shipowner is directly and primarily responsible in tort resulting in a collision at sea, and it may not escape liability on the ground that exercised due diligence in the selection and supervision of the vessel’s officers and crew.

VASQUEZ VS. CA (138 SCRA 553)

FACTS: The litigation involves a claim for damages for the loss at sea of petitioners’ respective children after the shipwreck of MV Pioneer Cebu due to typhoon “Klaring” in May of 1966. When the inter-island vessel MV Pioneer Cebu left the Port of Manila in the early morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Vasquez, among her passengers. The MV Pioneer Cebu encountered typhoon Klaring and struck a reef on the southern part of Malapascua Island, located somewhere north of island of Cebu and subsequently sunk. The aforementioned passengers were unheard from since then.

Due to the loss of their children, petitioners sued for damages before the Court Instance of Manila. Respondent defended on the plea of force majeure, and extinction of its liability by the actual loss of the vessel. After proper proceedings, the trial court awarded damages. On appeal, respondent Court reversed judgment and absolved private respondent from any liability. Hence, this Petition for Review on Certiorari.

Issue: Whether the shipowner’s liability is extinguished despite of the loss of the ship?

Held: With respect for the private respondent’s submission that the total loss of the vessel extinguished its liability pursuant to Article 587 of the Code of Commerce as construed in Yangco vs. Laserna, 73 Phil. 330 (1941), suffice it to state that even in the cited case, it was held that the liability of the shipowner is limited to the value of the vessel or to the insurance thereon, Despite the total loss of the vessel therefore, its insurance answers for the damages that the shipowner’s agent may be held liable for by reason of the death of its passengers. Judgment of the CFI reinstated.

ABUEG VS. SAN DIEGO (77 PHIL 32)

Facts: The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro Island on Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and totally lost. Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities perished in the shipwreck.

Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel together with all her tackle and freight money earned during the voyage are abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the goods which the ship carried is extinguished; article 837 of the same code which provides that in cases of collision, the ship owners' liability is limited to the value of the vessel with all her equipment and freight earned during the voyage (Philippine Shipping company vs. Garcia, 6 Phil., 281), and article 643 of the same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages of the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October 1, 1941, was extinguished.

Issue: Whether the liability of the shipowner is extinguished by the total loss of the ship?

Held: The provisions of the Code of Commerce invoked by appellant have no room in the application of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the ship as result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents and laborers and employees in the event of death caused by their employment. Such compensation has nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be included in the budget of any well-managed industry.

It has been repeatedly stated that the Workmen's Compensation Act was enacted to abrogate the common law and our Civil Code upon culpable acts and omissions, and that the employer need not be guilty of neglect or fault, in order that responsibility may attach to him and that shipowner was liable to pay compensation provided for in the Workmen's Compensation Act, notwithstanding the fact that the motorboat was totally lost.

Doctrine of Limited Liability, Art. 587

ABOITIZ SHIPPING VS. GENERAL ACCIDENT FIRE AND LIFE (GR NO. 100446 JANUARY 21, 1993)

Facts: Petitioner is a corporation engaged in the business of maritime trade as a carrier. As such, it owned and operated the M/V P/ ABOITIZ, a common carrier that sank on voyage from Hong Kong to Manila. Private respondent GAFLAC is a foreign insurance company pursuing its remedy as a subrogee of several cargo consignees whose respective cargo sank with the said vessel and for which it has priory paid. The sinking of vessel gave rise to filling of suit to recover the lost cargo either by shippers, their successors-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine Inquiry, which found that such sinking was due to fortuitous event.

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Issue: Whether or not the doctrine of limited liability is applicable to the case?

Held: The real an hypothecary nature of maritime law simple means that the liability of the carrier in 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. It has its origin by reason of the conditions and risks attending maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their trade. Thus, the liability of the vessel owner and agent arising form the operation of such vessel were confined to the vessel itself, its equipment, freight and insurance, if any, which limitation served to induce capitalist into effectively wagering their resources against consideration of the large attainable in the trade.

AMERICAN HOME ASSURANCE VS. CA (208 SCRA 343)

Facts: On or about June 19, 1998, Cheng Hwa Pulp Corp. shipped 5,000 bales of bleached kraft pulp from Haulien, Taiwan on board “SS Kaunlaran” (owned by National Marine Corporation). The shipment was consigned to Mayleen Paper, Inc. which insured the same with American Home Assurance Co. On June 22, 1998, the shipment arrived in manila and was discharged onto the custody of the Marina Port Services, Inc. However, upon delivery to Mayleen Paper Inc., it was found that 122 bales had either been damaged or lost with the value of P61, 263.41.

Mayleen Paper Inc, duly demanded indemnification from NMC but was not heeded. Mayleen then sought recovery from American Home Assurance, the insurer, which was adjusted to P31, 506.75. As subrogee, American Home then filed a suit against NMC for the recovery of the said amount. NMC filed a motion to dismiss on the ground that there was no cause of action based on Art 848 of the Code of Commerce which provides “that claims for averages shall not be admitted if they do not exceed 5% of the interest which the claimant may have in the vessel or in the cargo if it be gross average and 1% of the goods damaged if particular average, deducting in both cases the expenses of appraisal, unless there is an agreement to the contrary. NMC contended that based on the allegations of the complaint, the loss sustained in the case was P35, 506.75 which is only .18% of P17.420.000.00, the total value of the cargo.

The trial court dismissed the case for lack of cause of action. American Home then filed a petition for certiorari with the Court of Appeals which later dismissed as constituting plain errors of law. Hence, this petition.

Issue: Whether or not the law on averages applies when there is negligence?

Held: NO. Common carriers cannot limit their liability for injury or loss of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on averages under the Code of Commerce cannot be applied in determining liability where there is negligence. It is reasonable to conclude that the issue of negligence must first be addressed before the proper provisions of the Code of Commerce on the extent of liability may be applied.

Instead of presenting proof of the exercise of extraordinary diligence as requires by law, NMC filed its motion to dismiss, hypothetically admitting the truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was due to the negligence or fault of NMC.

PHILIPPINE HOME ASSURANCE VS. CA (257 SCRA 468)

Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, a shipment for carriage to Manila and Cebu freight prepaid and in good order and condition. While the vessel is off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in the main deck level. As the crew was trying to extinguish the fire, the acetylene cylinder suddenly exploded sending a flash of flame throughout the accommodation area, thus causing death and severe injuries to the crew and instantly setting fire to the whole superstructure of the vessel. The incident forces the master and the crew to abandon the ship. Thereafter, SS Eastern Explorer was found to be constructive total loss and its voyage was declared abandoned. Several hours later, a tugboat under the control of Fukuda Salvage Co. arrived near the vessel and commenced to tow the vessel for the port of Naha, Japan.

After the fire was extinguished, the cargoes which were saved were loaded to another vessel for delivery for their original of port of destination. ESLI charged the consignees several amounts corresponding to additional freight and salvage charges. The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for and in behalf of the consignees. PHAC, as subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of Manila, Branch 39, against ESLI to recover the sum paid under protest on the ground that the same were actually damages directly brought about by the fault, negligence, illegal act and/or breach of contract of ESLI.

In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody and carriage of the shipment; that the fire was caused by unforeseen event; that the additional freight charges are due and demandable pursuant to the Bill of Lading, and that salvage charges are properly collectible under Act. No. 2616, known as the Salvage Law.

The trial court dismissed the PHAC’s complaint and ruled in favor of ESLI. The court said that the Supreme Court has ruled in Erlanger and Galinger vs. Swedish East Asiatic Co., Ltd., 34 Phil. 178, that three elements are (1) a marine peril (2) service voluntary rendered when not required as an existing duty or from a special contract and (3) success in whole or in part, or that the service rendered contributed to such success. The court said that the above elements are all present in the instant case. Salvage charges may thus be assessed on the cargoes saved from the vessel. As provided for in Section 13 of the Salvage Law, “The expenses of salvage, as well as the reward for salvage or assistance shall be a charge on the things salvaged or their value.” In Manila Railroad Co. vs. Macondray Co., 37 Phil. 583. It was also held that “When a ship and its cargo are saved together, the salvage allowance should be charged against the ship and the cargo in the proportion of their respective values, the same as in the case of general average…” Thus, the “compensation to be paid by the owner of the cargo is in proportion to the value of the vessel and the value of the cargo saved.”

On appeal to the Court of Appeals, respondent court affirmed the trial court’s findings and conclusion; hence, the present petition for review before this Court on the following error, among others:

Issue: Whether or not the respondent Court erroneously adopted with approval the Trial Court’s conclusion that the expenses or averages incurred in saving the cargo constitute general average?

Held: On the issue whether or not respondent court committed an error in concluding that the expenses incurred in saving the cargo are considered general average, we rule in the affirmative. As a rule, general or gross averages include all damages and expenses which are deliberately caused in order to save vessels, its cargo or both at the same time, from a real and known risk. While the instant case may technically fall within the purview of the said provision, the formalities prescribed under Article 813 and 814 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to gross average were not complied with.

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Consequently, respondent ESLI’s claim for contribution from the consignees of the cargo at the time of the occurrence of the average turns to naught.

The Court reversed and set aside the judgment of the respondent court and ordered respondent Eastern Shipping Lines. Inc. to return to petitioner Philippine Home Assurance Corporation the amount it paid under protest in behalf of the consignees.

SALVAGE LAW (ACT NO. 2616)Provides a compulsory reward to those who save cargo by requiring the owner of the property to give a reward equivalent to the maximum of 50% of the value of the property saved.

SALVAGE (Two Concepts)1. Service one person renders to the owner of a ship or goods, by his own labor, preserving the goods or the

ship which the owner or those entrusted with the care of them have either abandoned in distress at sea, or are unable to protect or secure.

2. Compensation allowed to persons by whose voluntary assistance a ship at sea or her cargo or both have been saved in whole or in part from impending sea peril, or such property recovered from actual peril or loss, as in cases of shipwreck, derelict or recapture.

Requisites: 1. Valid object of salvage; valid object of salvage; that the vessel is shipwrecked beyond the control of the

crew or shall have been abandoned;2. Object must have been exposed to marine peril (not perils of the ship);3. Services rendered voluntarily (neither an existing duty nor out of a pre-existing contract);4. Services are successful, total or partial.

Subjects of Salvage:1. Ship itself;2. Jetsam – goods which are cast into the sea, and there sink and remain under water;3. Floatsam or Flotsam – goods which float upon the sea when cast overboard;4. Ligan or Lagan – goods cast into the sea tied to a buoy, so that they may be found again by the owners (Diaz,

Notes on Transportation Law, p.173).

Persons Who Have No Right to a Reward for Salvage:1. Crew of the vessel saved;2. Person who commenced Salvage in spite of opposition of the Captain or his representative;3. In accordance with Sec. 3 of the Salvage Law, a person who fails to deliver a salvaged vessel or cargo to

the Collector of Customs.

DERELICT A ship or her cargo which is abandoned and deserted at sea by those who are in charge of it, without any

hope of recovering it, or without any intention of returning to it.

Rules on Salvage Reward1. The reward is fixed by the RTC judge in the absence of agreement or where the latter is excessive. (Sec. 9,

Act No. 2616)2. The reward should constitute a sufficient compensation for the outlay and effort of the salvors and should

be liberal enough to offer an inducement to others to render services in similar emergencies in the future.3. If sold (no claim being made within 3 months from publication), the proceeds, after deducting expenses and

the salvage claim, shall go to the owner; if the latter does not claim it within 3 years, 50% of the said pro -ceeds shall go to the salvors, who shall divide it equitably, and the other half to the government. (Secs. 11-12, Act. No 2616)

4. If a vessel is the salvor, the reward shall be distributed as follows:a. 50% to the shipowner;b. 25% to the captain; andc. 25% to the officers and crew in proportion to their salaries. (Sec. 13, Act No. 2616)

5. Expenses incurred in the salvage must be shown to be necessary and reasonable in amount before they will be allowed to the salvors.

CONTRACT OF TOWAGEA contract whereby one vessel, usually motorized, pulls another, whether loaded or not with merchandise, from one place to another, for a compensation. It is a contract for services rather than a contract of carriage.

BARRIOS VS. GO THONG & CO. (7 SCRA 535)

Facts: Honorio Barrios was the captain and master of the MV Henry I operated by William Lines, Inc. which plied the route from Cebu to Davao City. On its voyage on May 1, 1958 the MV Henry I intercepted an SOS signal from the MV Don Alfredo owned and operated by Go Thong & Co. Responding to the SOS, Henry I approached the Don Alfredo and found out that the Don Alfredo was suffering from engine failure. After agreeing to assist the disabled ship, the crew of Henry I attached tow lines and proceeded to tow the Don Alfredo heading towards the port of Dumaguete City. The following morning, they encountered a sister ship of Don Alfredo, the MV Lux. Upon the request of the captain of the Don Alfredo, the crew of the Henry I released the towlines and continued on their voyage.

After the incident, Barrios as captain of MV Henry I claimed entitlement to compensation under the salvage law which was opposed by Go Thong and Co. who claimed that what occurred was only mere towage.

The trial court dismissed the claim.

Issue: Whether the rescue of the MV Don Alfredo should be classified as a salvage, thus entitling Barrios et al. to reward?

Held: No. Not all the requisites were present for the rescue to be considered as salvage under the law.

The claim of Barrios is anchored on the provisions of the Salvage Law that stipulates that a ship that is lost or abandoned at sea is considered as a derelict and the proper subject of salvage. A ship in a desperate condition with passengers and persons on board but who are unable to do anything for their own safety may be considered a quasi-derelict.

Further, the Salvage Law provides that those assisting in saving a vessel in its cargo from shipwreck shall be entitled to a reward. There are three elements that are necessary for a salvage claim:

1. the existence of a marine peril2. service is voluntarily rendered when not required as an existing duty or a special contract; and3. success in whole or in part, or that the service rendered contributed to such success.

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It is therefore imperative to establish whether the MV Don Alfredo was exposed to any form of marine peril when it was assisted by the MV Henry I. The Supreme Court however noted that the nature of its disability and the circumstances surrounding it could be construed as a marine peril as contemplated in the Salvage Law. When the engine failure occurred the seas were calm and the weather was clear. In fact the ship did not drift too far from the location where its engines failed. Further, the captain and crew of the MV Don Alfredo did not find it necessary to jettison the vessel’s cargo as a safety measure. Therefore the MV Don Alfredo cannot even be considered as a quasi derelict.

Although the service of the defendant did not constitute as salvage, it can be considered as a quasi contract of towage. However in a contract of towage, only the owner of the towing vessel is entitled to remuneration. It is noteworthy that the owner of MV Henry I, William Lines, Inc., already waived its claim for compensation.

SPECIAL CONTRACTS OF MARITIME COMMERCE1. Charter party2. Bill of lading3. Contract of transportation of passengers on sea voyages4. Loan on bottomry5. Loan on respondentia6. Marine insurance A. CHARTER PARTY

A contract by virtue of which the owner or agent binds himself to transport merchandise or persons for a fixed price.

A contract by which an entire ship, or some principal part thereof is let/leased by the owner to another per-son for a specified time or use. (Planters Products, Inc. vs. CA, 226 SCRA 476)

Parties to a charter party:1. Ship owner or ship agent; and2. Charterer

Form of Charter Party1. Must be in duplicate2. Signed by the contracting parties, and when either does not know how or is unable to do so,

by two witnesses at his request. (Art. 652, Code of Commerce)

Contents of Charter Party AgreementBesides the condition freely stipulated, it shall include the following:1. Kind, name and tonnage of the vessel;2. Her flag and port of registry;3. Name, surname and domicile of the captain;4. Name, surname and domicile of the ship agent, and if the latter should make the carter

party;5. Name, surname and domicile of the charterer, and if he states that he is acting by commis-

sion, that of the person for whose account he makes the contract;6. Port of loading and unloading;7. Capacity, the number or tons or weight, or measure which they respectively bind themselves

to load and transport, or whether it is the total cargo;8. Freightage to be paid;9. Amount of primage to be paid by the captain;10. Days agreed upon for loading and unloading;11. Lay Days and extra lay days to be allowed and the rate of demurrage.

Classes of Charter Party: 1. Bareboat Or Demise

The charterer provides crew, food and fuel. The charterer is liable as if he were the owner, except when the cause arises from the unworthiness of the vessel. The shipowner leases to the charterer the whole vessel, transferring to the latter the entire command, possession and consequent control over the vessel’s navigation, including the master and the crew, who thereby become the charter’s servants. It transforms a common carrier into a private carrier.

2. Contract of Affreightment – A contract whereby the owner of the vessel leases part or all of its space to haul goods for others.

Kinds of Contract of Affreightment:a. Time Charter – vessel is chartered for a fixed period of time or duration of voyage. b. Voyage or trip charter – the vessel is leased for one or series of voyages usually for

purposes of transporting goods for charterer.

Requisites of a Valid Charter Party1. Consent of the contracting parties2. Existing vessel which should be placed at the disposition of the shipper3. Freight4. Compliance with Art. 652 of the Code of Commerce

Clauses Which May Be Included In a Charter Party 1. Jason Clause

A stipulation in a charter party that in case of a maritime accident for which the shipowner is not responsible by law, contract or otherwise, the cargo shippers, consignees or owners shall contribute with the shipowner in general average.

2. Clause Paramount or Paramount Clause A clause in a charter party providing that the COGSA shall apply, even though the transportation is domestic, subject to the extent that any term of the bill of lading is repugnant to the COGSA or applicable law, then to the extent thereof the provision of the bill of lading is void.

Rights and Obligations in a Charter Party

A. Of the Owner or Ship Agent:1. If the vessel is chartered wholly, not to accept cargo from others;2. To observe represented capacity;3. To unload cargo clandestinely placed;4. To substitute another vessel if load is less than 3/5 of capacity;5. To leave the port if the charterer does not bring the cargo within the lay days and extra lay

days allowed;

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6. To place in a vessel in a condition navigate; and

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