G.R. No. 188118 - Federal Phoenix Assurance Co., Ltd. vs. Fortune Sea Carrier, Inc.

Fortune Sea Carrier, Inc. (Fortune Sea) leased its vessel M/V Ricky Rey to Northern Mindanao Transport Co., Inc. (Northern Transport) on March 9, 1994 under a Time Charter Party agreement.
The agreement initially provided for a 90-day lease, which was later extended for an additional 90 days.
The Time Charter Party agreement was agreed to by both parties, allegedly designating the vessel for transporting cement at various ports of destination.

In June 1994, Northern Transport received an order from Manila Hemp Trading Corporation to ship 2,069 bales of abaca fibers, covered by Bill of Lading No. 1, for delivery to Newtech Pulp Inc. in Iligan City.
The shipment was insured by Federal Phoenix Assurance Co., Ltd. (Federal Phoenix).
Upon the vessel’s arrival at the Iligan City port, the stevedores commenced discharging the cargo.
On June 18, 1994, while the vessel was unloading, stevedores noticed smoke from the cargo area, leading to the activation of the fire department which confirmed damage to 60 bales of abaca.

Newtech, having suffered losses due to damaged and undelivered cargo, filed an insurance claim with Federal Phoenix.
After its evaluation, Federal Phoenix paid P162,419.25 to Newtech, subsequently gaining subrogation rights against Fortune Sea.
Multiple demands were made by Federal Phoenix to Fortune Sea for settlement, but these were not met, prompting Federal Phoenix to file a Complaint for Sum of Money against Fortune Sea before the Regional Trial Court (RTC) of Makati City.

The RTC, on May 4, 2006, rendered a Decision in favor of Federal Phoenix, ordering Fortune Sea to pay P260,000.00 as actual damages, attorney’s fees, and cost of suit.
Fortune Sea’s Motion for Reconsideration was denied by the RTC in an Order dated October 26, 2006.
The Court of Appeals (CA), in its Decision dated February 10, 2009, reversed the RTC ruling and set aside the order, dismissing the complaint for lack of merit.
The CA held that although the contract was denominated as a Time Charter Party, the provisions and conduct of the parties indicated that the arrangement was in reality that of a bareboat (demise) charter, effectively converting Fortune Sea into a private carrier.

The Time Charter Party agreement contained specific provisions giving Northern Transport complete operational control over the vessel, including:

Taking possession of the vessel along with its crew.
Assuming responsibility for directing the vessel’s voyages.
Issuing instructions that governed navigation and employment of crew arrangements.

Testimonies, particularly that of Captain Alfredo Canon, confirmed that the charterer (Northern Transport) assumed exclusive control over the vessel and its crew during the charter period.
Despite Fortune Sea’s status as a common carrier, the evidence showed that by entering into the agreement, it had relinquished its control over the navigation and operation of M/V Ricky Rey.

Whether the Time Charter Party agreement, despite its title, effectively constituted a bareboat or demise charter.
Whether the terms and conduct of the parties under the charter transformed Fortune Sea from a common carrier into a private carrier.

Whether Fortune Sea, under the guise of having transferred operational control to Northern Transport, could be held liable for the damages sustained by the insured cargo.
The implications of the charter’s nature on the subrogation rights of Federal Phoenix and its subsequent claim against Fortune Sea.

Whether the intention of the parties, as evidenced by the charter's provisions and subsequent conduct (including testimonies), supports the classification of the arrangement as a bareboat charter.
How the distinction between a common carrier and a private carrier affects the legal responsibilities in cases of cargo damage.