City Railways, Inc.

(CRI) provides train services, for a fee, to commuters from Manila to

Calamba, Laguna. Commuters are required to purchase tickets and then proceed to
designated loading ang unloading facilities to board the train. Ricardo Santos purchased a
ticket for Calamba and entered the station. While waiting, he had an altercation with the
security guard of CRI leading to a fistfight. Ricardo Santos fell on the railway just as a train
was entering the station. Ricardo Santos was run over by the train. He died. In the action for
damages filed by the heirs of Ricardo Santos, CRI interposed lack of cause of action,
contending that the mishap occurred before Ricardo Santos boarded the train and that it
was not guilty of negligence. Decide.(5%)

SUGGESTED ANSWER:

The contention of CRI is not tenable.

Under the law, the degree of care required of a common carrier is extraordinary diligence or the
obligation to carry the passenger safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons with due regard to all the consequences. Thus, in case of death or
injury to passengers, the common carrier is presumed negligent and upon him rests the burden of proof
of exercise of extraordinary diligence. The duty to exercise extraordinary diligence attaches from the
moment the person who purchases the ticket from the carrier presents himself at the proper place and in
a proper manner to be transported.

In the given case, there is no doubt that CRI is a common carrier for the reason that it is engaged in the
business of transporting passengers by land, for compensation, offering its services to the public. As
such, it is required to exercise extraordinary diligence and this responsibility attached from the moment
Ricardo Santos purchased the ticket and entered the station. When Ricardo died while he was within the
premises of CRI, the latter is presumed to be at fault. This is true even if Ricardo has not yet boarded the
train, so long as he has presented himself to the carrier at the proper place and in a proper manner.

Hence, CRI, as a common carrier, is liable to the heirs of Ricardo Santos.
IX
On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping
Company (CSC), sank on her voyage from Hong Kong to Manila. Empire Assurance Company
(Empire) is the insurer of the lost cargoes loaded on board the vessel which were consigned
to Debenhams Company. After it indemnified Debenhams, Empire as subrogee filed an action
for damages against CSC.

1. Assume that the vessel was seaworthy. Before departing, the vessel was advised by
the Japanese Meteorological Center that it was safe to travel to its destination. But
while at sea, the vessel received a report of a typhoon moving within its general path.
To avoid the typhoon, the vessel changed its course. However, it was still at the
fringe of the typhoon when it was repeatedly hit by huge waves, foundered and
eventually sank. The captain and the crew were saved except three (3) who perished.
Is CSC liable to Empire? What principle of maritime law is applicable? Explain. (3%)
2. Assume the vessel was not seaworthy as in fact its hull had leaked, causing flooding
in the vessel. Will your answer be the same? Explain. (2%)
3. Assume the facts in question (b). Can the heirs of the three (3) crew members who
perished recover from CSC? Explain fully. (3%)
SUGGESTED ANSWER:

1. No, CSC is not liable to Empire.

The principle of maritime law applicable is the Doctrine of Limited Liability. Under this rule, the exclusively
real and hypothecary nature of maritime law operates to limit the liability of the shipowner to the value of
the vessel, earned freightage and proceeds of insurance if any. Hence, the phrase "NO VESSEL, NO
LIABILITY." Total destruction or sinking of the vessel extinguishes the maritime lien as there is no longer
any res to which it can attach.

This doctrine is applicable in the case because, as the facts reveal, the ship sank and was totally lost. The
exception that the carrier failed to overcome the presumption of negligence is not obtaining as in fact
CSC was able to prove that the ship was seaworthy. Moreover, the loss is due to a typhoon -- a fortuitous
event, which is one of the exempting circumstances when the carrier can avoid liability.

Hence, CSC is not liable under the Doctrine of Limited Liability.

2. No, my answer will not be the same.

While as a rule, the shipowner's liability is limited only to the value of the vessel so that loss of the vessel
operates to extinguish his liability, the same rule has no application when the carrier failed to overcome
the presumption of negligence. Such presumption is only rebutted when the carrier establishes that the
vessel is seaworthy.

According to the facts of the case, the vessel is not seaworthy. Absent this requirement of seaworthiness
of the vessel, CSC has failed to overcome the presumption of negligence.

Hence, the Doctrine of Limited Liability is inapplicable and CSC is liable for the loss.

3. Yes, the heirs of the three (3) crewmembers who perished can recover from CSC. This is because
another exception to the applicability of the Limited Liability Rule is Workmen's Compensation Claims.

However, in this case, the heirs cannot go after CSC directly since their claim based on workmen's
compensation would have be to be filed with the Social Security System (SSS). After paying said claims,
the SSS is subrogated to their rights and is thus entitled to go after CSC. In either case, CSC cannot raise
the defense that its liability is limited to the value of his vessel.
X

Nelson owned and controlled Sonnel Construction Company. Acting for the company, Nelson
contracted the construction of a building. Without first installing a protective net atop the
sidewalks adjoining the construction site, the company proceeded with the construction
work. One day a heavy piece of lumber fell from the building. It smashed a taxicab which at
that time had gone offroad and onto the sidewalk in order to avoid the traffic. The taxicab
passenger died as a result.

1. Assume that the company had no more account and property in its name. As counsel
for the heirs of the victim, whom will you sue for damages, and what theory will you
adopt? (3%)
2. If you were the counsel for Sonnel Construction, how would you defend your client?
What would be your theory? (2%)
3. Could the heirs hold the taxicab owner and driver liable? Explain. (2%)
SUGGESTED ANSWER:


1. As counsel for the heirs of the victim, I will sue Nelson as owner of Sonnel Construction Company
using the Doctrine of Piercing the Veil of Corporate Fiction.

As a general rule, the liability of a corporation is separate and distinct from that of the persons
comprising it. However, as an exception to the rule, the veil of corporate fiction may be pierced when the
separate personality of the corporation is used as a shield to avoid a clear legal obligation. In such an
event, it is treated as a mere association of persons upon whom liability attaches.

In the given case, Sonnel Construction Company has a clear legal obligation to the heirs of the victim for
its negligence in not installing a protective net atop the sidewalk before beginning construction. Nelson,
as owner of the company, cannot use the separate entity rule in order to avoid liability. This is especially
true when the company had no more account and property under its name.

2. If I were the counsel of Sonnel Construction, I would raise the defense of due diligence in the selection
and supervision of its employees.

Under the doctrine of vicarious liability of employers, the employer may be relieved of responsibility for
the negligent acts of their employees if they can show that they observed all the diligence of a good
father of a family to prevent damage.

In the given case, Sonnel Construction, as employer, may prove due diligence in the selection and
supervision of its employees by establishing that prior to hiring, it examined them as to their
qualifications, experience and service records and during the course of employment, it formulated
standard operating procedures, monitored their implementation and imposed disciplinary measures for
breaches thereof.

3. Yes, the heirs may hold the taxicab owner and the driver liable.

As regards the taxicab owner, the heirs have two concurrent causes of action based on the vicarious
liability of an employer and based on contractual breach. In the first, the negligence of the driver gives
rise to the presumption of negligence of the taxicab owner as its employer. In the second, there is a
contract of carriage between the taxicab owner and its passenger and the breach thereof by the former
gives rise to the presumption that it failed to exercise extraordinary diligence.

In addition, the heirs also have two concurrent causes of action against the driver. First, they may hold
the driver criminally liable for reckless imprudence resulting in homicide. In which case, the taxicab owner
is also subsidiarily liable in case the driver becomes insolvent. Second, the heirs may likewise sue the
driver for damages based on tort.

All four cases may be pursued separately and simultaneously for they are independent of each other. The
only caveat is that the plaintiff may not recover twice for the same negligent act.
XI
1. Since February 8, 1935, the legislature has not passed even a single law creating a
private corporation. What provision of the Constitution precludes the passage of such
a law? (3%)
2. May the composition of the board of directors of the National Power Corporation
(NPC) be validly reduced to three (3)? Explain your answer fully. (2%)
SUGGESTED ANSWER:


1. Section 16, Article XII of the 1987 Constitution provides that Congress shall not, except by general law,
provide for the formation, organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability.

2. Yes, the composition of the board of directors of the NPC may be validly reduced to three (3).

The NPC is a government-owned or controlled corporation (GOCC) governed by its own charter. The
limitation under the Corporation Code that the number of directors be not less than five (5) but not more
than fifteen (15) does not apply to a GOCCthat has its own charter.
XII

Pedro owns 70% of the subscribed capital stock of a company which owns an office
building. Paolo and Juan own the remaining stock equally between them. Paolo also owns a
security agency, a janitorial company and a catering business. In behalf of the office building
company, Paolo engaged his companies to render their services to the office building. Are
the service contracts valid? Explain. (4%)

SUGGESTED ANSWER:

Yes, the service contracts are valid.

Under the Corporation Code, contracts entered into by interlocking directors are valid if the interest of the
interlocking director in one corporation is nominal -- that is, less than 20% of the outstanding capital
stock -- and provided that the following conditions are met:
the presence of such director in the board meeting approving the contract was not necessary to
constitute a quorom
his vote was not necessary to approve the contract
the contract is fair and reasonable under the circumstances.
According to the facts of the case, Pedro owns 70% of the stocks, leaving 30% to be divided equally
between Juan and Paolo. This shows that Paolo owns only a nominal interest of 15%.

Hence, provided that all the other conditions are met, Paolo's service contracts with the company are
valid.