On 19 November 1984, Loadstar Shipping Co Inc (Loadstar) received on board its vessel, the M/V Cherokee, 705 bales of lawanit hardwood, 27 boxes and crates of tilewood assemblies, and 49 bundles of mouldings. The goods were insured with Manila Insurance Co (MIC) against all risks. The vessel was insured by Prudential Guarantee & Assurance Inc (PGAI). On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, MIC, as subrogee of the consignee of the goods, sued Loadstar and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of Loadstar and its employees. MIC also asked that PGAI be ordered to pay the appropriate portion of the insurance proceeds from the loss of the vessel directly to MIC. Loadstar denied any liability for the loss of the goods and claimed that the sinking of its vessel was due to force majeure. PGAI argued that MIC had no cause of action against it, Loadstar being the insured. In any event, PGAI was later dropped as a defendant after it paid the insurance proceeds to Loadstar.

The trial Court held in favour of MIC. Loadstar appealed to the Court of Appeals (CA). The CA affirmed the trial Court's ruling, observing that Loadstar cannot be considered a private carrier on the sole ground that there was only a single shipper on that fateful voyage. The CA noted that the charter of the vessel was limited to the ship, but Loadstar retained control over its crew. As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining the rights and liabilities of the parties. The vessel was not seaworthy because it was undercrewed on the day of the voyage. If it had been seaworthy, it could have withstood the 'natural and inevitable action of the sea' on 20 November 1984, when the condition of the sea was moderate. The vessel sank, not because of force majeure, but because it was not seaworthy. Loadstar's allegation that the sinking was probably due to the 'convergence of the winds' was not duly proven at the trial. The 'limited liability' rule, therefore, is not applicable considering that, in this case, there was an actual finding of negligence on the part of the carrier.

Loadstar appealed to the Supreme Court.

Held: The petition is dismissed. The CA decision is affirmed.

Loadstar is a common carrier. It is not necessary that the carrier be issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled. The records do not disclose that the M/V Cherokee, on the date in question, undertook to carry a special cargo or was chartered to a special person only. There was no charterparty. The bills of lading failed to show any special arrangement, but only a general provision to the effect that the M/V Cherokee was a 'general cargo carrier'. The bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where, as here, it was shown that the vessel was also carrying passengers.

The M/V Cherokee was not seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently crewed at the time. For a vessel to be seaworthy, it must be adequately equipped for the voyage and crewed with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in art 1755 of the Civil Code.

Neither do we agree with Loadstar's argument that the “limited liability” theory should be applied in this case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent. Loadstar was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure, in as much as the wind condition in the area where it sank was determined to be moderate. Since it was remiss in the performance of its duties, Loadstar cannot hide behind the 'limited liability' doctrine to escape responsibility for the loss of the vessel and its cargo.

Nor is there merit to the contention that the claim in this case was barred by prescription. MIC's cause of action had not yet prescribed at the time it was concerned. In as much as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) - which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit - may be applied suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the goods: see Filipino Merchants Insurance Co Inc v Alejandro, 145 SCRA 42 (1986). In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is null and void; it must, accordingly, be struck down.