G.R. No. 114167 - Coastwise Lighterage Corp. vs. Court of Appeals

Pag-asa Sales, Inc. contracted with Coastwise Lighterage Corporation to transport molasses from Negros to Manila, utilizing Coastwise’s dumb barges to be towed by its tugboat MT Marica.
During the approach to Pier 18 in Manila Bay, one of the barges, “Coastwise 9”, struck an unknown submerged object, damaging its forward buoyancy compartment with a gash measuring “two inches wide and twenty-two inches long”.
As a result of the damage, water entered the cargo tanks causing contamination; thus, the molasses became unfit for its intended use.
The consignee, Pag-asa Sales, Inc., rejected the shipment as a total loss and subsequently filed a formal claim with its insurer, the Philippine General Insurance Company (PhilGen).

Denial of the claim by Coastwise Lighterage led PhilGen to make the payment of P700,000.00 to Pag-asa Sales, Inc. to cover the loss.
PhilGen then instituted an action against Coastwise Lighterage in the Regional Trial Court (RTC) of Manila to recover the amount paid, additionally claiming subrogation to the consignee’s rights under the contract of carriage.
The RTC ruled in favor of PhilGen, awarding the principal amount plus legal interest from March 29, 1989, attorney’s fees of P100,000.00, and costs incurred in the suit.
Coastwise Lighterage appealed to the Court of Appeals, but the decision of the RTC was affirmed, prompting the present petition for review.

Coastwise Lighterage maintained that the contract with Pag-asa Sales, Inc. was a “charter agreement” which, in certain cases, might transform a common carrier into a private carrier under specific circumstances.
However, the facts revealed that the contract was one of affreightment where only a limited space (three vessels) was leased, while possession, command, and navigation of the vessels remained with Coastwise Lighterage.
The distinction between a demise (or bareboat charter) and a contract of affreightment was crucial in determining the carrier’s status and consequent liabilities.

Whether Coastwise Lighterage, by virtue of the contract of affreightment with Pag-asa Sales, Inc., was transformed into a private carrier or remained a common carrier.
If transformed, whether the carrier exercised the ordinary diligence expected of a private carrier.

Whether Philippine General Insurance Company, upon paying the indemnity of P700,000.00 to the consignee, was subrogated into the rights and claims that Pag-asa Sales, Inc. might have against Coastwise Lighterage.
The application of subrogation principles as set forth in Article 2207 of the Civil Code and supported by relevant case law.