Caltex (Philippines), Inc. vs. Sulpicio Lines, Inc.

A voyage charterer under a contract of affreightment is not liable to third persons for damages caused by the chartered vessel’s unseaworthiness or negligence, because the shipowner retains possession, control, and the legal duties of a common carrier, and the charterer is entitled to rely on the carrier’s implied warranty of seaworthiness absent circumstances demanding a higher degree of diligence.

On December 19, 1987, the motor tanker MT Vector left Limay, Bataan, carrying 8,800 barrels of petroleum products owned by Caltex (Philippines), Inc., destined for Masbate under a charter contract. The following evening, MT Vector collided in open sea near Dumali Point with the passenger vessel MV Doña Paz, owned and operated by Sulpicio Lines, Inc. The collision ignited a massive fire, causing the deaths of nearly all aboard both vessels. Among the deceased were public school teacher Sebastian Cañezal and his 11-year-old daughter Corazon, both unmanifested but proven passengers of MV Doña Paz. The Board of Marine Inquiry found MT Vector, its registered operator Francisco Soriano, and its owner/operator Vector Shipping Corporation at fault for the collision. The widow and mother of Sebastian Cañezal filed a complaint for damages against Sulpicio, and Sulpicio impleaded Vector, Soriano, and Caltex as third-party defendants, alleging that Caltex chartered MT Vector knowing it was unseaworthy.

• The Vessels and the Voyage: MT Vector, a tramping motor tanker owned and operated by Vector Shipping Corporation, was engaged in transporting fuel products. On December 19, 1987, it left Limay, Bataan, carrying 8,800 barrels of petroleum products owned by Caltex under a charter contract. MV Doña Paz, a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc., plying the Manila-Tacloban route, left Tacloban for Manila at about 6:30 a.m. on December 20, 1987, with a complement of 59 crew members and 1,493 manifested passengers (actual passengers estimated at over 4,000).

• The Collision: At around 10:30 p.m. on December 20, 1987, the two vessels collided in open sea near Dumali Point, between Marinduque and Oriental Mindoro. The collision ignited the petroleum cargo, resulting in a conflagration that killed almost all aboard. Only 24 survivors were rescued, and the two survivors from MT Vector claimed they were sleeping at the time.

• The Deceased Passengers: Sebastian Cañezal, a 47-year-old public school teacher, and his 11-year-old daughter Corazon, although not listed on the manifest, were proven to have been on board MV Doña Paz and perished.

• Findings on Fault: The Board of Marine Inquiry’s investigation (BMI Case No. 659-87) found MT Vector, its registered operator Francisco Soriano, and its owner/actual operator Vector Shipping Corporation at fault for the collision. The board did not implead Caltex.

• The Charter Contract: Caltex and Vector Shipping Corporation had a voyage charter — a contract of affreightment for a single voyage. The vessel remained under the possession and control of Vector as the shipowner.

• Condition of MT Vector: Evidence showed that MT Vector was unseaworthy: the master lacked the required Chief Mate license, the second mate held only a Minor Patron license (limited to bays and rivers), the chief engineer had no license, and the vessel lacked a third mate, radio operator, and lookout, and had a defective main engine. Its Certificate of Inspection had expired on December 7, 1987.

• Caltex’s Knowledge and Conduct: Caltex’s employee, Apolinario Ng, testified that he was aware the Certificate of Inspection would expire on December 7, 1987, but the operation manager of Vector, Restituto Abalos, assured him of renewal. On the first week of December, Ng followed up and was told a copy would be sent. Caltex did not insist on obtaining the renewed certificate because of a long business relationship of about two years and the fact that the Coast Guard cleared MT Vector to sail, which indicated the documents were in order.

• Liability under Maritime Laws: Caltex argued that as a voyage charterer under a contract of affreightment, it was not liable for damages to third persons under Philippine maritime law. The rights and responsibilities of ownership, including liability for the ship’s seaworthiness, remained with Vector as the shipowner.

• MT Vector as a Common Carrier: Caltex maintained that the voyage charter did not convert MT Vector into a private carrier; it remained a common carrier, and thus the obligation to maintain seaworthiness fell exclusively upon Vector. Caltex, as shipper, was entitled to rely on the implied warranty of seaworthiness.

• Absence of Negligence: Caltex asserted it exercised ordinary diligence required of a shipper. It had a long-standing business relationship with Vector, had received assurances of document renewal, and relied on the Philippine Coast Guard’s clearance of the vessel as proof that the vessel was legally fit to sail.

• Charterer’s Negligence: Sulpicio Lines argued that Caltex negligently shipped its highly combustible cargo aboard an unseaworthy vessel, in violation of Articles 20 and 2176 of the Civil Code. Caltex knew or should have known of the vessel’s deficiencies, including the expired Certificate of Inspection, the lack of proper licenses of officers, and the defective main engine, yet proceeded to load its cargo.

• Failure to Ensure Compliance: Sulpicio contended that Caltex failed to take steps to have MT Vector’s certificate and coastwise license renewed, shipped cargo despite defects observed by Bataan Refinery Corporation’s Carlos Tan, and witnessed MT Vector’s submission of fake documents to the Coast Guard.

• Liability of Voyage Charterer: Whether a voyage charterer under a contract of affreightment is liable for damages to third persons resulting from the unseaworthiness or fault of the chartered vessel.

• Character of MT Vector as Common Carrier: Whether a voyage charter converts a common carrier into a private carrier, thereby altering the allocation of duties and liabilities between the shipowner and the charterer.

• Civil Code Negligence: Whether Caltex is liable for quasi-delict under Articles 20 and 2176 of the Civil Code for allegedly shipping its cargo aboard an unseaworthy vessel.

• Liability of Voyage Charterer: Under Philippine maritime law, a voyage charter (contract of affreightment) leaves the general owner in possession of the ship as owner for the voyage; the rights and responsibilities of ownership, including liability to third persons, rest upon the owner. The charterer is free from liability to third persons in respect of the ship. The distinction was drawn from Puromines vs. Court of Appeals (220 SCRA 281) and Planters Products, Inc. vs. Court of Appeals (226 SCRA 476): in a demise or bareboat charter, the charterer mans the vessel and becomes owner pro hac vice, liable for negligence; in a contract of affreightment, the charterer does not assume the duties of ownership.

• Character of MT Vector as Common Carrier: A voyage charter does not convert a common carrier into a private carrier. Under Planters Products, Inc. vs. Court of Appeals, a public carrier remains as such despite a time or voyage charter; only a bareboat or demise charter transforms it into a private carrier for the chartered voyage. Coastwise Lighterage Corporation vs. Court of Appeals (245 SCRA 797) reaffirmed that a contract of affreightment does not alter the common carrier’s status. Thus, MT Vector, carrying petroleum products for hire as part of its regular business, was a common carrier under Article 1732 of the Civil Code, as interpreted in De Guzman vs. Court of Appeals (168 SCRA 612). Consequently, the obligation to maintain seaworthiness and the implied warranty of seaworthiness under the Carriage of Goods by Sea Act and Article 1755 of the Civil Code fell squarely upon Vector, not Caltex.

• Civil Code Negligence: Caltex was not negligent. The nature of its obligation as a shipper required ordinary diligence. Shippers and passengers are not expected to inspect the seaworthiness of the vessel or verify the genuineness of licenses and compliance with maritime laws; such a duty would be absurd in the transportation business where time is of the essence. The law imposes upon common carriers an implied warranty of seaworthiness, and the public is entitled to rely upon it. Caltex had been assured by Vector’s operation manager that the Certificate of Inspection had been renewed, and the Philippine Coast Guard’s clearance of MT Vector to sail lent validity to that assurance. Under these circumstances, Caltex had reason to believe the vessel was legally fit to transport its cargo. The long business relationship of two years without prior incident did not demand a higher degree of diligence. Caltex’s reliance was consistent with that of an ordinarily prudent shipper.

• Contract of Affreightment vs. Demise Charter — A contract of affreightment (time charter or voyage charter) is one in which the shipowner lets the whole or part of the vessel to a merchant for the conveyance of goods on a particular voyage or for a fixed period, with the owner retaining possession, control, and the responsibilities of ownership. A demise or bareboat charter, conversely, places the charterer in control of the vessel and its crew, making the charterer owner pro hac vice and liable for negligence. In this case, because the contract between Caltex and Vector was a voyage charter, the rights and liabilities of ownership remained with Vector; Caltex was held free from liability to third persons in respect of the ship.

• Common Carrier Status under Voyage Charter — A common carrier remains a common carrier despite a time or voyage charter; it is only upon a bareboat or demise charter that the carrier is transformed into a private carrier, and only for the particular voyage. The Court applied this doctrine to hold that MT Vector’s warranty of seaworthiness, as a common carrier, was owed to shippers like Caltex, not by them.

• Implied Warranty of Seaworthiness and Shipper’s Reliance — Under Section 3(1) of the Carriage of Goods by Sea Act and Article 1755 of the Civil Code, a common carrier impliedly warrants the seaworthiness of its vessel. Passengers and shippers are under no obligation to inspect the ship or its crew; they may customarily presume that the carrier possesses all legal requisites to operate. The shipper’s reliance on this warranty, reinforced by a government agency’s clearance, discharges its duty of ordinary diligence.

• “If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.”

• “It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole portion of a vessel of one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or the voyage charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned.”

• “Because of the implied warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all maritime laws. … Such a practice would be an absurdity in a business where time is always of the essence.”

• Planters Products, Inc. vs. Court of Appeals, 226 SCRA 476 (1993) — Followed. Established the rule that a common carrier remains such under a time or voyage charter and is only transformed into a private carrier by a bareboat or demise charter. Applied to hold MT Vector a common carrier.

• Coastwise Lighterage Corporation vs. Court of Appeals, 245 SCRA 797 (1995) — Followed. Reiterated that a contract of affreightment does not convert a common carrier into a private one.

• De Guzman vs. Court of Appeals, 168 SCRA 612 (1988) — Followed. Defined common carriers broadly under Article 1732 of the Civil Code; used to conclude that MT Vector, as a tramping tanker carrying goods for hire, was a common carrier.

• Puromines vs. Court of Appeals, 220 SCRA 281 (1993) — Cited for the proposition that in a contract of affreightment, the rights and responsibilities of ownership rest on the owner, not the charterer.

• Tabacalera Insurance Co. vs. North Front Shipping Services, 272 SCRA 527 (1997) — Referenced for the definition of a charter party.

• Articles 20 and 2176, Civil Code — These quasi-delict provisions were invoked by Sulpicio and the Court of Appeals as bases for Caltex’s liability. The Supreme Court found them inapplicable because Caltex had not committed fault or negligence; it had exercised the diligence required of a shipper.

• Article 1732, Civil Code — Defined common carriers. Applied to hold that MT Vector was a common carrier despite the voyage charter.

• Article 1755, Civil Code — Imposed upon common carriers the duty to exercise extraordinary diligence and the breach of that duty by failing to maintain a seaworthy vessel. The obligation to warrant seaworthiness was deemed borne by Vector, not Caltex.

• Article 1173, Civil Code — Defined negligence as the omission of diligence required by the nature of the obligation and the circumstances. Interpreted to require only ordinary diligence from Caltex as a shipper.

• Section 3(1), Carriage of Goods by Sea Act — Codified the carrier’s duty to exercise due diligence to make the ship seaworthy before and at the beginning of the voyage. Formed the basis of the implied warranty of seaworthiness upon which Caltex was entitled to rely.

Davide, Jr., C.J., Kapunan, and Ynares-Santiago, JJ., concurred. Puno, J., took no part due to a close relation with a party.