G.R. No. 89757 , August 6, 1990
Aboitiz Shipping Corporation, petitioner, vs. Court of Appeals and General Accident Fire and Life Assurance Corporation, Ltd., respondents.

FACTS

On October 28, 1980, Aboitiz Shipping Corporation’s vessel, M/V “P. Aboitiz,” loaded two containers of apparel goods in Hongkong for shipment to Manila, consigned to Philippine Apparel, Inc. The shipments, insured by General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), had a total insured value of US$134,076.40. On October 31, 1980, the vessel sank en route to Manila, resulting in a total loss of the cargo. GAFLAC indemnified the consignee and, being subrogated to its rights, filed a complaint for damages against Aboitiz in the Regional Trial Court, alleging the loss was due to the carrier’s failure to exercise extraordinary diligence.
The trial court ruled in favor of GAFLAC, awarding actual damages. The Court of Appeals affirmed this decision. Aboitiz filed this petition, arguing primarily that the Court of Appeals erred in not adopting the Board of Marine Inquiry’s (BMI) finding that the sinking was due to a typhoon (force majeure) and in not enforcing the liability limitation clause in the bill of lading, which capped liability at US$500 per package/container.

ISSUE

The primary issues are: (1) Whether the factual findings of the BMI on the cause of the sinking are conclusive and binding on the courts; and (2) Whether the stipulation in the bill of lading limiting the carrier’s liability to US$500 per package is valid and enforceable under the circumstances.

RULING

The Supreme Court dismissed the petition, affirming the rulings of the lower courts. On the first issue, the Court held that the findings of the BMI are not conclusively binding on the courts, especially in this case where the proceedings were not adversarial and the private respondent (GAFLAC) was not a party thereto. The general rule is that administrative findings are respected if supported by substantial evidence, but courts may review them for arbitrariness or when they fail to consider pertinent legal responsibilities. Here, both the trial and appellate courts, after examining the evidence, found that the sinking was attributable to the fault and negligence of the carrier’s crew, not to a fortuitous event. The vessel proceeded despite storm warnings and was improperly loaded, constituting a failure to exercise the required extraordinary diligence.
On the second issue, the Court ruled that the liability limitation clause was invalid under the circumstances. While Article 1749 of the Civil Code permits stipulations limiting liability if the shipper declares a higher value, such agreements must be reasonable, just, and freely entered into. The Court found the US$500 limit grossly disproportionate to the actual insured value of the cargo (over US$130,000). Enforcing such a low limit would be contrary to public policy, as it would effectively nullify the carrier’s duty of extraordinary diligence and allow the carrier to potentially profit from its own negligence. The Court cited the precedent in Juan Ysmael & Co. v. Gabino Barretto & Co., which voided a similarly disproportionate limitation. Therefore, the carrier was correctly held liable for the full actual value of the lost cargo.