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CEBU SHIPYARD v. WILLIAM LINES

FACTS:

This case involves a petition for review seeking the reversal of the decision of the Court of Appeals, which affirmed the trial court's decision finding the petitioner, Cebu Shipyard and Engineering Works, Inc. (CSEW), negligent and liable for damages to the private respondent, William Lines, Inc., and to the insurer, Prudential Guarantee Assurance Company, Inc.

CSEW is a domestic corporation engaged in the business of dry-docking and repairing marine vessels, while Prudential is also a domestic corporation in the non-life insurance business. William Lines, Inc. is the owner of M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank. At the time of the incident, the vessel was insured with Prudential for P45,000,000.00 pesos for hull and machinery. The insurance policy included an "Additional Perils (INCHMAREE)" Clause covering loss or damage to the vessel through the negligence of ship repairmen. CSEW was also insured by Prudential for third party liability under a Shiprepairer's Legal Liability Insurance Policy.

On February 5, 1991, William Lines, Inc. brought its vessel to CSEW for dry-docking and repair. On February 6, 1991, an arrival conference was held between representatives of William Lines, Inc. and CSEW to discuss the work to be done on the vessel. Contracts, denominated as Work Orders, were signed, containing stipulations limiting CSEW's liability to the customer for any defect or event to one million pesos. The contracts also required the customer to maintain insurance on the vessel during the contract period.

While the vessel was undergoing repairs at CSEW, the master, officers, crew, and other employees stayed in the vessel. On February 16, 1991, after the vessel was transferred to the docking quay, it caught fire and sank, resulting in its total loss.

William Lines, Inc. filed a complaint for damages against CSEW, alleging that the fire was caused by CSEW's negligence and lack of care. Prudential, as the insurer, was later impleaded as a co-plaintiff after paying William Lines, Inc. the value of the hull and machinery insurance on the vessel.

The trial court ruled in favor of the plaintiffs, ordering CSEW to pay Prudential the amount of forty-five million pesos with interest, and to pay William Lines, Inc. the amount of fifty-six million seven hundred fifteen thousand pesos representing loss of income of the vessel.

The case involves a fire that occurred on February 16, 1991, on the M/V Manila City, a vessel owned by William Lines, Inc. The vessel was dry-docked at the Cebu Shipyard and Engineering Works, Inc. (CSEW) for repairs, specifically the replating of Water Ballast Tank No. 12. The replating work was subcontracted by CSEW to JNB General Services. On the day of the incident, JNB workers were rigging a steel plate when they noticed smoke coming from the passageway along the crew cabins. They immediately sounded the fire alarm, but despite the efforts of the firemen and fire brigades, the fire was not controlled until the next day. The fire was partially reignited due to gusty winds, resulting in the vessel tilting and eventually sinking. CSEW contested its liability and argued that it did not have "management and supervisory control" over the vessel when the fire broke out. The Court of Appeals affirmed the lower court's decision, ordering CSEW to pay William Lines, Inc. the amount of P45 million, with interest, and dismissed CSEW's appeal.

On February 16, 1991, a fire broke out on M/V Manila City, a vessel owned by petitioner First Philippine Industrial Corporation (FPIC) and covered by an insurance policy issued by respondent Prudential Guarantee and Assurance, Inc. (Prudential). FPIC contracted the services of respondent C.S. Erectors and Welding Services (CSEW) for the repair and maintenance of the vessel. One of the works being done by CSEW was the cropping out of steel plates on Tank Top No. 12 using acetylene, oxygen, and a welding torch. Around 11 o'clock in the morning, the Chief Mate of the vessel noticed that the rubber insulation wire from the air-conditioning unit was already burning due to the hot works being carried out by CSEW workers. He scolded the workers and ordered them to stop the hot works. At 2:45 in the afternoon, witnesses observed smoke coming from Tank No. 12. The vessel's reeferman reported the fire to the Chief Mate, who then called the crew members to put out the fire. Unable to control the fire and feeling it was too dangerous to stay on board, the crew members evacuated the vessel, leaving the fire to spread.

ISSUES:

  1. Did the Court of Appeals err in holding that CSEW had "management and supervisory control" of the M/V Manila City at the time the fire broke out?

  2. Did the Court of Appeals err in applying the doctrine of res ipsa loquitur against CSEW?

  3. Is the Court of Appeals' ruling holding CSEW negligent and thereby liable for the loss of the M/V Manila City based on findings of fact not supported by evidence?

  4. Did the Court of Appeals commit a reversible error in ruling CSEW's expert evidence as inadmissible or of no probative value?

  5. Does Prudential have the right of subrogation against its own insured?

  6. Assuming CSEW was negligent, did the Court of Appeals err in invalidating the contractual provisions limiting CSEW's liability for negligence to a maximum of P1 million?

RULING:

  1. On Management and Supervisory Control The Court held that the Court of Appeals did not err. The fire which caused the loss of the vessel was due to the negligence of CSEW's workers when the vessel was under CSEW’s custody and control.

  2. On Res Ipsa Loquitur The Court upheld the application of the res ipsa loquitur doctrine. It found that the fire would not have occurred in the ordinary course of things without some negligence, and CSEW had exclusive control over the vessel at the relevant time.

  3. On Findings of Fact The finding of negligence is supported by sufficient evidence. Therefore, the Court found no reason to overturn the factual conclusions drawn by the Court of Appeals and the trial court.

  4. On Expert Evidence The testimonies of expert witnesses are not mandatory for judges to give substantial weight. The trial court and Court of Appeals justified giving more weight to the testimonies of witnesses who were on the vessel when the fire occurred.

  5. On Right of Subrogation Prudential has the right of subrogation. Upon payment of the insurance claim to William Lines, Inc., Prudential was subrogated to the rights of William Lines to recover from CSEW.

  6. On Liability Limitation Limiting CSEW's liability to P1 million was deemed unconscionable and inequitable. The Court held it would be unfair to cap liability significantly lower than the actual damages sustained.

PRINCIPLES:

  1. Doctrine of Res Ipsa Loquitur For this doctrine to apply, the accident must be such that in the ordinary course of things it would not happen without negligence, and it must be caused by something under the control of the defendant.

  2. Factual Findings Rule Findings of fact by the Court of Appeals, especially when affirming the trial court, are generally conclusive and not reviewable by the Supreme Court.

  3. Subrogation Rights Under Art. 2207, a party that pays an insured's claim is subrogated to the rights of the insured against the wrongdoer.

  4. Contracts of Adhesion While valid, contracts of adhesion that include unconscionable terms or significantly unequal bargaining power may be disregarded by the courts to prevent inequity.

  5. Weight of Expert Testimony Courts have discretion in giving weight to expert testimonies and may choose firsthand testimonies over expert opinions based on indirect evidence.

  6. Limitations on Liability Stipulations that limit liability must not be unconscionable and should align with principles of fairness and equitable consideration of the total actual loss.