Delsan Transport Lines, INC. vs.. Court of Appeals


369 SCRA 24 (G.R. No. 127897)

November 15, 2001


Petitioner:          Delsan Transport Lines, Inc.

Respondent:      Court Of Appeals And American Home Assurance Corporation

J.De Leon Jr.:


Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner, Delsan Transport Lines Inc., for a period of one year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil from Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun 2,277.314 kilolitres of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent, American Home Insurance.

 On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunatly, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo fuel oil.

Subsequently, AHA paid Caltex the sum of ₱ 5,096,635.67 representing the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, AHA demanded of the petitioner the same amount it paid to Caltex.

Due to its failure to collect, AHA filed a complaint with the RTC of Makati, Branch 137 for collection of sum of money. The trial court dismissed the complaint of the ground that the vessel was seaworthy as determined PCG per Survey Certificate Report No. M5-016-MH upon inspection during its annual drydocking and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting DELSAN (petitioner) from liability for the loss of the cargo.

On appeal, the Court of Appeals reversed the trial courts decision, giving credence the weather report issued by PAGASA which showed that from 2:00 o’clock to 8:00 o’clock in the morning on August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to 2 meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegations that the waves were twenty (20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding tha the same was improperly manned, the appellate court ruled tha the petitioner is liable on its obligation as common carrier to herein private respondent insurance company as subrogee of Caltex.

Hence this petition for review on certitiorari.


1.       Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, then precluding any action for recovery against petitioner.

2.       Whether or not the non-representation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action.



The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.

The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay. It 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 by the insurance company of the insurance claim. Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the petitioner.

From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.

Neither may petitioner escape liability by presenting in evidence certificates that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of Appeals: At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to their probative value, (thus): Seaworthiness relates to a vessel’s actual condition. Neither the granting of classification or the issuance of certificates establishes seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62) And also: Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owner’s obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to seaworthiness.

Additionally, the exoneration of MT Maysun’s officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts. In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit.


Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.

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