Ungab vs. Cusi Jr. (GR L-41919-25, 30 May 1980)
Second Division, Concepcion Jr. (J): 4 concur

Facts: In July 1974, BIR Examiner Ben Garcia examined the income tax returns filed by Quirico P. Ungab for the calendar year ending 31 December 1973. In the course of his examination, the examiner discovered that Ungab failed to report his income derived from sales of banana saplings.  As a result, the BIR District Revenue Officer at Davao City sent Ungab a “Notice of Taxpayer” informing him that there is due from him the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting Ungab to an informal conference where Ungab, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. Upon receipt of the notice, Ungab wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. The examiner, however, was fully convinced that Ungab had filed a fraudulent income tax return so that he submitted a “Fraud Referral Report,” to the Tax Fraud Unit of the BIR. After examining the records of the case, the Special Investigation Division of the BIR found sufficient proof that Ungab is guilty of tax evasion for the taxable year 1973 and recommended his prosecution. In a second indorsement to the Chief of the Prosecution Division, dated 12 December 1974, the Commissioner approved Ungab’s prosecution.

The State Prosecutor Jesus Acebes, who had been designated to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the NIRC, as amended, and other related laws, in Administrative Order 116 dated 5 December 1974, and to whom the case was assigned, conducted a preliminary investigation of the case, and finding probable cause, filed 6 informations against Ungab with the CFI Davao City. On 16 September 1975, Ungab filed a motion to quash the informations upon the grounds that: (1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the assessment made by the BIR Examiner. However, the trial court denied the motion on 22 October 1975.

Ungab filed a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the informations filed in Criminal Cases 1960 to 1965 of the CFI Davao. The Supreme Court dismissed the petition, and set aside the temporary restraining order issued; with costs against Ungab.

1.    Ruling in Estrella vs. Orendain
“Under Sections 1679 and 1686 of the Revised Administrative Code, in any instance where a provincial or city fiscal fails, refuses or is unable, for any reason, to investigate or prosecute a case and, in the opinion of the Secretary of Justice it is advisable in the public interest to take a different course of action, the Secretary of Justice may either appoint as acting provincial or city fiscal, to handle the investigation or prosecution exclusively and only of such case, any practicing attorney or some competent officer of the Department of Justice or office of any city or provincial fiscal, with complete authority to act therein in all respects as if he were the provincial or city fiscal himself, or appoint any lawyer in the government service, temporarily to assist such city of provincial fiscal in the discharge of his duties, with the same complete authority to act in dependently of and for such city or provincial fiscal, provided that no such appointment may be made without first hearing the fiscal concerned and never after the corresponding information has already been filed with the court by the corresponding city or provincial fiscal without the conformity of the latter, except when it can be patently shown to the court having cognizance of the case that said fiscal is intent on prejudicing the interests of justice. The same sphere of authority is true with the prosecutor directed and authorized under Section 3 of Republic Act 3783, as amended and/or inserted by Republic Act 5184. “

2.    Rule established in Estrella vs. Orendain not violated when State Prosecutor conducted investigation in the 6 cases against Ungab
The rule established in Estrella vs. Orendain had not been violated. The State Prosecutor, although believing that he can proceed independently of the City Fiscal in the investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order 116, dated 5 December 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation and prosecution of all violations of the NIRC, as amended, and other related laws, graciously allowed the State Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal.

3.    Filing of informations not premature
What is involved herein is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the NIRC which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.

4.    Assessment of deficiency tax not necessarily before criminal prosecution   
An assessment of the deficiency tax due is not necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime.

5.    Petition for reconsideration does not suspend prescriptive period of a criminal action for violation of law
A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest of the taxpayer against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the NIRC.

Philippine Bank of Communications vs. Commissioner of Internal Revenue (GR 112024, 28 January 1999)
Second Division, Quisumbing (J): 4 concur

Facts: The Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom’s tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended 31 December 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, ending 31 December 31, 1986, PBCom likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On 7 August 1987, PBCom requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on 25 July 1988, PBCom filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the Commissioner of Internal Revenue, PBCom instituted a Petition for Review on 18 November 1988 before the Court of Tax Appeals (CTA).  On 20 May 1993, the CTA dismissed the petition for lack of merit; and thus denied PBCom’s claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5,299,749.95 for having been filed beyond the reglementary period, and likewise denied the 1986 claim for refund amounting to P234,077.69 since PBCom has opted and automatically credited the same to the succeeding year.  On 22 June 1993, PBCom filed a Motion for Reconsideration of the CTA’s decision but the same was denied due course for lack of merit.

PBCom filed a petition for review of CTA decision and resolution with the Court of Appeals. On 22 September 1993, the Court of Appeals affirmed in toto the CTA’s resolution dated 20 July 1993. Hence the petition for review with the Supreme Court. The Supreme Court denied the petition and affirmed the decision of the Court of Appeals appealed from, with costs against PBCom.

1.    Purpose of taxes, due process of law, and claims for refund or tax credit
Basic is the principle that “taxes are the lifeblood of the nation.” The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.  From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

2.    Section 230 NIRC (1977)
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected. Section 230 (Recovery of tax erroneously or illegally collected) provides that “no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.”

3.    Reckoning period for claim of refund or credit
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

4.    Application of Section 230 of 1977 NIRC; CIR vs. Phil-Am Life Insurance Co. and CIR vs. TMX Sales
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., the Supreme Court explained the application of Section 230 of 1977 NIRC. Therein, the Court stated that the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. As earlier said in the TMX Sales case, Sections 68, 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it.

5.    RMC 7-85 invalid
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Section 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

6.    Nature of Revenue memorandum-circulars
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue.

7.    Interpretation by executive officers entitled to great respect but not conclusive
It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. As held in the case of People vs. Lim, the rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.

8.    Memorandum-circular does not shield taxpayer from judicial action
Fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. The non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable because the nullity of RMC 7-85 was declared by the courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

9.    Section 69 of the 1977 NIRC; Availment of the exclusive relief of refund or automatic tax credit
Section 69 of the 1977 NIRC (now Section 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

10.    PBCom opted to apply for automatic tax credit
PBCom opted to apply for automatic tax credit. This was the basis used (vis-a-vis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that PBCom had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative.  Since PBCom opted for an automatic tax credit in accordance with Section 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, such a finding of fact must be respected by the Supreme Court. This, especially, in light that the 1987 annual corporate tax return of PBCom was not offered as evidence to controvert said fact.

CIR vs. Concepcion (GR L-23912, 15 March 1968)
En Banc, Fernando (J): 8 concur, 1 on leave

Facts: An assessment in the sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses “as joint tenants with full rights of survivorship and not as tenants in common” was made by the Commissioner of Internal Revenue on the ground that there was a transmission to the husband of one-half share thereof upon the death of the wife, the above shares being conjugal property. Jose Concepcion, as ancillary administrator of the estate of Mary H. Mitchell-Roberts, and Jack F. Mitchell-Roberts, husband of the deceased, opposed and maintained that there was no transmission of property since under English law, ownership of all property acquired during the marriage vests in the husband, and that the shares of stock were issued to the spouses “as joint tenants with full rights of survivorship and not as tenants in common. Not being agreeable to the theory entertained by the Commissioner of Internal Revenue, Concepcion and Mitchell-Roberts, in CTA Case 168, appealed such a decision under RA 1125. The Court of Tax Appeals, however and on 29 April 1957, dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of 30 days. That decision became final.

On 14 June 1957, Concepcion and Mitchell-Roberts paid the taxes in question amounting to P1,181.33 (as estate tax) and P2,616.10 (as inheritance tax), inclusive of delinquency penalties, and at the same time filed a claim for the refund of said amounts. Without waiting for the decision of the Commissioner of Internal Revenue on the claim for refund, Concepcion and Mitchell-Roberts instituted an appeal with the Court of Tax Appeals on 11 June 1959 in order to avoid the prescriptive period of two years provided for in Section 306 of the Revenue Code. The Court of Tax Appeals ordered the Commissioner of Internal Revenue to refund the inheritance and estate taxes paid in the amount of P3,797.43. The Commissioner filed a petition for review with the Supreme Court.

The Supreme Court reversed the decision of the Court of Tax Appeals under review; with costs against Concepcion and Mitchell-Roberts.

1.    Reliance on La Paz y Buen Viaje Cigar & Cigarette Factory misplaced
The very same day the decision in La Paz y Buen Viaje Cigar & Cigarette Factory was affirmed, the opinion in Republic of the Philippines v. Lopez  was handed down. The case of Republic vs. Lopez was an appeal by the Republic from an order of the CFI Baguio dismissing its complaint for collection of a deficiency income tax against Lopez on the ground that the action had prescribed. After noting that prescription as a defense did not lie, the Supreme Court statedthat another ground for reversing the dismissal of the complaint is that the proper remedy of the taxpayer against the assessment complained of was to appeal the ruling of the Collector to the Court of Tax Appeals.

2.    Effects of finality of assessment; Republic vs. Lim Tian Teng Sons & Co, Morales vs. Collector of Internal Revenue
The taxpayer’s failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable. A subsequent action to enforce the deficiency assessment was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on the merits. Thus, once the matter has reached the stage of finality in view of the failure to appeal, it could no longer be reopened through the expedient of an appeal from the denial of the taxpayer’s request for cancellation of the warrant of distraint and levy.

3.    Procedure in Section 306 NIRC not available to revive right to contest validity of assessment when appeal not taken
In the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment, which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken.

4.    Estate administrator and deceased’s husband liable for taxes
The liability of Concepcion as an ancillary administrator of the estate of the deceased wife and of Mitchell-Roberts as the husband for the amount of P1,181.33 as estate tax and P2,616,10 as inheritance tax was beyond question. Having paid the same, they are clearly devoid of any legal right to sue for recovery.

Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue (GR L-16683, 31 January 1962)
En Banc, Reyes JBL (J): 8 concur, 1 took no part

Facts: On 21 February 1956, the Roman Catholic Archbishop of Cebu, in behalf of the Roman Catholic Church of Cebu, filed an income tax return for 1955, reporting a gross income of P10,356.90 from sales or exchanges of capital assets,  from rentals and royalties, and from dividends received. The Archbishop claimed deductions from depreciation of the Archbishop’s Palace Building, Major Seminary, Minor Seminary, and Furniture and Fixture in the total value of P19,898.09. On 18 February 1957, the Archbishop, in behalf of the Roman Catholic Church in Cebu, filed an income tax return for 1956, showing a gross income of P18,856.42. The Archbishop claimed deductions from depreciation in the total value of P20,226.15. On the theory that the gross incomes in 1955 and 1956 were realized independently of the use of the building, furniture and fixtures, the Collector of Internal Revenue totally disallowed the deductions for depreciation, thereby determining against the Archbishop, on 15 July 1956 and 30 March 1957, income tax liabilities for 1955 and 1956 in the respective amounts of P1,825.00 and P2,493.00. On May 10 and 14, 1957, the Archbishop requested for the reconsideration of the determinations, which requests were denied by the Collector in a letter dated 13 July 1957, wherein he demanded the payment of P1,825.00 and P2,493.00, including 5% surcharge and 1% legal interest on the latter amount. On 28 August 1957, the Archbishop requested for the reconsideration of the denial and the cancellation of the assessments. On 5 November 1957, the Collector denied this request for reconsideration and demanded the payment of P4,318.00, plus delinquency penalties incident to late payment. Again, on 23 November 1957, the Archbishop requested for the reconsideration and cancellation of the assessments, which request was denied on 20 January 1958, with a demand “for the last time to pay the total sum of P4,318.00 plus delinquency penalties incident to late payment immediately upon receipt hereof in order that no drastic action may be taken by this office on the matter.” Meanwhile, on 4 December 4, 1957, the Collector issued a warrant of distraint and levy against the properties of the Roman Catholic Church of D. Jakosalem St., Cebu City, to satisfy the sums of P1,916.25 and P2,617.65 as defficiency income tax and surcharge due for 1955 and 1956. On 7 February 1958, the Archbishop paid under protest the total amount of P5,201.52 as income tax for the years 1955 and 1956, including surcharge and interests.

On 1 February 1958, the Archbishop filed before the Court of Tax Appeals his petition for review. The Tax Court, convinced that the lack of a claim for refund was fatal to the Archbishop’s appeal, dismissed the same for lack of jurisdiction to take cognizance thereof. From this ruling, the Archbishop appealed to the Supreme Court.

The Supreme Court affirmed the dismissal of the Archbishop’s appeal by the Court of Tax Appeals, with costs against the Archbishop.

1.    Section 7 of Republic Act 1125
Section 7 of Republic Act 1125, provides in part that “(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue;”

2.    RA 1125 allows appeal from decision of Collector in cases involving “disputed assessments” as distinguished from cases involving “refunds of internal revenue taxes, fees or other charges “
Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, allows an appeal from a decision of the Collector in cases involving “disputed assessments” as distinguished from cases involving “refunds of internal revenue taxes, fees or other charges.” To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law should not be interpreted as to result in absurdities.

3.    Dismissal of appeal correct for being filed out of time
The dismissal of the Archbishop’s appeal is substantially correct, for the reason that said appeal was not taken within the 30 day period prescribed by section 11 of Republic Act 1125. The Archbishop has submitted not less than 3 motions or requests for the reconsideration of his Tax Assessments. All motions for reconsideration were premised on the same grounds, deduction of the depreciation of the buildings in question. The appeal to the Tax Court was filed only on 19 February 1958. By these successive motions for reconsideration, the Archbishop managed to delay the review of his case by the Tax Court for nearly two years. Such delays are plainly inimical to the general interest, ascertainment and collection of taxes being essential to the maintenance of the State. The decision by the Collector dated 5 November 1957, denying the second request for reconsideration of the assessment, was certainly reviewable by the Court of Tax Appeals. Hence, the 30-day appeal period should be counted from 21 November 1957, when the taxpayer received copy of the Collector’s ruling. The running of the period was not interrupted by the filing of the third request for reconsideration, because the latter did not advance new grounds not previously alleged, and was, therefore, merely pro forma. Therefore, the Archbishop’s petition for review should have been lodged with the Tax Court not later than 21 December 1957, but it was actually filed only on 1 February 1958.

4.    Doctrine in North Camarines Lumber Co. vs. Collector of Internal Revenue, (109 Phil., 511)
The Supreme Court cannot countenance the theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for ‘taxes are the lifeblood of the government, and their prompt and certain availability an imperious need.’ (Bull vs. U. S. 295, U. S. 247).”

Tuason & Legarda Ltd. vs. Commissioner of Internal Revenue (GR L-18552, 30 September 1965)
En Banc, Dizon (J): 6 concur

Facts: Tuason & Legarda Ltd., a duly organized domestic corporation, is the owner of the “La Rosario” distillery, operating since 1910 where it had in store, for many years, a stock of distilled spirits and compounded liquors. On 16 December 1958 the Commissioner of Internal Revenue served on the company an assessment for specific tax in the amount of P3,525.40 and P300.00 as penalty on the stock of distilled spirits aforesaid. In reply thereto the Company informed the Commissioner on 16 January 1959 that the stock had already oxidized and was unfit for human consumption, and asked for authority to destroy it in the presence of and under the supervision of a government representative. On February 13 and 16, 1959, Restituto Magcase and Herminigildo Velasquez, the company’s distillery supervisor and Chief, Specific Tax Branch, respectively, recommended the destruction of said alcohol and compounded liquors, having found them to be unfit for human consumption. However, on April 29 of the same year, Inocencio Gonzales, Jr., Chief, Laboratory Section, after an analysis of the same substances, made a report to the contrary. As a result, the Commissioner denied the company’s request for authority to destroy the stock, but in his letter of 3 July 1959 the Commissioner reduced the original assessment to P2,814.95, plus P300.00 as a penalty, copy of which amended assessment was received by the Company on 12 August 1959. The Commissioner, in his letter dated 30 September 1959 and received by the company about the middle of October of the same year denied the second written request to destroy the stock made by the Company on 15 August 1959, and demanded payment of the assessment and compromise penalty. In its reply letter dated 25 November 1959 the Company reiterated its stand that the stock of distilled spirits and compounded liquors in question was damaged and unfit for human consumption and asked for the withdrawal of the assessment served on it pursuant to Section 131 of the National Internal Revenue Code (NIRC). The Commissioner, instead of replying to this last request, served on petitioner on 20 January 1960 a warrant of distraint and levy for P3,525.40, (the original assessment) plus P300.00 as a penalty, and the latter, in turn, on 23 January 1960 tendered to the former all the stock of grain alcohol and compounded liquors in question in payment of the specific tax and penalty demanded provided that the warrant of distraint and levy be withdrawn and a full release and discharge be issued to it. The Commissioner never replied to this offer.

On 11 February 1960, the Company filed its petition for review with the Court of Tax Appeals.  After trial on the merits, the Court of Tax Appeals dismissed the petition for review on the ground that the same was not filed on time. A motion for reconsideration and new trial on the ground of accident, mistake and excusable negligence dated 7 April 1961, was denied by the same Court on 14 June 1961 for lack of merit. The Company appealed.

The Supreme Court affirmed the decision appealed from, with costs.

1.    Assessment final when petition for review filed with CTA; Last written request of company did not suspend running of prescriptive period
The letter of the Commissioner dated 3 July 1959 was, in legal contemplation, the ruling or decision from which the Company should have appealed to the Court of Tax Appeals; that from 12 August 1959 — when the Company received said letter — to the 15th of the same month and year — the date when the Company, by way of a motion for reconsideration, reiterated its written request for authority to destroy the distilled spirits and compounded liquors in its possession — the Company consumed three (3) days of the period of appeal that from 15 October 1959 — the date when the Company received the Commissioner’s letter of 30 September 1959 denying his second request for authority to destroy the merchandise taxed — to 11 February 1960 when the petition for review was filed, more than 3 months elapsed. In computing the period of appeal, the company’s last written request for authority to destroy the distilled spirits and compounded liquors in question did not suspend the running of said period, because it was a mere reiteration of two previous petitions already denied by the Commissioner. Consequently, the conclusion is inevitable that when the Company filed its petition for review with the Court of Tax Appeals, the questioned assessment had already become final, executory and incontrovertible.

2.    Motion for reconsideration or new trial on ground of accident, mistake and excusable negligence properly denied
The Company’s motion for reconsideration or new trial on the ground of accident, mistake and excusable negligence was correctly denied. Even assuming in this connection that the Commissioner’s letter dated 30 September 1959 was actually received by the Company on 20 November 1959 and not “in the middle of October” 1959 as admitted by one of the Company’s witnesses, the conclusion would still be that the petition for review was filed out of time because from 20 November 1959 to 11 February 1960 when said petition for review was filed, more than 60 days had elapsed.

Butuan Sawmill vs. Court of Tax Appeals (GR L-20601, 28 February 1966)
En Banc, Reyes JBL (J): 10 concur

Facts: During the period from 31 January 1951 to 8 June 1953, the Butuan Sawmill Inc. sold logs to Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit also in Agusan). The FOB prices included costs of loading wharfage stevedoring and other costs in the Philippines. The quality, quantity and measurement specifications of the logs were certified by the Bureau of Forestry. That the freight was paid by the Japanese buyers, and the payments of the logs were effected by means of irrevocable letters of credit in favor of Butuan Sawmill and payable through the Philippine National Bank (PNB) or any other bank named by it. Upon investigation by the Bureau of Internal Revenue (BIR), it was ascertained that no sales tax return was filed by Butuan Sawmill and neither did it pay the corresponding tax on the sales. On the basis of agent Antonio Mole’s report dated 17 September 1957, the Commissioner of Internal Revenue on 27 August 1958, determined against Butuan Sawmill the sum of P40,004.01 representing sales tax, surcharge and compromise penalty of its sales [tax, surcharge and compromise penalty of its sales] of logs from January 1951 to June 1953 pursuant to section 183, 186 and 209 of the National Internal Revenue Code (NIRC). In consequence of a reinvestigation, the Commissioner, on 6 November 1958, amended the amount of the previous assessment to P38,917.74.

Subsequent requests for reconsideration of the amended assessment having been denied, Butuan Sawmill filed a petition for review on 7 November 1960. The Court of Tax Appeals upheld the upheld the legality and correctness of the amended assessment of the sales tax and surcharge. The imposition of the compromise penalty was, however, eliminated therefrom for want of agreement between the taxpayer and the Collector (now Commissioner) of Internal Revenue. A motion to reconsider said decision having been denied, Butuan Sawmill interposed an appeal before the Supreme Court.

The Supreme Court affirmed the decision appealed from, with costs against Butuan Sawmill.

1.    Export sales had been consummated in the Philippines and were subject to sales tax therein; Taligaman Lumber Co. vs. Collector of Internal Revenue
Similar to the case of Taligaman Lumbe Co. vs. Collector of Internal Revenue where “it was admitted that the agreed price was ‘F.O.B. Agusan’, thus indicating, although prima facie, that the parties intended the title to pass to the buyer upon delivery of the log in Agusan, on board the vessels that took the goods to Japan. Moreover, said prima facie proof was bolstered up by the following circumstances, namely: (1) Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners. (2) Payment of freight charges of every shipment by the Japanese buyers. (3) The Japanese buyers chartered the ships that carried the logs they purchased from the Philippines to Japan. (4) The Japanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit. (5) The petitioner collected the purchase price of every shipment of logs by surrendering the covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the Japanese buyers opened letters of credit. (6) In case of natural defects in logs shipped to the buyers discovered in Japan instead of returning such defective logs, accepted them, but were granted a corresponding credit based on the contract price. (7) The logs purchased by the Japanese buyers were measured by a representative of the Director of Forestry and such measurement was final, thereby making the Government of the Philippines a sort of agent of the Japanese buyers,” and upon the authority of Bislig Bay Lumber Co., Inc. vs. Collector Internal Revenue, (G.R. No. L-13186 January 28, 1961) Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz. 517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales had been consummated in the Philippines and were accordingly, subject to sales tax therein.”

2.    Paragraph 2, Article 1503 of the Civil Code of the Philippines
That the specification in the bill of lading to the effect that the goods are deliverable to the order of the seller or his agent does not necessarily negate the passing of title to the goods upon delivery to the carrier is clear from the second part of paragraph 2 of article 1503 of the Civil Code of the Philippines. Said provision provides that “Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the sellers’ property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligation under the contract.”

3.    Only questions of law may be raised in petitions to review decisions of the CTA
It has been “a settled rule that in petitions to review decisions of the Court of Tax Appeals, only questions of law may be raised and may be passed upon by this Court” (Gutierrez vs. Court of Appeals & Collector of Internal Revenue vs. Gutierrez, G.R. Nos. L-7938 & L-9771, May 21, 1957, cited in Sanchez vs. Commissioner of Customs, G.R. No. L-8556, September 30, 1957).

4.    Income tax return cannot be considered as return for compensating tax for purpose of computing prescription under Section 331 of the Tax Code
An income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within the time stated in Section 332(a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc. G.R. Nos. L-12100 & L-11812. May 29, 1959).

5.    10 year prescription for failure to file return for disputed sales
As Butuan Sawmill failed to file a return for the disputed sales corresponding to the year 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332(a) of the Tax Code assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, the assessment and collection of the sales tax in question has not yet prescribed.

Overseas Factors Inc. vs. South Sea Shipping (GR L-12138, 27 February 1962)
En Banc, Padilla (J): 9 concur

Facts: On 3 and 9 September 1954 the National Rice and Corn Corporation (NARIC) and the Overseas Factors, Inc. entered into two contracts whereby the latter undertook to supply the former with 5,000 metric tons of Kangni rice at P.51 per ganta and 5,000 metric tons of Joshi rice at P.49 per ganta. On 10 September 1954 the NARIC established for its account with the Philippine National Bank (PNB_ in Manila two irrevocable letters of credit (62655 & 62656) in the amounts of $529,125 and $508,375, in favor of the Pakistan Development Corporation, Ltd. (PDC), Karachi, Pakistan. On 30 October 1954, S. M. Yeung, authorized representative of the South Sea Shipping Co., Ltd., wrote to José W. Diokno, authorized representative of the Overseas Factors, in Karachi, Pakistan, enumerating the terms and conditions of the charter party they have agreed upon for shipment of the rice to be imported by the Overseas Factors from Pakistan aboard the SS Ocean Trader owned by the South Sea Shipping. At the foot of the letter, José W. Diokno affixed his signature signifying his intention to confirm the terms and conditions therein enumerated. On the same date, 30 October 1954, S. M. Yeung, in behalf of the South Sea Shipping, and Chung Kien Tieng, in behalf of the Overseas Factors, entered into a formal contract of charter party in Karachi, Pakistan, incorporating the terms and conditions enumerated in the letter. On 12 November 1954 the terms and conditions of the charter party regarding the rate and payment of freight were amended by the parties in Hongkong. On 4 November 1954 Juan A. Magsino, in behalf of Overseas Factors entered into an agreement with Abdulaye A. Badat, sole proprietor of Ivlom Corporation, in Karachi, Pakistan, whereby the said corporation undertook to supply the Overseas Factors, with 5,000 metric tons of Kangni rice of the quality and specifications enumerated in PNB Letter of Credit 62655. Badruddin H. Mavani undertook to supply the Overseas Factors with the needed Joshi rice. On 5 November 1954 the Overseas Factors and Gertrudes Carlos, co-financier of the former in its contract with the NARIC to supply it with the needed rice, jointly and severally applied to the South Sea Surety & Insurance Co., Inc. to act as surety upon a bond demanded by the South Sea Shipping in the amount of P315,000 to guarantee the payment by the charterers in Hongkong of the freight, demurrage, dead freight and other losses that might arise. On the same date, 5 November 1954, the Overseas Factors, as principal, and Carlos, as co-principal, and the South Sea Surety, as surety, executed a performance bond in the amount of P315,000 in favor of the South Sea Shipping to guarantee the full payment by the charterers at Hongkong of all freight, demurrage, dead freight and other losses that might arise, within 14 days from the date of departure of the vessel from Karachi, Pakistan. From 16 to 23 November 1954, 2,567.6053 metric tons gross of Joshi rice and from 20 to 25 November 1954, 5,054.0662 metric tons gross of Kangni rice or a total of 7,621.6715 metric tons of rice were loaded on board the SS Ocean Trader in Karachi, Pakistan. On 25 and 29 November the bills of lading covering the said shipments of rice duly signed by the shipper’s agent were issued in the name of the PNB, Manila, as consignee. It appears in the two bills of lading that the party to be notified upon arrival in Manila was the NARIC. On 25 November 1954 the SS Ocean Trader sailed from Karachi, Pakistan and arrived in Manila on 18 December 1954. The captain and crew members of the SS Ocean Trader refused to unload the cargo of rice unless the balance of the freight and other charges due were paid by the charterers.

An action was brought on 29 December 1954 in the Court of First Instance of Manila praying the Court to direct the captain and the crew of SS Ocean Trader to convert the amount in rupees paid by Overseas Factors and Carlos in Karachi, Pakistan, into British sterling pounds, computed at the legal rate of exchange as allowed by the Government of Pakistan; to deliver to Overseas Factors and Carlos the bills of lading of the cargo of rice; to permit the unloading by Overseas Factors and Carlos of the cargo of rice from the SS Ocean Trader pending trial of the case; to desist or refrain from interfering with such unloading upon the filing of an additional surety bond, if necessary, in an amount that the Court may fix to answer for damages that South Sea Shipping, A. Magsaysay, and the captain and crew of SS Ocean Trader may suffer as a result of such injunction, and to pay the costs; and the Collector of Customs to see to it that the cargo of rice from the SS Ocean Trader be unloaded. Overseas Factors and Carlos also prayed that the demurrages sought to be collected by South Sea Shipping, et. al. be computed at the rate L300 and not at L700 a day; and for other just and equitable relief (civil 24972). South Sea Shipping, et. al. answered the complaint and set up a counterclaim of P316,364.38 for freightage, demurrage, charges for detention and other expenses of the vessel while on detention. Overseas Factors and Carlos controverted South Sea Shipping, et. al.’s counterclaim. The NARIC filed a complaint in intervention to protect its interest and the South Sea Surety filed a cross-claim against Overseas Factors. After trial, the Court rendered judgment in favor of Overseas Factors and Carlos and against South Sea Shipping; holding therein that (1) the total amount of 369,000 Pakistan rupees received by S. M. Yeung was in full payment of the transportation of the rice in question from Karachi to Manila, and that the delay in the unloading of such rice in Manila was not due to Overseas Shipping and Carlos’ fault; and (2) the claim for lien on the shipment of rice has no legal basis for the reason that the freight had already been paid in Karachi, Pakistan, before such shipment arrived in Manila. The Court ordered the cancellation of the injunction bond filed by Overseas Factors and Carlos as well as the performance bond executed to guaranty the payment of freight. The Court dismissed the complaint with respect to A. Magsaysay, Inc., the Captain and the Crew of the S.S. Ocean Trader, and the Collector of Customs of Manila, it appearing that they have nothing to do with the controversy between Overseas Factors and South Sea Shipping. The Court dismissed the counterclaim, and ordered South Sea Shipping to pay the costs. South Sea Shipping and A. Magsaysay appealed.

The Supreme Court modified the judgment appealed by ordering Overseas Factors and Carlos to pay South Sea Shipping the sums of P203,449.57, the balance of the freightage still unpaid, P6,720 as demurrage in loading the cargo and P6,720 as demurrage for detention of the vessel, without prejudice to any amount sought to be collected for demurrage which is to be submitted to arbitration in London, against which the equivalent amount in Philippine currency of the sum of L12,838-0-6d or Rs119,221-5-0 as above stated is set off; and holding that South Sea Shipping did not lose its lien on the cargo of rice, without pronouncement as to costs. The Court dismissed the complaint and the complaint in intervention as to the other defendant appellants, and the counterclaim against South Sea Surety, and the latter’s cross-claim.

1.    Principal terms and conditions of the charter party
In the letter written by S. M. Yeung, authorized representative of the appellant shipping company, to José W. Diokno, authorized representative of the appellees, on 30 October 1954 in Karachi, Pakistan, summing up the principal terms and conditions of the charter party agreed upon by them, it appears that they have agreed, among others, as follows: (1) FREIGHT: Sterling one hundred shillings (100) per metric ton gross weight, F10 and free stowed; (2) PAYMENT OF FREIGHT: Charterers to pay full freight to the Owners at Hongkong in British Pound Sterling upon  signing of bill or bills of lading, ship lost or not lost; (3) PERFORMANCE BOND    : Charterers to arrange a performance bond in Hongkong satisfactory to the Owners at Hongkong, latest before noon on the 1st November 1954 to guarantee the due performance of this charter and full payment of all freight at Hongkong within 14 days from date of vessel’s departure from Karachi. Charter Party Form (as adopted 1922).

2.    Terms of contract of 30 October 1954
On 30 October 1954, the parties executed in Karachi, Pakistan, a formal contract of charter party in a printed form of the uniform general charter adopted by the documentary committee of the Chamber of Shipping of the United Kingdom, as revised in 1922. Chung Kien Tieng signed in behalf of the appellees and Yeung Siu Man in behalf of the appellant shipping company. The pertinent terms of the contract are: (1) Rate of Freight: Sterling One hundred Shillings (100/-) per metric ton, free in, free out and free stowed; (2) Payment of Freight: The freight to be paid in case without discount on signing bills of lading in British Pound Sterling transferable to the Owners at Hongkong within fourteen (14) days from the date of the vessel’s departure from Karachi.

3.    Amendment clauses
On 12 November 1954 the two clauses were amended by adding the following to the first clause, “or according to Owners’ option of Forty Two Pesos (Pesos 42.-) per metric tons, free in, free out and free stowed”; and the following to the second clause: “or according to Owners’ option of payment at Manila at the rate stated in clause No. 1.”

4.    Stipulation in performance bond
In the performance bond executed and signed by Overseas Factors and Carlos in favor of South Sea Shipping and South Sea Surety, it was stipulated that “the condition of this bond is such that if the Principal and co- Principal shall well and duly comply with the conditions and stipulations enumerated in the above mentioned agreement charter and contract of charter party as well as pay all freight at Hongkong within 14 days from the date of vessel’s departure from Karachi, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.”

5.    Amount paid, amount due to shipping company
According South Sea Shipping, the amount due from Overseas Factors and Carlos as freightage of the 7,621.6715 metric tons of rice at 100 shillings per metric ton was £38,108-7-1d and that the latter had paid it only £13,888-17-9d, as acknowledged by Yeung in a letter to Magsino, agent of Overseas Factors. However, South Sea Shipping denied having received the sum of £12,838-0-6d from Overseas Factors and Carlos and claim that the sum of 119,221-5-0 Pakistani rupees that Yeung received from Mavani could not be credited as part payment of the freight. By the evidence presented, the sum of £12,838-0-6d (in British Pound Sterling) due for freight on the Joshi rice shipped on board the SS Ocean Trader has not yet been paid to South Sea Shipping by Overseas Factors and Carlos in accordance with their contract. Moreover, payment of the sum of 119,221-5-0 Pakistani rupees to Yeung made by Mavani in check was held by Kazi & Kazi merely for the account of Overseas Factors and Carlos pending Government approval for transfer to the Office of South Sea Shipping in Hongkong.

6.    South Sea Shipping’s option to demand payment in British pounds or in Philippine currency
Under the charter party, South Sea Shipping has the option to demand payment of the freight in British pounds sterling payable in Hongkong at the rate of 100 shillings per metric ton or P42, Philippine currency, per metric ton. The amount due as freightage for 7,621.6715 metric tons of rice computed at P42, Philippine currency, per metric ton, is P320,110.20. Deducting therefrom the sum of L13,888.17-9d or P116,660.62, computed at P8.40 to £1 or P42 to £5 per metric ton, there is still due South Sea Shipping the sum of P203,449.57, Philippine currency.

7.    Clause 5 of the charter party
Clause 5 of the charter party provides “Cargo to be brought alongside in such a manner as to enable vessel to take the goods with her own tackle and to load the full cargo in nine (9) running days free of expense to the vessel. Charterers to procure and pay the necessary men on shore or on board the lighters to do the work there, vessel only heaving the cargo on board. Any pieces and/or packages of cargo over two tons weight, shall be loaded, stowed and discharged by Charterers at their risk and expense. Time shall commence at 1 p.m. on the 30th October 1954. Time lost in waiting for berth to count as loading time.”

8.    Clause 7 of the charter party
Clause 7 of the charter party provides “Four running days on demurrage at the rate of L300. — Sterling per day or pro rata for any part of a day, payable day by day, at Hongkong to be allowed Merchants altogether at ports of loading and discharging, L100. — per day for despatch.”

9.    Clause 11 of the charter party
Clause 11 of the charter party provides “    Should the cargo not be brought alongside to load (whether in berth or not) on or before the 8th Nov. 1954. Owners have the option of cancelling this contract.”

10.    Clause 20 of the charter party
Clause 20 of the charter party provides “Any dispute arising under this charter to be referred to arbitration in London, one Arbitrator to be nominated by the Owners and the other by the Charterers, and in case the Arbitrators shall not agree then to the decision of an Umpire to be appointed by them, the Award of the Arbitrators or the Umpire to be final and binding upon both parties.”

11.    Overseas Factors and Carlos cannot be charged for demurrage on remaining 13 days of delay
Overseas Factors and Carlos cannot be charged with L-700 a day for demurrage on the remaining 13 days of delay because they are only answerable for that much “for all detention charges” “if the ship is so detained after loading of the cargo.” The departure of the vessel was not delayed after the cargo was finally loaded. As a matter of fact it sailed for Manila on 25 November 1954 after it was loaded.

12.    Clause 5 of the charter party
Clause 6 of the charter party provides “Cargo to be received by Merchants at their risk and expense alongside the vessel not beyond the reach of her tackle and to be discharged in seven (7) running days, free of expenses to the vessel. Time to commence at 1 p.m. if notice of readiness to discharge is given before noon, and at 6 a.m. next working day if notice given during office hours after noon. Time lost in waiting for berth to count as discharging time.”

13.    South Sea Shipping entitled 4 running days on demurrage for detention; Demurrage for remaining detention subject to arbitration in London
Because of the refusal of Overseas Factors and Carlos to pay the balance of the freight and other charges, the captain and crew of the vessel refused to unload the cargo and the vessel was placed under detention from 1:00 p.m. of 27 December 1954 to 6:00 a.m. of 5 January 1955. During that time the cargo was unloaded pursuant to the order of the Court and deposited in the warehouse of the NARIC. The unloading was finished at 6:00 a.m. of 5 January 1955 resulting in 8 days and 17 hours of detention. Under clause 7 of the charter party, South Sea Shipping is entitled to collect from Overseas Factors and Carlos 4 running days on demurrage for detention at the rate of L300 or a total of L1,200. Computed at the rate of exchange prevailing in January 1955, which is P5.60 to L1, South Sea Shipping should be paid the sum of P6,720, Philippine currency. The demurrage for the remaining detention of 4 days and 17 hours and other charges claimed by South Sea Shipping are subject to arbitration in London pursuant to clause 20 of the charter party.

14.    Article 665 of Code of Commerce, NARIC vs. Macadaeg
As held in the case of National Rice and Corn Corporation vs. Macadaeg, the fact that the freight was already included in the purchase price paid by it to the appellees did not free the cargo of rice from the carrier’s lien provided for in article 665 of the Code of Commerce, if the freight has not yet been fully paid by the charterer.

15.    Clause 8 of Charter party
Clause 8 of the charter party provides: “Owners shall have a lien on the cargo for freight, dead-freight, demurrage and damages for detention. Charterers shall remain responsible for dead-freight and demurrage (including damages for detention), incurred at port of loading. Charterers shall also remain responsible for freight and demurrage (including damages for detention) incurred at port of discharge, but only to such extent as the Owners have been unable to obtain payment thereof by exercising the lien on the cargo.”

16.    Clause requiring charterer to file a performance bond in favor of shipowners not a waiver of shipowner’s or carrier’s lien on cargo
The last part of the letter, which says: “This agreement is subject to the arrangement of the performance bond being computed before the time as specified above. Two copies of the formal Charter Party shall be signed immediately upon confirmation of the performance bond being established at the stipulated bank,” shows that the letter was written before the formal contract of charter party was executed by the parties. Hence it cannot be said that the shipowners waived their lien provided for in the formal contract of charter party.

17.    Surety’s obligation in performance bond extinguished by novation
The addendum of the charter party contract executed by the parties on 12 November 1954 in Hongkong varying the clauses on the rate and payment of freight without the consent of the surety was a novation of the contract. For that reason the surety’s obligation in the performance bond was extinguished.

18.    Amount paid by Mayani to be set off against sum due to shipowner for freight or demurrage
The sum of Rs119,221-5-0 equivalent to £12,838-0-6d paid by Badruddin H. Mavani for the account of Overseas Factors and Carlos to pay the freight of 2,567.6053 metric tons gross of Joshi rice and received by S. M. Yeung as agent or representative of South Sea Shipping should be set off against the sum due the latter for freight and demurrages, at the official rate of exchange in Karachi, Pakistan, on the day of receipt thereof by the agent of South Sea Shipping, for aside from the fact that the latter should not be allowed to enrich itself at the expense of Overseas Factors and Carlos, the forfeiture of the amount to be deposited with the Chartered Bank of India, Australia and China in Karachi to the credit of South Sea Shipping, offered by Magsino, the agent of Overseas Factors and Carlos, to pay the freight of the cargo of rice was not accepted by S. M. Yeung, the agent of the shipowners.

19.    Legal rate of interest for difference; Reckoning period
The difference after the set off in favor of any party shall bear the legal rate of interest, to wit: if in favor of Overseas Factors and Carlos, from the date of receipt of the amount in Karachi, Pakistan, by the agent of South Sea Shipping; or, if in favor of South Sea Shipping, from the date of the filing of its counterclaim for the amount of freight and demurrages.

Marimperio Compania Naviera vs. CA (GR L-40234, 14 December 1987)
First Division, Paras (J): 4 concur

Facts: In 1964 Philin Traders Corporation and Union Import and Export Corporation entered into a joint business venture for the purchase of copra from Indonesia for sale in Europe. James Liu, President and General Manager of the Union took charge of the European market and the chartering of a vessel to take the copra to Europe. Peter Yap of Philin on the other hand, found one P.T. Karkam in Dumai, Sumatra who had around 4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found the vessel “SS Paxoi” of Marimperio Compañia Naviera, S.A. available. Philin and Union authorized Toeg to negotiate for its charter but with instructions to keep confidential the fact that they are the real charterers. Consequently on 21 March 1965, in London England, a “Uniform Time Charter” for the hire of vessel “Paxoi” was entered into by the owner, Marimperio through its agents N. & J. Vlassopulos, Ltd. and Matthews Wrightson, Burbridge, Ltd. (Matthews), representing Interocean Shipping Corporation, which was made to appear as charterer, although it merely acted in behalf of the real charterers.  In view of the Charter, on 30 March 1965 plaintiff Charterer cabled a firm offer to P.T. Karkam to buy the 4,000 tons of copra for U.S. $180.00 per ton, the same to be loaded either in April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable letters of Credit in favor of P.T. Karkam. On March 29, 1965, the Charterer was notified by letter by Vlassopulos through Matthews that the vessel “PAXOI” had sailed from Hsinkang at noontime on 27 March 1965 and that it had left on hire at that time and date under the Uniform Time-Charter. The Charterer was however twice in default in its payments which were supposed to have been done in advance. The first 15-day hire comprising the period from March 27 to April 11, 1965 was paid despite follow-ups only on 6 April 1965 and the second 15-day hire for the period from April 12 to April 27, 1965 was paid also despite follow-ups only on 26 April 1965. On 14 April 1965 upon representation of Toeg, the Esso Standard Oil (Hongkong) Company supplied the vessel with 400 tons of bunker oil at a cost of US $6,982.73. Although the late payments for the charter of the vessel were received and acknowledged by Vlassopulos without comment or protest, said agent notified Matthews, by telex on 23 April 1965 that the shipowners in accordance with Clause 6 of the Charter Party were withdrawing the vessel from Charterer’s service and holding said Charterer responsible for unpaid hirings and all legal claims. On 29 April 1965, the shipowners entered into another charter agreement with another Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which was around 3 May 1965 for a trip via Indonesia to Antwep/Hamburg at an increased charter cost. Meanwhile, the original Charterer again remitted on 30 April 1965, the amount corresponding to the 3rd 15-day hire of the vessel PAXOI, but this time the remittance was refused.

On 3 May 1965, Union and Philin filed a complaint with the Court of First Instance of Manila, Branch VIII, against the Unknown Owners of the Vessel “SS Paxoi”, for specific performance with prayer for preliminary attachment. Union and Philin obtained a writ of preliminary attachment of vessel “PAXOI” which was anchored at Davao on 5 May 1969, upon the filing of the corresponding bond of P1,663,030.00. On 11 May 1965, the complaint was amended to identify the defendant as Marimperio Compañia Naviera S.A. However, the attachment was lifted on 15 May 1969 upon Marimperio’s motion and filing of a counterbond for P1,663,030. On 16 March 1966, Interocean Shipping Corporation filed a complaint-in-intervention to collect what it claims to be its loss of income by way of commission and expenses in the amount of P15,000.00 and the sum of P2,000.00 for attorney’s fees. On 22 November 1969 the CFI of Manila rendered its decision in favor of Marimperio, and against Union and Philin, dismissing the amended complaint, and ordering the latter on the counterclaim to pay Marimperio, jointly and severally, the amount of L8,011.38 or its equivalent in Philippine currency of P76,303.40, at the exchange rate of P9.40 to 1 for the unearned charter hire due to the attachment of the vessel “PAXOI” in Davao, plus premiums paid on the counterbond as of 22 April 1968 plus the telex and cable charges and the sum of P10,000.00 as attorney’s fees and costs. The trial court dismissed the complaint-in-intervention, ordering Interocean to pay Marimperio the sum of P10,000.00 as attorney’s fees, and the costs. Union and Philin filed a Motion for Reconsideration and/or new trial of the decision of the trial court on 23 December 1969. Interocean filed its motion for reconsideration and/or new trial on 7 January 1970. Acting on the two motions for reconsideration, the trial court reversed its stand in its amended decision dated 24 January 1978.  The Court rendered judgment for Union, Philin and Interocean, and ordered Marimperio to pay the former the sum of (1) US$22,500.00 representing the remittance of Union and Philin to Marimperio for the first 15-day hire of the vessel ‘SS PAXOI’, including overtime and an overpayment of US$254.00; (2) US$16,000.00 corresponding to the remittance of Union and Philin to Marimperio for the second 15-day hire of the vessel; (3) US$6,982.72 representing the cost of bunker oil, survey and watering of the said vessel; (4) US$220,000.00 representing the unrealized profits; and (5) P100,000.00, as and for attorney’s fees. The Court further ordered Marimperio to pay Interocean the amount of P15,450.44, representing the latter’s commission as broker, with interest thereon at 6% per annum from the date of the filing of the complaint-in-intervention, until fully paid, plus the sum of P2,000.00 as attorney’s fees, and to pay the costs. The Court ordered the dismissal of the counterclaims filed by Marimperio against Union, Philin and Interocean, as well as its motion for the award of damages in connection with the issuance of the writ of preliminary attachment. Marimperio, filed a motion for reconsideration and/or new trial of the amended decision on 19 February 1970. Meanwhile a new Judge was assigned to the Trial Court. On 10 September 1970 the trial court issued its order of 10 September 1970  denying Marimperio’s motion for reconsideration.

On Appeal, the Court of Appeals affirmed the amended decision of the lower court except the portion granting commission to Interocean, which it reversed thereby dismissing the complaint-in-intervention. Its two motions (1) for reconsideration and/or new trial and (2) for new trial having been denied by the Court of Appeals in its Resolution of 17 February 1975 which, however, fixed the amount of attorney’s fees at P100,000.00 instead of $100,000.00, Marimperio filed with the Supreme Court its petition for review on certiorari on 19 March 1975.

The Supreme Court reversed and set aside the decision of the Court of Appeals affirming the amended decision of the CFI of Manila; except for that portion of the decision dismissing the complaint-in-intervention; and reinstated the original decision of the trial court.

1.    Article 1311 NCC; To whom contract binding
According to Article 1311 of the Civil Code, a contract takes effect between the parties who made it, and also their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Since a contract may be violated only by the parties, thereto as against each other, in an action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said contract. Therefore, a party who has not taken part in it cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby.

2.    Charter party entered between Marimperio and Interocean; Interocean sublet vessel to Union, who in turn sublet the same to Philin
The charter party was entered into between Marimperio, through its duly authorized agent in London, the N & J Vlassopulos, Ltd., and Interocean through the latter’s duly authorized broker, the Overseas Steamship Co., Inc., represented by Matthews, Wrightson Burbridge Ltd., for the Charter of the “SS PAXOI.” Interocean sublet the said vessel to Union which in turn sublet the same to Philin. It is admitted by Union and Philin that the charterer is Interocean Even paragraph 3 of the complaint-in-intervention alleges that Union and Philin were given the use of the vessel “pursuant to paragraph 20 of the Uniform Time Charter” which precisely provides for the subletting of the vessel by the charterer.

3.    Article 652 of the Code of Commerce
Article 652 of the Code of Commerce provides that the charter party shall contain, among others, the name, surname, and domicile of the charterer, and if he states that he is acting by commission, that of the person for whose account he makes the contract. It is obvious from the disclosure made in the charter party by the authorized broker, the Overseas Steamship, that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union which in turn sublet it to Philin).

4.    Nature of sub-lease; Personality of lessee does not disappear in contract of sublease
In a sub-lease, there are two leases and two distinct judicial relations although intimately connected and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and the assignee who is converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438).

5.    Instances where lessor allowed to bring action directly against sublessee (not vice versa)
There are at least two instances in the Civil Code which allow the lessor to bring an action directly (accion directa) against the sub-lessee (use and preservation of the premises under Article 1651, and rentals under Article 1652). In Articles 1651 and 1652, it is not the sub-lessee, but the lessor, who can bring the action. Herein, it is clear that the sub-lessee as such cannot maintain the suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil. 916).

6.    Article 1651 NCC
Article 1651 reads “Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee.”

7.    Article 1652 NCC
Article 1652 reads: “The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sub-lessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sub-lease, at the time of the extra-judicial demand by the lessor. Payments of rent in advance by the sub-lessee shall be deemed not to have been made, so far as the lessor’s claim is concerned, unless said payments were effected in virtue of the custom of the place.”

8.    Agency with an undisclosed principal, Article 1883 NCC
In the law of agency “with an undisclosed principal, the Civil Code in Article 1883 reads: “If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent.”

9.    Union and Philin not allowed to bring action against adverse party
The true charterers of the vessel were Union and Philin and they chartered the vessel through an intermediary which upon instructions from them did not disclose their names. Article 1883 cannot help Union and Philin, because although they were the actual principals in the charter of the vessel, the law does not allow them to bring any action against the adverse party and vice-versa.

10.    Default of charterer in payment gives shipowner right to rescind charter party extrajudicially
The default of charterer in the payment of the charter hire within the time agreed upon gives Marimperio a right to rescind the charter party extrajudicially. Clause 6 of the Charter party specifically provides that Marimperio has the right to withdraw the vessel from the service of the charterers, without noting any protest and without interference of any court or any formality in the event that the charterer defaults in the payment of hire. The payment of hire was to be made every 15 days in advance. Herein, as of 23 April 1965, when Vlassopulos notified Matthews of the withdrawal of the vessel from the Charterers’ service, the latter was already in default. Accordingly, under Clause 6 of the charter party the owners had the right to withdraw “SS PAXOI” from the service of charterers, which withdrawal they did.

11.    Contract the law between contracting parties; When contract provides for revocation
A contract is the law between the contracting parties, and when there is nothing in it which is contrary to law, morals, good customs, public policy or public order, the validity of the contract must be sustained. A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions.

Yu Con vs. Ipil (GR 10195, 29 December 1916)
En Banc, Araullo (J): 4 concur

Facts: Yu Con, a merchant and a resident of the town of San Nicolas, of the city of Cebu, engaged in the sale of cloth and domestic articles and having a share in a shop, or small store, situated in the town of Catmon, of said province, had several times chartered from Narciso Lauron, a banca named Maria belonging to the latter, of which Glicerio Ipil was master and Justo Solamo, supercargo, for the transportation of certain merchandise and some money to and from the said town and the port of Cebu. On 17 October, 1911 Yu Con chartered the said banca from Lauron for the transportation of various merchandise from the port of Cebu to Catmon, at the price of P45 for the round trip, which merchandise was loaded on board the said craft which was then at anchor in front of one of the graded fills of the wharf of said port. In the afternoon of the following day, he delivered to the other two defendants, Ipil, and Solamo, master and supercargo, respectively, of the banca, the sum of P450, which was in a trunk belonging to Yu Con and was taken charge of by Ipil and Solamo, who received this money from Yu Con, for the purpose of its delivery to the latter’s shop in Catmon for the purchase of corn in this town. While the money was still in said trunk aboard the vessel, on the night of 18 October, the time scheduled for the departure of the Maria from the port of Cebu, said master and said supercargo transferred the P450 from Yu Con’s trunk, where it was, to theirs, which was in a stateroom of the banca, from which stateroom both the trunk and the money disappeared during that same night, and that the investigations, made to ascertain their whereabouts, produced no result.

Yu Con brought action to enable him to recover from Ipil, Lauron, and Solamo in solidum the sum of P450 lost. Yu Conbased his action on the charge that the disappearance of said sum was due to the abandonment, negligence, or voluntary breach, on the part of the defendants, of the duty they had in respect to the safe-keeping of said sum.

At the termination of the trial, the court, held that the sole cause of the disappearance of the money from the said banca was the negligence of the master and the supercargo, Ipil and Solamo, respectively, and that Lauron was responsible for that negligence, as owner of the banca, pursuant to articles 586, 587, and 618 of the Code of Commerce, Yu Con therefore being entitled to recover the amount lost. Judgment was rendered on 20 April 1914, in favor of Yu Con and against Ipil, et. al. jointly and severally for the sum of P450, with interest thereon at the rate of 6% per annum from the date of filing of the complaint, 24 October 1911, with costs. Yu Con was absolved from the counterclaim. From this judgment Ipil, et. al. excepted and at the same time moved for a new trial. Their motion was denied, to which ruling they also excepted, and, through the proper bill of exceptions, entered an appeal to the Supreme Court.

The Supreme Court affirmed the judgment appealed from, with the costs of this instance against Ipil, et. al.

1.    Master and supercargo gave no satisfactory explanation in regard disappearance of trunk and money
The master and the supercargo, gave no satisfactory explanation in regard to the disappearance of the trunk and the money therein contained, from the stateroom in which the trunk was, nor as to who stole or might have stolen it. The master and the supercargo of the banca merely testified that they did not know who the robbers were, for, when the robbery was committed, they were sound asleep, as they were tired, and that he believed that the guard Simeon also fell asleep because he, too, was tired. Both of them testified that the small window of the stateroom had been broken, and the first of them, i. e., the master, stated that all the window-blinds had been removed from the windows, as well as part of the partition in which they were and that the trunk in which the money was contained could have been passed through said small window, because the Chinaman’s trunk, which differed but a little from the one stolen, could be passed through the same opening. However, no evidence whatever was offered to prove that it might have been possible to remove the trunk from the stateroom through the opening made by the breaking of the small window, neither was the size of the trunk proven, so that it might be verified whether the statement made by the latter was true, viz., that it might have been possible to remove from the stateroom through said opening the trunk in which the P450 were contained, which sum, the same as the trunk, its container, had not been found, in spite of the investigation made for the purpose. Furthermore, it was not proven, nor is there any circumstantial evidence to show, that the robbery in question was committed by persons not belonging to the craft.

2.    Loss occurred through manifest fault and negligence of Ipil, et. al.; No force majeure
The loss or disappearance of the property of Yu Con, which, were in the possession of Ipil and Solamo, the master and the supercargo of the banca Maria, occurred through the manifest fault and negligence of the latter, for, not only did they fail to take the necessary precautions in order that the stateroom containing the trunk in which they kept the money should be properly guarded by members of the crew and put in such condition that it would be impossible to steal the trunk from it or that persons not belonging to the vessel might force an entrance into the stateroom from the outside, but also they did not expressly station some person inside the stateroom for the guarding and safe-keeping of the trunk, for it was not proven that the cabin-boy Gabriel slept there, nor that the other cabin-boy, Simeon Solamo, was on guard that night. On the contrary, it was proven that all the people on the vessel slept soundly that night; which fact cannot, in any manner, serve them as an excuse, nor can it be accepted as an explanation of the statement that they were not aware of what was then occurring on board. If the trunk was actually stolen by outsiders and removed through the small window of the stateroom, a detail which also was not proven, but, on the contrary, increases their liability, because it is very strange that none of them who were six and were around or near the stateroom, should have heard the noise which the robbers must have made in breaking its window. All of these circumstances, together with that of its having been impossible to know who took the trunk and the money and the failure to recover the one or the other, make the conduct of master and supercargo and of the other members of the crew of the banca, eminently suspicious and prevent the Court holding that the disappearance or loss of the money was due to a fortuitous event, to force majeure, or that it was an occurrence which could not have been foreseen, or which, if foreseen, was inevitable.

3.    Manresa; Liability of Carriers
Manresa, in his Commentaries on the Civil Code (Vol. 10 p. 773), in treating of the provisions of the said code concerning transportation by sea and by land of both persons and things, says ‘’Liability of carriers. — In order that a thing may be transported, it must be delivered to the carrier, as the Code says. From the time it is delivered to the carrier or shipper until it is received by the consignee, the carrier has it in his possession, as a necessary condition for its transportation, and is obliged to preserve and guard it; wherefore it is but natural and logical that he should be responsible for it. The Code discovers in the relation of all these elements the factors which go to make up the conception of a trust. and, taking into account that the delivery of the thing on the part of the shipper is unavoidable, if the transportation is to take place, esteems that, at least in certain respects, such trusts are necessary.”

4.    Ipil and Solamo depositories, are liable under Article 1770, and Articles 1601 and 1602 in relation to Articles 1783 and 1784
Ipil and Solamo, being the depositaries of the sum in question, and they having failed to exercise for its safe-keeping the diligence required by the nature of the obligation assumed by them and by the circumstances of the time and the place, in pursuance of the provisions of articles 1601 and 1602, in their relation to articles 1783 and 1784, and as prescribed in article 1770, of the Civil Code, they are liable for its loss or misplacement and must restore it to Yu Con, together with the corresponding interest thereon as an indemnity for the losses and damages caused him through the loss of the said sum.

5.    Lauron has responsibility as to selection and supervision of Ipil and Solamo; Lauron party to contract with Yu Con
Narciso Lauron was the owner of the vessel in which the loss or misplacement of the P450 occurred, of which vessel, Glicerio Ipil was master and Justo Solamo, supercargo, both of whom were appointed to, or chosen for, the positions they held, by Lauron himself. The sum was delivered to the said master, Ipil, and the merchandise to be transported by means of said vessel from the port of Cebu to the town of Catmon was laden by virtue of a contract executed by and between Yucon and the owner of the vessel, Narciso Lauron. Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the port of Cebu to Catmon, and had been equipped and victualed for this purpose by its owner, with whom, Yu Con contracted for the transportation of the merchandise which was to be carried from the port of Cebu to the town of Catmon.

6.    Vessel construed; Reus
The word vessel serves to designate every kind of craft by whatever particular or technical name it may now be known or which nautical advancements may give it in the future. (Commentaries on the Code of Commerce, in the General Review of Legislation and Jurisprudence, founded by D. Jose Reus y Garcia, Vol. 2, p. 136.)

7.    Vessel construed; Escriche
According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of craft, considering solely the hull.

8.    Ship and Vessel construed; Blanco
Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the words “ship” and “vessels,” says, in his work, that these terms designate every kind of craft, large or small, whether belonging to the merchant marine or to the navy. And referring to their juridical meaning, he adds: “This does not differ essentially from the grammatical meaning; the words ’ship’ and ‘vessel’ also designate every craft, large or small, so long as it be not an accessory of another, such as the small boat of a vessel, of greater or less tonnage. This definition comprises both the craft intended for ocean or for coastwise navigation, as well as the floating docks, mud lighters, dredges, dumpscows or any other floating apparatus used in the service of an industry or in that of maritime commerce. . . .” (Vol. 1, p. 389.)

9.    Banca in present case a vessel
According to the definitions, the banca called Maria, chartered by Yu Con from Narciso Lauron, was a “vessel”, pursuant to the meaning this word has in mercantile law, that is, in accordance with the provisions of the Code of Commerce in force.

10.    Ipil is also considered as captain; Article 609
Glicerio Ipil, the master of the said banca, Maria, must also be considered as its captain, in the legal acceptation of this word. The same Code of Commerce in force in these Islands compares, in its article 609, masters with captains. It is to be noted that in the Code of Commerce of Spain the denomination of arraeces is not included in said article as equivalent to that of masters, as it is in the Code of these Islands.

11.    Article 609; General Review of Legislation and Jurisprudence
Commenting on Article 609, the General Review of Legislation and Jurisprudence says: “The name of captain or master is given, according to the kind of vessel, to the person in charge of it. The first denomination is applied to those who govern vessels that navigate the high seas or ships of large dimensions and importance, although they be engaged in the coastwise trade. Masters are those who command smaller ships engaged exclusively in the coastwise trade. For the purposes of maritime commerce, the words ‘captain’ and ‘master’ have the same meaning; both being the chiefs or commanders of ships.” (Vol. 2, p. 168.)

12.    Article 587 of the Code of Commerce
Article 587 of the Code of Commerce in force provides that “The agent shall be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself herefrom by abandoning the vessel with all her equipments and the freight he may have earned during the trip.”

13.    Article 618 of the Code of Commerce
Article 618 of the same Code also prescribes that “The captain shall be civilly liable to the agent and the latter to the third persons who may have made contracts with the former — (1) For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence on his part, If a misdemeanor or crime has been committed he shall be liable in accordance with the Penal Code. (2) For all the thefts committed by the crew, reserving his right of action against the guilty parties.”

14.    Article 624 of the 1829 Code of Commerce
The Code of Commerce previous to the one now in force, to wit, that of 1829, in its article 624, provided that the agent or shipowner should not be liable for any excesses which, during the navigation, might be committed by the captain and crew, and that, for the reason of such excesses it was only proper to bring action against the persons and property of those found guilty.

15.    Reasons for fundamental difference between provisions of old and new Code of Commerce; Estasen
Estasen, in his work on the Institutes of Mercantile Law (Vol. 4, p. 280), makes the remarks, in referring to the exposition of reasons presented by the Code Commission which prepared and presented for approval the Code of Commerce now in force, in which exposition of reasons were set forth the fundamental differences between the provisions contained in both codes. He says: “Another very important innovation introduced by the Code is that relative to the liability for misdemeanors and crimes committed by the captain or by members of the crew This is a matter of the greatest importance on which a variety of opinions has been expressed by different juris-consults. The old code declares the captain civilly liable for all damage sustained by the vessel or its cargo through lack of skill or care on his part, through violations of the law, or through unlawful acts committed by the crew. As regards the agent or shipowner, it declares in unmistakable terms that he shall in no wise be liable for any excesses which, during the navigation, may be committed by the captain and the crew. Upon an examination, in the light of the principles of modern law, of the standing legal doctrine on the nonliability of the shipowner for the unlawful acts, that is, the crimes or quasi crimes, committed by the captain and the crew, it is observed that it cannot by maintained in the absolute and categorical terms in which it is formulated. It is well and good that the shipowner be not held criminally liable for such crimes or quasi crimes; but he cannot be excused from liability for the damage and harm which, in consequence of those acts, may be suffered by the third parties who contracted with the captain, in his double capacity of agent and subordinate of the shipowner himself. In maritime commerce, the shippers and passengers in making contracts with the captain do so through the confidence they have in the shipowner who appointed him; they presume that the owner made a most careful investigation before appointing him, and, above all, they themselves are unable to make such an investigation, and even though they should do so, they could not obtain complete security, inasmuch as the shipowner can, whenever he sees fit, appoint another captain instead. The shipowner is in the same case with respect to the members of the crew, for, though he does not appoint directly, yet, expressly or tacitly, he contributes to their appointment. On the other hand, if the shipowner derives profits from the results of the choice of the captain and the crew, when the choice turns out successful, it is also just that he should suffer the consequences of an unsuccessful appointment, by application of the rule of natural law contained in the Partidas, viz., that he who enjoys the benefits derived from a thing must likewise suffer the losses that ensue therefrom. Moreover, the Penal Code contains a general principle that resolves the question under consideration, for it declares that such persons as undertake and carry on any industry shall be civilly liable, in default of those who may be criminally liable, for the misdemeanors and crimes committed by their subordinates in the discharge of their duties. The Code of Commerce in force omits the declaration of non-liability contained in the old code, and clearly makes the shipowner liable civilly for the loss suffered by those who contracted with the captain, in consequence of the misdemeanors and crimes committed by the latter or by the members of the crew.”

16.    Lauron civilly liable to Yu Con
In accordance with the provisions of the Code of Commerce in force, Narciso Lauron, as the proprietor and owner of the craft of which Glicerio Ipil was the master and in which, through the fault and negligence of the latter and of the supercargo Justo Solamo, there occurred the loss, theft, or robbery of the P450 that belonged to Yu Con and were delivered to said master and supercargo, a theft which, on the other hand, does not appear to have been committed by a person not belonging to the craft, should, for said loss or theft, be held civilly liable to Yu Con, who executed with Lauron the contract for the transportation of the merchandise and money between the port of Cebu and the town of Catmon, by means of the said craft.

Fisher vs. Yangco Steamship (GR 8085, 5 November 1914)
En Banc, Carson (J): 2 concur, 2 concur in result

Facts: FC Fisher was a stockholder in the Yangco Steamship Company, the owner of a large number of steam vessels, duly licensed to engage in the coastwise trade of the Philippine Islands. On 10 June 1912, the directors of the company adopted a’ resolution which was thereafter ratified and affirmed by the shareholders of the company, “expressly declaring and providing that the classes of merchandise to be carried by the company in its business as a common carrier do not include dynamite, powder or other explosives, and expressly prohibiting the officers, agents and servants of the company from offering to carry, accepting for carriage or carrying said dynamite, powder or other explosives.” Thereafter the Acting Collector of Customs (JS Stanley) demanded and required of the company the acceptance and carriage of such explosives. He has refused and suspended the issuance of the necessary clearance documents of the vessels of the company unless and until the company consents to accept such explosives for carriage. Fisher was advised and believed that should the company decline to accept such explosives for carriage, the Attorney-General of the Philippine Islands (Ignacio Villamor) and the the prosecuting attorney of the city of Manila