The petitioner is a Philippine corporation engaged in the business of maritime trade as a carrier. It owned and operated the M/V P Aboitiz, a common carrier which sank on a voyage from Hong Kong to the Philippines on 31 October 1980. The respondent is a foreign insurance company, pursuing its remedies as a subrogee of several cargo consignees whose cargoes sank with the vessel, and for which it has paid out.

The initial investigation by the Board of Marine Inquiry found that the sinking was due to force majeure, and that the vessel was seaworthy. This administrative finding notwithstanding, the trial Court in Civil Case No 144425 found against the carrier, on the basis that the loss did not occur as a result of force majeure. Thus, the respondent was allowed to prove, and was later awarded, its claim. This decision in favour of the respondent was elevated all the way up to this Court in GR No 89757 (Aboitiz v Court of Appeals, 188 SCRA 387 (1990)), and was affirmed.

This petition seeks a pronouncement as to the applicability of the doctrine of limited liability on the totality of the claims for the losses brought about by the sinking of the M/V P Aboitiz, as based on the real and hypothecary nature of maritime law. The following arguments are submitted by the petitioner:

1. The limited liability rule warrants an immediate stay of execution of judgment to prevent impairment of other creditors' shares;
2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and
3. The principle of the law of the case is not applicable to the present petition.

On the other hand, the respondent argues that:

1. There is no limited liability to speak of, or applicable real and hypothecary rule, under arts 587, 590, and 837 of the Code of Commerce in the face of the facts found by the trial Court (Civil Case No 144425), upheld by the Appellate Court (CA GR No 10609), and affirmed by the Supreme Court in GR No 89757, which cited GR No 88159 as the law of the case; and
2. Under the doctrine of the law of the case, cases involving the same incident, parties similarly situated, and the same issues litigated, should be decided in conformity therewith, following the maxim stare decisis et non quieta movere.

Held: The petition is granted, and the orders of the Regional Trial Court (RTC) of Manila, dated 30 April 1991, and the Court of Appeals (CA), dated 21 June 1991, are set aside. The trial Court is directed to desist from proceeding with the execution of the judgment rendered in Civil Case No 144425, pending determination of the totality of claims recoverable from the petitioner as the owner of the M/V P Aboitiz. The petitioner is directed to institute the necessary action and to deposit the proceeds of the insurance of the vessel within 15 days.

Before proceeding to the main issue, it is important to determine whether the decision of this Court in GR No 88159, Aboitiz Shipping Corp v Court of Appeals, dated 13 November 1989, effectively precludes this petition, as argued by the respondent. That decision settled two principal matters: first, the doctrine of primary administrative jurisdiction was not applicable; and second, an application of limitation of liability in that case would render inefficacious the extraordinary diligence required by law of common carriers.

It should be pointed out, however, that the limited liability discussed in that case is not the same as that now in issue, but an altogether different aspect. The limited liability settled in GR No 88159 is that which attaches to cargo by virtue of stipulations in the bill of lading, popularly known as package limitation clauses, which in that case was contained in s 8 of the bill of lading, and which limited the carrier's liability to USD 500 for the cargo. That judgment did not tackle the matter of the limited liability rule arising out of the real and hypothecary nature of maritime law, which was not raised in that case, and which is the principal bone of contention in this case. While the matters threshed out in GR No 88159, particularly those dealing with the issues on primary administrative jurisdiction, and the package liability limitation provided in the bill of lading, are now settled and should no longer be touched, this case raises a completely different issue. GR 88159 has no bearing, other than factual, on this case.

The primary question is whether the CA erred in granting execution of the full judgment award in Civil Case No 14425 (GR No 89757), thus effectively denying the application of the limited liability rule enunciated under the appropriate articles of the Code of Commerce. Those articles may be ancient, but they are timeless and have remained good law. In deciding the case below, the CA took refuge in this Court's decision in GR No 89757, which the CA took to mean that this Court has 'considered, passed upon and resolved [the petitioner's] contention that all claims for the losses should first be determined before [the respondent's] judgment may be satisfied', and that such ruling 'in effect necessarily negated the application of the limited liability principle'. This is not accurate. The decision in GR No 89757 considered only the circumstances peculiar to that particular case. The limited liability rule was never in issue in the prior cases, including those before the RTCs and the CA. As discussed earlier, the 'limited liability' in issue before the trial Courts referred to the package limitation clauses in the bills of lading, and not the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defence in any of the earlier cases, as properly it could not have been made so since it was not relevant in those cases. The only time it could come into play is when any of the cases involving the mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has now been brought before this Court.

The real and hypothecary nature of maritime law simply 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 guarantee 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. It was designed to offset such adverse conditions, and to encourage people and entities to venture into maritime commerce, despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of the shipowner and agent arising from the operation of such vessel were confined to the vessel itself, its equipment, freightage, and insurance, if any. This limitation served to induce capitalists into effectively wagering their resources against the consideration of the large profits attainable in the trade.

Despite the modernisation of the shipping industry and the development of high-technology safety devices designed to reduce the risks therein, limitation has not only persisted, but is even practically absolute in well-developed maritime countries such as the United States and England, where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both international maritime Conventions and generally accepted practices relative to maritime trade and travel. This is highlighted by the following excerpts on the limited liability of vessel owners and/or agents. Section 183 of the US Federal Limitation of Liability Act provides:

The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss, or destruction by any person of any person or any property, goods, or merchandise shipped or put on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners shall not exceed the amount or value of the interest of such owner in such vessel, and her freightage then pending.

Article 1.1 of the LLMC 1957 provides:

The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims arising, from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner:

(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on board the ship;

(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other property or infringement of any rights caused by the act, neglect or default the owner is responsible for, or any person not on board the ship for whose act, neglect or default the owner is responsible: Provided, however, that in regard to the act, neglect or default of this last class of person, the owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers;

(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned (including anything which may be on board such ship) and any obligation or liability arising out of damage caused to harbor works, basins and navigable waterways.

In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it originates. The limited liability rule in the Philippines is taken up in Book 3 of the Code of Commerce, particularly in arts 587, 590 and 837:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freightage it may have earned during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. [Emphasis supplied by the Court.]

Taken together with related articles, the foregoing cover only liability for injuries to third parties (art 587), acts of the captain (art 590), and collisions (art 837).

In the few instances when the matter has been considered by this Court, we have been consistent in this jurisdiction in holding that the only time that the limited liability rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent (see Yango v Laserna, 73 Phil 330 (1941); Manila Steamship Co Inc v Abdulhanan, 101 Phil 32 (1957); Heirs of Amparo delos Santos v Court of Appeals, 186 SCRA 649 (1967)). In this case, there has been no actual finding of negligence on the part of petitioner. In its decision, the trial Court merely said: 'Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were not lost due to fortuitous event or force majeure.' The same is true of the decision of this Court in GR No 89757, affirming the decision of the CA in CA-GR CV No 10609, since both decisions did not make any new and additional finding of fact. Both merely affirmed the factual findings of the trial Court, adding that the cause of the sinking of the vessel was because of unseaworthiness, due to the failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion that the petitioner shipowner itself was negligent.

Unseaworthiness is not a fault that can be laid squarely on the petitioner's lap, absent a factual basis for such a conclusion. The unseaworthiness found in some of the cases is directly attributable to the vessel's crew and master, more so on the part of the latter, since art 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the master and crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the findings of the trial Court and the CA, whose finding of 'unseaworthiness' clearly did not pertain to the structural condition of the vessel, which is the basis of the BMI's findings, but to the condition that it was in at the time of the sinking, which was a result of the acts of the master and the crew.

The rights of a shipowner or agent under the limited liability rule are akin to those of the rights of shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while not absolute, must be swept aside only in the established existence of the most compelling of reasons. The rights of parties to claim against an agent or owner of a vessel may also be compared to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does not mean that they shall all be allowed to recover fully, thus favouring those who filed and proved their claims sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be able to gain access to the assets of the individual shareholders, but must limit their recovery to what is left in the name of the corporation. In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending freightage for the particular voyage.

In this case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds of the M/V P Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Execution of judgment in earlier completed cases, even those already final and executory, must be stayed, pending completion of all cases occasioned by the sinking. Then, and only then, can all such claims be simultaneously settled, either completely or pro rata, should the insurance proceeds and freightage be not enough to satisfy all claims.

The petitioner has provided this Court with a list of all pending cases, together with the corresponding claims and the pro-rated share of each. Some of these cases are still with the CA, and some still with the trial Courts, and which probably are still undergoing trial. It would not, therefore, be correct to preclude the trial Courts from making their own findings of fact in those cases and deciding the same by allotting shares for these claims, some of which, after all, might not prevail, depending on the evidence presented in each. The pro-rated share of each claim can only be found after all the cases have been decided.

In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in trust. Moreover, the petitioner should institute the necessary limitation and distribution action before the proper Admiralty Court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage, in order to safeguard the same, pending final resolution of all incidents, for final pro-rating and settlement.