796

SUPREME COURT REPORTS ANNOTATED

Coastwise Lighterage Corporation vs. Court of Appeals
*

G.R. No. 114167. July 12, 1995.

COASTWISE LIGHTERAGE CORPORATION, petitioner, vs.

COURT OF APPEALS and the PHILIPPINE GENERAL
INSURANCE COMPANY, respondents.
Common Carriers; Charter Parties; Words and Phrases; Bare-boat or
Demise and Contract of Affreightment, Distinguished.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, 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. x x x.
Same; Same; Same; Same; In a contract of affreightment a common
carrier is not converted into a private carrier but remains as a common
carrier and still liable as such.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. We agree. Pag-asa Sales, Inc. only leased three of
petitioners 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
_______________
*

THIRD DIVISION.

797

VOL. 245, JULY 12, 1995

797

Coastwise Lighterage Corporation vs. Court of Appeals

was still liable as such.

Same; Evidence; Presumption of negligence of common carriers; 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.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.
Same; Same; Same; Code of Commerce; It may 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.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: Article 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. x x x Clearly, petitioner Coastwise Lighterages 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 vessels
hitting the sunken derelict ship that lay on their way to Pier 18.
Same; Insurance Law; 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
798

798

SUPREME COURT REPORTS ANNOTATED

Coastwise Lighterage Corporation vs. Court of Appeals

the extent that the insurer has been obligated to pay.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; Firemans Fund Insurance Company v. Jamilla & Company, Inc.,
and Pan Malayan Insurance Corporation v. Court of Appeals, 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.

PETITION for review of a decision of the Court of Appeals.

The facts are stated in the resolution of the Court.
David and Associates Law Offices for petitioner.
Fajardo Law Offices for private respondent.
R ESOLUTION
FRANCISCO, 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 attorneys 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 latters dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
799

VOL. 245, JULY 12, 1995

799

Coastwise Lighterage Corporation vs. Court of Appeals

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
1
inches wide and twenty-two inches long. 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 latters 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
Lighterages 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 consignees goods lost while on
board one of the carriers vessels.
_______________
1

Rollo, p. 25, Decision, Court of Appeals.

800

800

SUPREME COURT REPORTS ANNOTATED

Coastwise Lighterage Corporation vs. Court of Appeals

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
2
Insurance Company vs. American Steamship Agencies, Inc. wherein
this Court held: x x x a common carrier undertaking to carry a special
cargo or chartered to a special person only becomes a private carrier.
Petitioners 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
3
stipulation.

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
4
Puromines, Inc. vs. Court of Appeals, 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

_______________
2

23 SCRA 24.

Ibid., p . 27.

220 SCRA 281.

801

VOL. 245, JULY 12, 1995

801

Coastwise Lighterage Corporation vs. Court of Appeals

the charter hire. x x x.

x x x. 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. x x x

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
5
was one of affreightment. We agree. Pag-asa Sales, Inc. only leased
three of petitioners 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
_______________
5

Rollo, p. 11, Petition, p. 5.

802

802

SUPREME COURT REPORTS ANNOTATED

Coastwise Lighterage Corporation vs. Court of Appeals
6

navigational accidents 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, petitioners 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:
Article 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. x x x

Clearly, petitioner Coastwise Lighterages 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 vessels 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.
_______________
6

Rollo, p. 85.
803

VOL. 245, JULY 12, 1995

803

Coastwise Lighterage Corporation vs. Court of Appeals

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 latters
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. x x x

This legal provision containing the equitable principle of subrogation has

been applied in a long line of cases including
Compania Maritima v.
7
Insurance Company of North America;8 Firemans Fund Insurance
Company v. Jamilla & Company,9 Inc., and Pan Malayan Insurance
Corporation v. Court of Appeals, 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.

_______________
7

12 SCRA 213.

70 SCRA 323.

184 SCRA 54.

804

804

SUPREME COURT REPORTS ANNOTATED

Coastwise Lighterage Corporation vs. Court of Appeals

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
10
another sum of P100,000.00 as attorneys fees and costs is likewise
hereby AFFIRMED.
SO ORDERED.
Feliciano (Chairman), Romero, Melo and Vitug, JJ., concur.
Petition denied, judgment affirmed.
Notes.As it is also a contract of adhesion, an insurance contract
should be liberally construed in favor of the insured and strictly against the
insurer company. (Verendia vs. Court of Appeals, 217 SCRA 417
[1993])
Carrier and arrastre operator are liable in solidum for the proper
delivery of the goods in good condition to the consignee. (Eastern
Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA 78 [1994])
o0o
_______________
10

Rollo, p. 24.
805

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