G.R. No. 211687 - Spouses De Vera vs. Catungal

This case is a petition for review on certiorari seeking to annul the Court of Appeals’ Decision dated 15 October 1998 in CA-G.R. CV No. 52661 and its Resolution dated 5 August 1999 denying the motion for reconsideration.
The petition challenges the trial court’s ruling ordering petitioner Santiago Lighterage Corporation to pay respondent Manuel A. Pelaez actual damages, attorney’s fees, and costs, which was based on the finding that the vessel MV Christine Gay was unseaworthy.
The appellate court affirmed the trial court’s decision, thereby prompting the instant petition before this Court.

Respondent C-Square Consolidated Mines initially filed a complaint for damages against Pelaez after entering into a single voyage charter agreement. Pelaez, representing himself as the disponent owner, warranted that MV Christine Gay was seaworthy for a voyage to South Korea.
When the vessel failed to commence the voyage, C-Square sought damages for breach of warranty regarding actual, moral, and exemplary damages, as well as attorney’s fees.
Subsequently, on 24 October 1989, Pelaez filed a third-party complaint against petitioner Santiago Lighterage Corporation for damages arising from a separate bareboat charter agreement. Petitioner's representations about the vessel’s seaworthiness induced Pelaez to enter the bareboat charter agreement, which was later undermined by the vessel’s failure to begin the voyage.

On 26 August 1989, C-Square and Pelaez executed a single voyage charter agreement with a stipulation for automatic rescission if the vessel was found unseaworthy or if necessary permits were lacking.
On 22 August 1989, a bareboat charter agreement was signed by petitioner with Pelaez, based on similar representations of seaworthiness.
On 1 September 1989, MV Christine Gay was turned over by petitioner to Pelaez in Manila, allowing Pelaez the opportunity to inspect the vessel.
Shortly after, while en route from Manila to Masinloc, defects became apparent as crew members observed mechanical issues such as heavy smoke from the engine’s exhaust manifold.
Repairs were attempted at Masinloc, but testimonies later revealed that the repairs were inadequate and numerous structural and mechanical defects remained.

Engineer Simeon Panaguiton, the marine chief engineer, testified regarding severe mechanical defects, such as shortage of spare parts, malfunctioning governors, and temporary fixes that did not remedy the condition.
Captain Beltran Sorongon’s report corroborated these findings by detailing defects in the hull, superstructure, and essential equipment, declaring that the vessel was unseaworthy for a voyage to South Korea.
Additional documentary evidence included a MARINA report and various certificates which, while prima facie evidence, were rebutted by the compelling testimonies on the vessel’s actual condition.

On 22 September 1989, after the engine failure in the middle of the sea, notices and demand letters were exchanged among the parties, including a notice of rescission of the charter agreement served by C-Square and subsequent correspondence from Pelaez’s legal counsel demanding payment for damages and unrealized profit.
On 5 October 1989, Pelaez requested a re-investigation from MARINA, which resulted in a report confirming the vessel was a “dead ship” at the time of inspection.

The trial court ruled that MV Christine Gay was not seaworthy upon delivery and held petitioner liable for damages of P3,133,031.15, attorney’s fees, and costs.
A motion for reconsideration filed by petitioner was denied, and the Court of Appeals subsequently affirmed the trial court’s decision, leading to the current petition for review by Santiago Lighterage Corporation.

Whether the trial court and the Court of Appeals could validly and legally disregard the provisions of the Charter Agreement dated 22 August 1989 between petitioner and respondent Pelaez concerning the requirement that the vessel be seaworthy at the time of delivery.

Whether the mere physical turnover of the vessel constitutes full performance of the owner’s obligation under a bareboat charter agreement.
Whether petitioner’s representations regarding the seaworthiness of MV Christine Gay were binding such that any subsequent defects after delivery could be excused.

The competing interpretations of the contractual obligation concerning delivery: full performance as mere possession versus the delivery of a seaworthy vessel as expressly mandated in the agreement.
The relevance and weight of the testimonies (Engineer Panaguiton and Captain Sorongon) in establishing the condition of the vessel at the time of delivery.