TRANSPORTATION LAW

CASE DIGEST

Submitted by
LLB4301
Outline of Topics
NATURE AND CONCEPT OF COMMON CARRIAGE
Nature and Concept of Common Carriage 3
Effect of Charter Party 17
Perfection of the Contract of Carriage 21
Applicable laws 25
Registered Owner Rule and Kabit System 27

OBLIGATIONS OF THE PARTIES IN CONTRACT OF

CARRIAGE
Transportation of Goods 31
Shippers Right To Abandon 44
Transportation of Passengers
Presumption of Negligence 54

DEFENSES 62

BILL OF LADING 87
Negotiability 99

NOTICE OF CLAIMS AND PRESCRIPTION 101

MARITIME LAW 117

AVIATION LAWS AND WARSAW CONVENTION 127

PUBLIC UTILITIES LAW

Ownership of Public Utilities 146
Other Constitutional Limitations 155
Rate Regulation 162
Franchise 165
Other Aspects of Regulation 169

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NATURE AND CONCEPT OF COMMON CARRIAGE
Nature and Concept of Common Carriage

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First Philippines Industrical Corp. v. Court of Appeals
G.R. No. 125948
December 29, 1998

Nature and Concept of Common Carriage

Facts:
Fir st Philippines was gr anted a pipeline concession under Republic
Act No. 387 f or which reason they applied for a mayors permit with
the Office of the Mayor of Batangas City. It was required by the
City Treasurer to pay a local tax based on its gross receipts for the fiscal year
1993 pursuant to the Local Government Code. It paid the tax under protest and
filed a complaint for tax refund alleging that 1) the imposition and
collection of the business tax on its gross receipts violates Section 133
and 143 of the Local Government Code which grants tax exemption to
common carriers. Hence, they claim that the Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax
paid.

Issue: Whether or not the petitioner is a common carrier .

Ruling:
Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public." The test for determining
whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the transportation
of goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is
confined;
3. He must undertake to carry by the method by which his business is conducted
and over his established roads; and
4. The transportation must be for hire.

Based on the above definitions and requirements, there is no doubt that

petitioner is a common carrier. It is engaged in the business of transporting or
carrying goods, i.e. petroleum products, for hire as a public employment. It
undertakes to carry for all persons indifferently, that is, to all persons who choose
to employ its services, and transports the goods by land and for compensation.
The fact that petitioner has a limited clientele does not exclude it from the
definition of a common carrier. Moreover, Under the Petroleum Act of the
Philippines (Republic Act 387), petitioner is considered a "common carrier."

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FABRE Jr., v COURT OF APPEALS
GR No. 111127, JULY 26, 1996

Nature and Concept of Common Carriage

FACTS:

Petitioners Engracio Fabre, Jr. and his wife were engaged in a bus service for
school children operated in Manila. The couple hired Porfirio J. Cabil as a bus
driver, after trying him out for two weeks and his job was to take school children
to and from the St. Scholastica's College in Malate, Manila. Private respondent
Word for the World Christian Fellowship Inc. (WWCF) arranged with petitioners
for the transportation of 33 members of its Young Adults Ministry from Manila to
La Union. The group leaves not on the scheduled time which is 5:00 oclock in
the afternoon. The usual route to Caba, La Union was through Carmen,
Pangasinan. However, the bridge at Carmen was under repair, thus prompted
petitioner Cabil, who was unfamiliar with the area (it being his first trip to La
Union), to take a detour through the town of Baay in Lingayen, Pangasinan. The
road was slippery because it was raining. Thus, when he came upon a sharp
curve on the highway, it caused the bus to skid to the left road shoulder, which
was running at the speed of 50 kilometres per hour. The bus came to rest off the
road. A coconut tree which it had hit fell on it and smashed its front portion.
Private respondent Amyline Antonio was thrown on the floor of the bus and
pinned down by a wooden seat which came off after being unscrewed. She was
in great pain and could not move. The RTC ruled in favour of Amyline Antonio,
that the minibus was not properly checked for travel to a long distance trip and
that the driver was not screened and tested before being admitted for
employment. The CA affirmed the decision of the RTC.

ISSUE: Whether petitioners were liable for the injuries suffered by private
respondent.

HELD: Yes. This case actually involves a contract of carriage. Petitioners, the
Fabres, did not have to be engaged in the business of public transportation for
the provisions of the Civil Code on common carriers to apply to them. As Article
1732 makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an
ancillary activity. It also avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or unscheduled basis. It
neither distinguishes between a carrier offering its services to the "general
public," and one who offers services or solicits business only from a narrow
segment of the general population. As common carriers, the Fabres were found
to exercise "extraordinary diligence" for the safe transportation of the passengers
to their destination. This duty of care is not excused by proof that they exercise
the diligence of a good father of the family in the selection and supervision of
their employee (see Article 1759). The same circumstances detailed above,
petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify
findings them guilty of breach of contract of carriage under Arts. 1733, 1755 and
1759 of the Civil Code.

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De Guzman v. Court of Appeals
G.R. No. L-47822
December 22, 1988
Nature and Concept of Common Carriage

FACTS: Respondent Ernesto Cendana, a junk dealer, was engaged in buying up

used bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities
of such scrap material, respondent would bring such material to Manila for
resale. He utilized two (2) six-wheeler trucks which he owned for hauling the
material to Manila. On the return trip to Pangasinan, respondent would load his
vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged freight rates
which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and
authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta,
Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty
filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1
December 1970, respondent loaded in Makati the merchandise on to his trucks:
150 cartons were loaded on a truck driven by respondent himself, while 600
cartons were placed on board the other truck which was driven by Manuel
Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600
boxes never reached petitioner, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed
men who took with them the truck, its driver, his helper and the cargo.
Thus, petitioner filed an action against respondent in the Court of First Instance
of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held liable for the
value of the undelivered goods. In his Answer, private respondent denied that he
was a common carrier and argued that he could not be held responsible for the
value of the lost goods, such loss having been due to force majeure.

ISSUE: whether private respondent be properly characterized as a common

carrier

HELD: Article 1732 of the Civil Code provides that ". Common carriers are
persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public". It makes no distinction
between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity.
Therefore, private respondent is a common carrier even though he merely "back-
hauled" goods for other merchants from Manila to Pangasinan, , although such
back-hauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent's principal occupation
was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here. A certificate of

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public convenience is not a requisite for the incurring of liability under the Civil
Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such
carrier has also complied with the requirements of the applicable regulatory
statute and implementing regulations and has been granted a certificate of public
convenience or other franchise.

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Cebu Salvage Corporation v. Philippine Home Assurance Corporation
G.R. No. 150403, January 25, 2007

Facts:
Cebu Salvage Corp., herein petitioner entered into a voyage charter with
Maria Cristina Chemical Industries Inc. as charterer. Petitioner Cebu obligated
himself to load 800-1,100 metric tons of silica quart on board MT Espiritu Santo
for transport and discharge to consignee Ferrochrome Philippines with route from
Negros Occidental to Misamis Oriental.
When the shipment did not reach its destination as the vessel sank and
totally lost the cargo, Maria Cristina Chemical Industries filed a case against
Petitioner Cebu to claim for the loss of the shipment with its insurer, herein
respondent Philippine Home Assurance Corp. respondent insurer paid the claim
and subrogated Maria Cristina to its rights. A case was filed to reimburse the
amount Philippine Home Assurance had paid to Maria Cristina.
Petitioner argues that the contract between Cebu and Maria Cristina is a
contract of hire where Maria Cristina hired the vessel from owner ALS Timber.
Cebu further argues that since it was not the owner of vessel, it did not have
control and supervision over it and its crew and thus, should not be made liable
for the loss of the cargo.
The trial court ordered for petitioner Cebu to pay respondent Philippine
Home Assurance. The Court of Appeals ruled the same.

Issue:
May the petitioner be held liable for the loss of the cargo even if he does
not own the sunken vessel?

Ruling:
The contract entered into by Cebu and Maria Cristina is a voyage charter,
also known as the contract of affreightment where the ship was leased for a
single voyage for the conveyance of goods, in consideration of the payment of
freight. Under the voyage charter, the ship owner retains ownership, possession,
command and navigation of the ship where the charterer only has the use of the
space of the ship in return for its payment of freight. As a rule, an owner who
retains possession of the ship remains liable as carrier and must answer for the
loss of cargo or non-delivery of goods it had received for transportation given the
payment of freight.
The agreement is one of a contract of carriage under which petitioner
Cebu is the common carrier. Common carriers are expected to observe diligence
over the goods they transport from he very nature of their business and as pubic
policy dictates. Common carriers are liable in case of loss of cargo, unless it can
be proven that it observed due diligence or that the cause falls under Art. 1734.
It should be noted that it was petitioner Cebu who contracted with Maria
Cristina to transport the cargo. Cebu had the control over which vessel it would
use. The duty as a common carrier was not relieved by the fact that it did not own
the vessel. ALS, as owner of the vessel cannot be held liable because Maria
Cristina did not contract with owner of the vessel ALS but with Cebu. Thus Cebu
Salvage Corp. should be made liable as the common carrier.

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Sps. Perena vs. Sps. Nicolas
G.R. No. 157917
August 29, 2012

NATURE AND CONCEPT OF COMMON CARRIAGE

FACTS:

The Pereas were engaged in the business of transporting students from their
respective residences in Paraaque City to Don Bosco in Pasong Tamo, Makati
City, and back. They employed Clemente Alfaro (Alfaro) as driver of the van.
Zarates contracted the Pereas to transport Aaron to and from Don Bosco. On
Aug. 22, 1996, on their way to Don Bosco, as they were running late for their
class, Alfaro took an alternate route by traversing the railroad crossing, PNR
train, which was operated by Alano, wherein Alfaro who was closely tailing a
large passenger bus got hit by the incoming train who blew its horn and only
applied the emergency brakes when the operator saw that a collision was
imminent. This incident led to the death of the son of the Zarates. Zarates filed an
action for recovert of damages against sps. Perena for breach of contract of
carriage in failinf to provide adequate and safe transportation for the latters son.

ISSUE:

Were the Perenas liable for damages?

RULING:

The RTC and CA found Perenas negligent. The SC concurs, sps. Perenas are
liable for damages.

The Perenass defense was that they exercised the diligence of a good father of
a family in the selection and supervision of their driver cannot be considered
because the Pereas operated as a common carrier; and that their standard of
care was extraordinary diligence, not the ordinary diligence of a good father of a
family. That although the Perenas are operators of a school bus, that has limited
clientle, they were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers
over established roads by the method by which the business was conducted; and
(c) transporting students for a fee. The Pereas operated as a common carrier
because they held themselves out as a ready transportation indiscriminately to
the students of a particular school living within or near where they operated the
service and for a fee.

The Pereas, acting as a common carrier, were already presumed to be

negligent at the time of the accident because death had occurred to their
passenger. There is no question that the Pereas did not overturn the
presumption of their negligence by credible evidence. Their defense of having
observed the diligence of a good father of a family in the selection and
supervision of their driver was not legally sufficient.

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SPOUSES DANTE CRUZ and LEONORA CRUZ vs. SUN HOLIDAYS, INC
G.R. No. 186312, June 29, 2010

FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on

January 25, 2001 against Sun Holidays, Inc. (respondent) with the Regional Trial
Court (RTC) of Pasig City for damages arising from the death of their son Ruelito
C. Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the
boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent. Petitioners filed a Complaint, as
earlier reflected, alleging that respondent, as a common carrier, was guilty of
negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning
bulletins issued by the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.

Respondent denied any responsibility for the incident which it considered to be a

fortuitous event.

The RTC dismissed the complaint. The CA denied the appeal holding that Sun is
a private carrier which is only required to observe ordinary diligence. That
respondent in fact observed extraordinary diligence in transporting its guests on
board M/B Coco Beach; and that the proximate cause of the incident was a
squall, a fortuitous event. Hence, the present petition.

ISSUE: Whether Sun Holidays, Inc. is a common carrier and is guilty of breach of
contract of carriage?

HELD: Indeed, respondent is a common carrier. Its ferry services are so

intertwined with its main business as to be properly considered ancillary thereto.
The constancy of respondents ferry services in its resort operations is
underscored by its having its own Coco Beach boats. And the tour packages it
offers, which include the ferry services, may be availed of by anyone who can
afford to pay the same. These services are thus available to the public.
Article 1732 of the Civil Code defining "common carriers" has deliberately
refrained from making distinctions on whether the carrying of persons or goods is
the carriers principal business, whether it is offered on a regular basis, or
whether it is offered to the general public. The intent of the law is thus to not
consider such distinctions. Otherwise, there is no telling how many other
distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities
of common carriers.

Respondent cites the squall that occurred during the voyage as the fortuitous
event that overturned M/B Coco Beach III. As reflected above, however, the
occurrence of squalls was expected under the weather condition of September
11, 2000. Moreover, evidence shows that M/B Coco Beach III suffered engine
trouble before it capsized and sank. The incident was, therefore, not completely
free from human intervention.

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WESTWIND SHIPPING CORPORATION V UCPB GENERAL INSURANCE CO.
GR NO 2OO289
November 25, 2013

Topic: Nature of Common Carriage

Facts:
In 1993, Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197
metal containers/skids of tin-free steel for delivery to the consignee, San Miguel
Corporation (SMC). It was loaded and received clean on board M/V Golden
Harvest Voyage, a vessel owned and operated by Westwind Shipping
Corporation (Westwind). SMC insured the cargoes against all risks with UCPB
General Insurance Co., Inc. (UCPB) for US$184,798.97 or P6,209,245.28. The
shipment arrived in Manila and was discharged in the custody of the arrastre
operator, Asian Terminals, Inc. (ATI). During the unloading operation, however,
six containers/skids sustained dents and punctures from the forklift used by the
stevedores of Ocean Terminal Services, Inc. (OTSI) in centering and shuttling
the containers. As a consequence, the local ship agent of the vessel, Baliwag
Shipping Agency, Inc., issued two Bad Order Cargo Receipt. Later on Orient
Freight International, Inc. (OFII), the customs broker of SMC, withdrew from ATI
the 197 containers/skids, including the six in damaged condition, and delivered
the same at SMCs warehouse in Calamba, Laguna and upon discharge, it was
discovered that additional nine containers/skids were also damaged due to the
forklift operations; thus, making the total number of 15 containers/skids in bad
order. Almost a year after, SMC filed a claim against UCPB, Westwind, ATI, and
OFII to recover the amount corresponding to the damaged 15 containers/skids.
When UCPB paid the total P292,732.80, SMC signed the subrogation receipt.
Thereafter, in the exercise of its right of subrogation, UCPB instituted complaint
for damages against Westwind, ATI, and OFII.

The RTC ruled against UCPBs claim. On appeal by UCPB, the CA reversed and
set aside the trial court. For the CA, Westwind, not ATI, is responsible for the six
damaged containers/skids at the time of its unloading. Westwind argues that its
responsibility already ceased from the moment the cargoes were delivered to
ATI, which is reckoned from the moment the goods were taken into the latters
custody. OFII maintains that it is not a common carrier but only a customs broker
whose participation is limited to facilitating withdrawal of the shipment.

Issue: Whether or not petitioners should be made liable for the damaged
containers.

Ruling: Yes. The Court echoed in the doctrine of certain cases that cargoes,
while being unloaded, generally remain under the custody of the carrier. We
cannot agree with Westwinds disputation that "the carrier in Wallem Case clearly
exercised supervision during the discharge of the shipment and that is why it was
faulted and held liable for the damage incurred by the shipment during such
time." What Westwind failed to realize is that the extraordinary responsibility of
the common carrier lasts until the time the goods are actually or constructively
delivered by the carrier to the consignee or to the person who has a right to
receive them. There is actual delivery in contracts for the transport of goods
when possession has been turned over to the consignee or to his duly authorized

11
agent and a reasonable time is given him to remove the goods. In this case,
since the discharging of the containers/skids, which were covered by only one bill
of lading, had not yet been completed at the time the damage occurred, there is
no reason to imply that there was already delivery, actual or constructive, of the
cargoes to ATI.

Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in vigilance over the goods
and for the safety of the passengers transported by them, according to all the
circumstances of each case. The mere proof of delivery of goods in good order to
the carrier, and their arrival in the place of destination in bad order, make out a
prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the
carrier to prove that the loss was due to accident or some other circumstances
inconsistent with its liability.

The contention of OFII is likewise untenable. A customs broker has been

regarded as a common carrier because transportation of goods is an integral part
of its business. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the public. As a
common carrier, OFII is mandated to observe, under Article 1733 of the Civil
Code, extraordinary diligence in the vigilance over the goods it transports
according to the peculiar circumstances of each case. In the event that the goods
are lost, destroyed or deteriorated, it is presumed to have been at fault or to have
acted negligently unless it proves that it observed extraordinary diligence. In the
case at bar it was established that except for the six containers/skids already
damaged OFII received the cargoes from ATI in good order and condition; and
that upon its delivery to SMC additional nine containers/skids were found to be in
bad order. Instead of merely excusing itself from liability by putting the blame to
ATI and SMC it is incumbent upon OFII to prove that it actively took care of the
goods by exercising extraordinary diligence in the carriage thereof. It failed to do
so. Hence its presumed negligence under Article 1735 of the Civil Code remains
unrebutted.

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MALAYAN INSURANCE CO., INC. vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER
SERVICES, INC.

G.R. No. 184300 July 11, 2012

Nature and concept of common carrier

FACTS:

Since 1989, Wyeth Philippines, Inc. (Wyeth) and Reputable had been annually
executing a contract of carriage, whereby the latter undertook to transport and
deliver the formers products to its customers. Wyeth procured Marine Policy
from Philippines First to secure its interest over its own products. Philippines First
thereby insured products while the same were being transported or shipped in
the Philippines. The policy covers all risks of direct physical loss or damage.
Wyeth executed its annual contract of carriage with Reputable. However it was
not signed by Wyeths representative/s. Nevertheless, it was admittedly signed
by Reputables representatives, the terms thereof faithfully observed by the
parties. The contract required Reputable to secure an insurance policy on
Wyeths goods. Reputable signed a Special Risk Insurance Policy (SR Policy)
with petitioner Malayan. During the effectivity of the Marine Policy and SR Policy,
Reputable received from Wyeth 1,000 boxes of Promil infant formula to be
delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City.
Unfortunately, it was hijacked by armed men and the truck was recovered two
weeks later without its cargo. Philippines First, after due investigation and
adjustment, and pursuant to the Marine Policy, paid Wyeth. Philippines First then
demanded reimbursement from Reputable, having been subrogated to the rights
of Wyeth by virtue of the payment. The latter ignored the demand. Philippines
First instituted an action for sum of money against Reputable. In its complaint,
Philippines First stated that Reputable is a "private corporation engaged in the
business of a common carrier." In its answer, Reputable claimed that it is a
private carrier. Reputable impleaded Malayan as third-party defendant in an
effort to collect the amount covered in the SR Policy. RTC found Reputable liable
to Philippines First for the amount of indemnity it paid to Wyeth. Malayan was
found by the RTC to be liable to Reputable to the extent of the policy coverage.
CA ruled that Reputable is estopped from assailing the validity of the contract of
carriage on the ground of lack of signature of Wyeths representative/s. Malayan
contends that the CA erred when it held that Reputable is a private carrier and
should be bound by the contractual stipulations in the contract of carriage. It
based its assertion that Philippines First judicially admitted in its complaint that
Reputable is a common carrier and as such, Reputable should not be held liable
pursuant to Article 1745(6) of the Civil Code.

ISSUE: 1. WON Reputable is a private carrier?

2. WON Reputable is bound by the terms of the contract of carriage?

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RULING:

1.YES. Well-entrenched in jurisprudence is the rule that factual findings of the

trial court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and considered conclusive between the parties, save
for certain exceptional and meritorious circumstances, none of which are present
in this case. Reputable is a common carrier. Consequently, pursuant to Article
1745(6) of the Civil Code, the liability of Reputable for the loss of Wyeths goods
should be dispensed with, or at least diminished. Records show that the alleged
judicial admission of Philippines First was essentially disputed by Reputable
when it stated in its answer that it is actually a private or special carrier.In
addition, Reputable stated in its third-party complaint that it is "a private carrier
engaged in the carriage of goods." Such allegation was, in turn, admitted by
Malayan. There is nothing in the records which show that Philippines First
persistently maintained its stance that Reputable is a common carrier or that it
even contested or proved otherwise Reputables position that it is a private or
special carrier. The finding of the RTC and CA that Reputable is a special or
private carrier is warranted by the evidence on record, primarily, the unrebutted
testimony of Reputables Vice President and General Manager, Mr. William Ang
Lian Suan, who expressly stated in open court that Reputable serves only one
customer, Wyeth. Under Article 1732 of the Civil Code, common carriers are
persons, corporations, firms, or associations engaged in the business of carrying
or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public. On the other hand, a private
carrier is one wherein the carriage is generally undertaken by special agreement
and it does not hold itself out to carry goods for the general public. A common
carrier becomes a private carrier when it undertakes to carry a special cargo or
chartered to a special person only. For all intents and purposes, therefore,
Reputable operated as a private/special carrier with regard to its contract of
carriage with Wyeth.

2.YES. The extent of a private carriers obligation is dictated by the stipulations of

a contract it entered into, provided its stipulations, clauses, terms and conditions
are not contrary to law, morals, good customs, public order, or public policy. "The
Civil Code provisions on common carriers should not be applied where the
carrier is not acting as such but as a private carrier. Public policy governing
common carriers has no force where the public at large is not involved." Thus,
being a private carrier, the extent of Reputables liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to
Wyeth for the loss of the goods/products due to any and all causes whatsoever,
including theft, robbery and other force majeure while the goods/products are in
transit and until actual delivery to Wyeths customers, salesmen and dealers.

14
Unknown Owner of the vessel M/V China Joy, Samsun Shipping LTD., and Inter
Asia Marine Transport, Inc. v Asian Terminals. Inc.
G.R.No. 195661
March 11, 2015

Nature and Concept of Common Carriers

Facts:
M/V China Joy arrived at the wharf operated by Asian Terminals, Inc (ATI) on
January 25, 1997 carrying soybean meal that had been shipped by
ContiQuincyBunge (Conti) as charterer in favor of San Miguel Foods as co-
charterer and Samsun as agent of the shipowners. Upon unloading of the
soybean meal off the ship the machine a pneumatic vacubator used to unload
the said cargo was damaged due to a flat steel bar lodged in the contraption.
ATI sent a Note of Protest to the Master of the Vessel for the damages sustained
by its unloading equipment. However the Master replied that it was not
responsible for the damage because the metal which damaged the unloading
equipment came from the cargo and not from the vessel.

Subsequently, ATI sent a claim to defendant Inter-Asia which Inter-Asia rejected

alleging that it is not the shipowners agent and that its principal is Samsun who
in turn is a foreign corporation who represents the shipowners as agent.
As the negotiations for settlement failed ATI filed the complaint in the RTC for
damages against Samsun, Inter-Asia and the unknown owner of the vessel. The
RTC rendered a Decision dismissing ATIs complaint for insufficiency of
evidence. On appeal to the CA, the CA found defendants liable solidarily,
explaining that as a rule of evidence, the doctrine of res ipsa loquitur is peculiar
to the law of negligence which recognizes that prima facie negligence may be
established without direct proof and furnishes a substitute for specific proof of
negligence. CA explained further that: First, ATI correctly used a pneumatic
vacubator unloader as the cargo was free-flowing soybean meal. It is not
expected that a metal object would be among the cargo unless the loading was
mismanaged in some way. Second, The damage was caused by the metal
comingled with the cargo within the exclusive control of the shipowner and,Third,
there is neither allegation nor evidence on record that ATIs negligence
contributed to the damage of the unloader.

All 3 requisites of res ipsa loquitur present, the presumption arises that
defendants negligence was the proximate cause of the damage to ATIs
unloader. The burden of evidence is shifted to defendants to prove otherwise
which they failed to do so.

Issue:
Whether defendants are liable for the damage to ATIs unloader

Ruling:
Yes. The basis is however on quasi delict and not in a contract of carriage since
there was no contract of carriage between the petitioners and ATI. There was
also no contract of carriage between ATI and the defendants. The damage
caused was not of the cargo but to the equipment of an arrastre operator. The
function of an arrastre operator involve the handling of cargo deposited on the
wharf or between the establishment of the consignee or shipper and the ships

15
tackle. ATIs contractual relation is with the consignee and the Philippine Ports
Authority.

The defendants cannot evade liability for the damage caused to ATIs unloader in
view of Article 2176 of the New Civil Code which enunciates that whoever by act
or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties is called quasi-delict.

16
 Effect of Charter Party

17
Planters Products, Inc. vs. Court of Appeals
G.R. No. 101503
September 15, 1993

Topic: Effect of charter-party agreements

Facts:

Petitioner Planters Products, Inc. purchased from Mitsubishi some metric tons of
urea fertilizer, which were shipped in bulk aboard a cargo vessel owned by
private respondent KKKK. But prior to the voyage, a time charter-party was
entered into by Mitsubishi, as shipper, and KKKK. When the shipment arrived, it
was found that there was shortage and some portions were rendered unfit for
commerce due to contamination. Consequently, PPI sent a claim letter to SSA,
an agent of KKKK, but SSA denied PPIs claim. This prompted PPI to file a
complaint for damages against the respondents. The respondents argued that
the strict public policy governing common carriers does not apply to them
because they have become private carriers by virtue of the provisions of the
charter-party agreement.

Issue:

Does a common carrier become a private carrier by virtue of a charter party

agreement?

Ruling:

It depends. A public carrier shall remain as such provided the charter is limited
to the ship only, as in the case of a contract for affreightment such as a time
charter or a voyage charter. It is only when the charter includes both the vessel
and its crew, as in a charter by demise or a bareboat charter, that a common
carrier becomes private carrier, at least insofar as the particular voyage covering
the charter party is concerned.

In this case, the agreement is a time charter-party agreement wherein the vessel
is leased to the charterer for a fixed period of time. Indubitably, a ship-owner in a
time or voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer. Hence, the ship
remains a common or public carrier.

18
PHILAM INSURANCE VS HEUNG-A SHIPPING CORP.
Gr. No. 187701
July 23, 2014

EFFECT OF CHARTER PARTY

Facts:
Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from
Jinsuk Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of
Ovaltine Power 18 Glaminated plastic packaging material. In order to ship the
goods to the Philippines, JINSUK engaged the services of Protop Shipping
Corporation (PROTOP), a freight forwarder likewise based in South Korea, to
forward the goods to their consignee, NOVARTIS. Based on Bill of Lading issued
by PROTOP, the cargo was on freight prepaid basis and on "shippers load and
count" which means that the "container [was] packed with cargo by one shipper
where the quantity, description and condition of the cargo is the sole
responsibility of the shipper." Likewise stated in the bill of lading is the name
Sagawa Express Phils., Inc., (SAGAWA) designated as the entity in the
Philippines which will obtain the delivery contract.

PROTOP shipped the cargo through Dongnama Shipping Co. Ltd.

(DONGNAMA) which in turn loaded the same on M/V Heung-A Bangkok V-019
owned and operated by Heung-A Shipping Corporation, (HEUNG-A). Wallem
Philippines Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the
Philippines. NOVARTIS insured the shipment with Philam Insurance Company,
Inc. (PHILAM, now Chartis Philippines Insurance, Inc.) under All Risk Marine
Open Insurance Policy against all loss, damage, liability, or expense before,
during transit and even after the discharge of the shipment from the carrying
vessel until its complete delivery to the consignees premises. The shipment
reached NOVARTIS premises and was thereupon inspected by the companys
Senior Laboratory Technician.

Caparoso found the container van locked with its load intact. After
opening the same, she inspected its contents and discovered that the boxes of
the shipment were wet and damp. Caparoso rejected the entire shipment. All 17
pallets of the 184 cartons/rolls contained in the sea van were found wet/water
damaged. NOVARTIS demanded indemnification for the lost/damaged shipment
from PROTOP, SAGAWA, ATI and STEPHANIE but was denied. Insurance
claims were, thus, filed with PHILAM which paid the insured value of the
shipment. PHILAM sent a demand letter to WALLEM for reimbursement of the
insurance claims paid to NOVARTIS. When WALLEM ignored the demand,
PHILAM impleaded it as additional defendant in an Amended Complaint.

PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied

liability for the lost/damaged shipment. RTC ruled that the damage to the
shipment occurred onboard the vessel while in transit from Korea to the
Philippines. The RTC discounted the slot charter agreement between HEUNG-A
and DONGNAMA, and held that it did not bind the consignee who was not a
party thereto. The RTC further observed that HEUNG-A failed to present
evidence showing that it exercised the diligence required of a common carrier in
ensuring the safety of the shipment. CA agreed with the RTC that PROTOP,

19
HEUNG-A and WALLEM are liable for the damaged shipment. The fact that
HEUNG-A was not a party to the bill of lading did not negate the existence of a
contract of carriage between HEUNG-A and/or WALLEM and NOVARTIS. A bill
of lading is not indispensable for the creation of a contract of carriage. By
agreeing to transport the goods contained in the sea van provided by
DONGNAMA, HEUNG-A impliedly entered into a contract of carriage with
NOVARTIS with whom the goods were consigned. Hence, it assumed the
obligations of a common carrier to observe extraordinary diligence in the
vigilance over the goods transported by it. Further the Slot Charter Agreement
did not change HEUNG-As character as a common carrier.

Issue:
Whether or not HEUNG-A remained responsible as the carrier, hence,
answerable for the damages incurred by the goods received for transportation.

Ruling:
Yes. A charter party has been defined as a contract by which an entire
ship, orsome principal part thereof, is let by the owner to another person for a
specified time or use; a contract of affreightment by which the owner of a ship or
other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of
freight. A charter party has two types. First, it could be a contract of affreightment
whereby the use of shipping space on vessels is leased in part or as a whole, to
carry goods for others. The charter-party provides for the hire of vessel only,
either for a determinate period of time (time charter) or for a single or consecutive
voyage (voyage charter). The ship owner supplies the ships stores, pay for the
wages of the master and the crew, and defray the expenses for the maintenance
of the ship. The voyage remains under the responsibility of the carrier and it is
answerable for the loss of goods received for transportation. The charterer is free
from liability to third persons in respect of the ship. Second, charter by demise or
bareboat charter under which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants. The
charterer mans the vessel with his own people and becomes, in effect, the owner
for the voyage or service stipulated and hence liable for damages or loss
sustained by the goods transported.

Clearly then, despite its contract of affreightment with DONGNAMA,

HEUNG-A remained responsible as the carrier, hence, answerable for the
damages incurred by the goods received for transportation. "Common carriers,
from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence and vigilance with respect to the safety of the
goods and the passengers they transport. Thus, common carriers are required to
render service with the greatest skill and foresight and to use all reasonable
means to ascertain the nature and characteristics of the goods tendered for
shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires." Common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that they
exercised extraordinary diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving

20
that they observed such diligence." Further, under Article 1742 of the Civil Code,
even if the loss, destruction, or deterioration of the goods should be caused by
the faulty nature of the containers, the common carrier must exercise due
diligence to forestall or lessen the loss.

21
 Perfection of the Contract of Carriage

22
LIGHT RAIL TRANSIT AUTHORITY vs. NAVIDAD
G.R. No. 145804
February 6, 2003
PERFECTION OF THE CONTRACT OF SALE
FACTS:
Nicanor Navidad, then drunk, entered the EDSA LRT station after purchasing a
"token" (representing payment of the fare). While Navidad was standing on the
platform near the LRT tracks, Junelito Escartin, the security guard approached
Navidad. An altercation ensued that led to a fist fight. At the exact moment that
Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in.
Navidad was struck by the moving train, and he was killed instantaneously.
The heirs of the deceased filed a complaint against LRTA, Roman, Escartin and
Prudent Security. The trial court ruled against Prudent and Escartin while the
complaints against LRTA and Escartin were dismissed. On appeal by Prudent
and Escartin, the Court of Appeals exonerated the appellants and instead held
LRTA and Roman liable and ratiocinated that while the deceased might not have
then as yet boarded the train, a contract of carriage theretofore had already
existed when the victim entered the place where passengers were supposed to
be after paying the fare and getting the corresponding token therefor.

ISSUE:
Whether or not there was a perfected contract of carriage in this case.

RULING:
Yes. The law requires common carriers to carry passengers safely using the
utmost diligence of very cautious persons with due regard for all
circumstances. Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so long as
the passengers are within its premises and where they ought to be in pursuance
to the contract of carriage. The foundation of LRTAs liability is the contract of
carriage and its obligation to indemnify the victim arises from the breach of that
contract by reason of its failure to exercise the high diligence required of the
common carrier. In the discharge of its commitment to ensure the safety of
passengers, a carrier may choose to hire its own employees or avail itself of the
services of an outsider or an independent firm to undertake the task. In either
case, the common carrier is not relieved of its responsibilities under the contract
of carriage.

23
Dangwa transportation co. V. Court of Appeals
GR No. 95582, October 7, 1991

Facts:
On May 13, 1985, private respondent filed a complaint for damages against
petitioner for the death of Pedrito Cudiamat as a result of a vehicular accident
which occurred on at Marivic, Sapid, Mankayan, Benguet. It was alleged that on
March 25, 1985, while petitioner Theodore M. Lardizabal was driving a
passenger bus belonging to petitioner corporation in a reckless and imprudent
manner and without due regard to traffic rules and regulations and safety to
persons and property, it ran over its passenger, Pedrito Cudiamat. However,
instead of bringing Pedrito immediately to the neatest hospital, the said driver, in
utter bad faith and without regard to the welfare of the victim, first brought his
other passengers and cargo to their respective destinations before bringing said
victim to the Lepanto Hospital where he expired.

The place of the accident and the place where one of the passengers alighted
were both between Bunkhouses 53 and 54, hence the bus was full stop when the
victim boarded the same. The victim fell from the platform of the bus when he
suddenly accelerated forward and was run over by the rear right tires of the
vehicle, as shown by the physical evidence on where he was thereafter found in
relation to the bus when it stopped.

Issue:
Whether or not the contention of petitioners that the driver and the conductor had
no knowledge that the victim would ride on the bus, since the latter had
supposedly not manifested his intention to board the same is the tenable, thus,
making the carrier liable?

Ruling:
The carrier is liable. The contention of petitioners that the driver and the
conductor had no knowledge that the victim would ride on the bus, since the
latter had supposedly not manifested his intention to board the same is not
tenable. When the bus is not in motion there is no necessity for a person who
wants to ride the same to signal his intention to board. A public utility bus, once it
stops, is in effect making a continuous offer to bus riders.

Hence, it becomes the duty of the driver and the conductor, every time the bus
stops, to do no act that would have the effect of increasing the peril to a
passenger while he was attempting to board the same. The premature
acceleration of the bus in this case was a breach of such duty.

It is the duty of common carriers of passengers, including common carriers by

railroad train, streetcar, or motor bus, to stop their conveyances a reasonable
length of time in order to afford passengers an opportunity to board and enter,
and they are liable for injuries suffered by boarding passengers resulting from the
sudden starting up or jerking of their conveyances while they are doing so.

Further, even assuming that the bus was moving, the act of the victim in boarding
the same cannot be considered negligent under the circumstances.

24
In this case, the bus had just started and was still is slow motion at the point
where the victim had boarded and was on its platform.

It is not negligence per se, or as a matter of law, for one to attempt to board a
train or streetcar which is moving slowly. An ordinary prudent person would have
made the attempt to board the moving conveyance under the same or similar
circumstances. The fact that passengers board and alight from a slowly moving
vehicle is a matter of common experience and both the driver and conductor in
this case could not have been unaware of such an ordinary practice.
The victim herein, by stepping and standing on the platform of the bus, is already
considered a passenger and is entitled to all the rights and protection pertaining
to such a contractual relation. Hence, it has been held that the duty which the
carrier of passengers owes to its patrons extends to persons boarding the cars
as well as to those alighting therefrom.

Moreover, the circumstances under which the driver and the conductor failed to
bring the gravely injured victim immediately to the hospital for medical treatment
is a patent and incontrovertible proof of their negligence. It defies understanding
and can even be stigmatized as callous indifference.

25
 Applicable Laws

26
National Development Co. vs. CA
G.R. Nos. L-49407 & L-49469
August 19, 1988

Nature and Concept of Common Carriage Applicable Laws

Facts:
In accordance with a memorandum entered into between defendants National
Development Company (NDC) and Maritime Company of the Philippines (MCP),
defendant NDC appointed defendant MCP as its agent to manage and operate
Doa Nati in its behalf.The E. Phillipp Corporation of the New York loaded on
board the vessel Doa Nati at San Francisco, California, a total of 1,200 bales
of American raw cotton consigned to Manila Banking Corporation. Also loaded
on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil. The vessel
figured in a collision at Ise Bay, Japan with a Japanese vessel as a result of
which 550 bales of aforesaid cargo were lost and/or destroyed. The damage and
lost cargo was worth P344,977.86 which amount, the plaintiff Development
Insurance and Surety Corporation as insurer, paid to the Riverside Mills
Corporation as holder of the negotiable bills of lading duly endorsed. The insurer
filed before the CFI of Manila an action for the recovery of said amount from NDC
and MCP.

Issue:
Whether or not the law of country or port of destination shall apply.

Ruling:
In the case of Eastern Shipping Lines, Inc., v. IAC, which has similar
circumstances, it was held that the law of the country to which the goods are to
be transported governs the liability of the common carrier in case of their loss,
destruction or deterioration. Hence, the carriage of Goods by Sea Act, a special
law, is merely suppletory to the provisions of the Civil Code. The goods in
question were being transported from San Francisco, California and Tokyo,
Japan to the Philippines and that they were lost or damaged due to a collision
which was found to have been caused by negligence or fault of both captains of
the colliding vessels. Under the above ruling, it is evident that laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in
foreign waters, such as Ise Bay, Japan. Articles 826 to 839, Book Three of the
Code of Commerce, dealing exclusively with collision of vessels provides that
where collision is imputable to the personnel of a vessel, the owner of the vessel
at fault shall indemnify the losses and damages incurred after an expert
appraisal. Also article 827 of the same Code provides that if the collision is
imputable to both vessels, each one shall suffer its own damages and both shall
be solidarily responsible for the losses and damages suffered by their
cargoes.There is, therefore, no room for NDCs interpretation that the Code of
Commerce should apply only to domestic trade and not to foreign trade.

27
 Registered Owner Rule and Kabit System

28
FILCART TRANSPORT SERVICES v. ESPINAS
GR No. 174156, June 20, 2012

Registered Owner Rule

FACTS:

On November 22, 1998, at around 6:30 p.m., respondent Jose A. Espinas was
driving his car along Leon Guinto Street in Manila. Upon reaching the intersection
of Leon Guinto and President Quirino Streets, Espinas stopped his car. When the
signal light turned green, he proceeded to cross the intersection. He was already
in the middle of the intersection when another car driven by Floresca, traversing
President Quirino Street and going to Roxas Boulevard, suddenly hit and
bumped his car. As a result of the impact, Espinas car turned clockwise. The
other car escaped from the scene of the incident, but Espinas was able to get its
plate number. After verifying with the Land Transportation Office, Espinas
learned that the owner of the other car is Filcar. The latter denied any liability to
Espinas and claimed that the incident was not due to its fault or negligence since
Floresca was not its employee but that of Atty. Flor. Filcar and Carmen Flor both
said that they always exercised the due diligence required of a good father of a
family in leasing or assigning their vehicles to third parties. Both the MeTC and
RTC ruled that Filcar, as the registered owner of the vehicle, is primarily
responsible for damages resulting from the vehicles operation. The CA affirmed
the decision of the RTC regarding the liability of Filcar to Espina. However, CA
absolves Carmen Flor for it is not personally liable to Espinas, as the liability of a
corporation is not the liability of its corporate officers.

ISSUE: Whether Filcar, as registered owner of the motor vehicle, may be held
liable for the damages caused to Espinas.

HELD:
Yes. It has been discussed in Erezo case that the main aim of motor vehicle
registration is to identify the owner so that if any accident happens, or that any
damage or injury is caused by the vehicle on the public highways, responsibility
therefor can be fixed on a definite individual, the registered owner. Thus,
whether there is an employer-employee relationship between the registered
owner and the driver is irrelevant in determining the liability of the registered
owner who the law holds primarily and directly responsible for any accident,
injury or death caused by the operation of the vehicle in the streets and
highways. Filcar should not be permitted to evade its liability for damages by
conveniently passing on the blame to another party. The agreement between
Filcar and Atty. Flor to assign the motor vehicle to the latter does not bind
Espinas who was not a party to and has no knowledge of the agreement, and
whose only recourse is to the motor vehicle registration.Neither can Filcar use
the defenses available under Article 2180 of the Civil Code - that the employee
acts beyond the scope of his assigned task or that it exercised the due diligence
of a good father of a family to prevent damage - because the motor vehicle
registration law, to a certain extent, modified Article 2180 of the Civil Code by
making these defenses unavailable to the registered owner of the motor vehicle.

29
Teja Marketing v. Intermediate Appellate Court
G.R. No. 65510
March 9, 1987
Registered Owner Rule and Kabit System

FACTS: Defendant bought from the plaintiff a motorcycle with complete

accessories and a sidecar for P 8,000.00. Out of the total price, the defendant
gave a downpayment of P 1,700.00 with a promise that he would pay plaintiff the
balance within sixty days. However, he failed to comply with the promise despite
demands from the plainfitt. Thus, the plaintiff filed a complaint for damages. In
this transaction, a chattel mortgage was constituted as a security for the payment
of the balance of the purchased price. The records of the LTC show that the
motorcycle sold to the defendant was first mortgaged to the Teja Marketing by
Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the
same because it was made to appear that way only as defendant had no
franchise of his own and he attached the unit to the plaintiff's MCH Line. The
agreement of the parties was for the plaintiff to undertake the yearly registration
of the motorcycle with the LTC. However, the plaintiff failed to register it on that
year on the ground that the defendant failed to comply with some requirements.
The plaintiff explained also that though the ownership of the motorcycle was
already transferred to the defendant, the vehicle was still mortgaged with the
consent of the defendant to the Rural Bank of Camaligan for the reason that all
motorcycle purchased from the plaintiff on credit was rediscounted with the bank.
On the other hand, defendant did not dispute the sale and the outstanding
balance. The defendant puts the blame on the plaintiff for not registering the
motorcycle with the LTC and for not giving him the registration papers inspite of
demands made. It also appears that defendant purchased the motorcycle for the
purpose of engaging and using the same in the transportation business and for
this purpose said trimobile unit was attached to the plaintiff's transportation line
who had the franchise, so much that in the registration certificate, the plaintiff
appears to be the owner of the unit.

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for
"Sum of Money with Damages"against private respondent Pedro N. Nale in the
City Court of Naga. The City Court rendered jugment in favor of petitioner. On
appeal, the Intermediate Appellate Court found the parties being in pari delicto.

ISSUE: whether respondent court erred in applying the doctrine of "pari delicto".

HELD: The parties herein operated under an arrangment called "kabit system"
whereby a person who has been granted a certificate of public convenience
allows another person who owns motor vehicles to operate under such franchise
for sale. Although not outrightly penalized as a criminal offense, the kabit system
is invariably recognized as being contrary to public policy and, therefore, void
and in existent under Article 1409 of the Civil Code. It is a fundamental principle
that the court will not aid either party to enforce an illegal contract, but will leave
both where it finds then. Also Article 1412 of the Civil Code which stated that
when the fault is on the part of both contracting parties, neither may recover that
he has given by virtue of the contract, or demand, the performance of the other's
undertaking.

30
Lita Enterprises vs. Second Civil Cases Division IAC
G.R. No. L-64693 April 27, 1984

Facts:
Spouses Nicasio Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from Delta Motor Sales Corporation five
Toyota Corona Standard standard cars to be used as taxicabs. Since they had
no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises
through its representative Manuel Concordia for the use of the latters certificate
of public convenience in consideration of an initial payment of P1,000.00 and a
monthly rental of P200.00 per taxicab unit. The cars were registered in the name
of Lita Enterprises but possession remained with Acme taxi which is the
petitioners trade name.

One of the taxicabs driven by Emeterio Martin collided with a motorcycle

driven by Florante Galvez who died due to head injuries sustained therefrom. A
criminal case was filed by Galvez wife against Martin and a civil case for
damages was filed against Lita Enterprises as the registered owner of the
taxicab. CFI Manila held Lita liable for damages. A writ of execution was issued
and one of the vehicles of respondent spouses was levied upon and sold at
public auction.

When the spouses decided to register the taxicabs under its name,
Nicasio Ocampo requested that Lita turn over the registration papers to him but
Lita refused. The spouses filed a complaint against Lita, Galvez wife and
Visayan Surety and Insurance Co., and the Sheriff of Manila for reconveyance of
the motor vehicles. CFI Manila ordered Lita to transfer registration certificates of
the three Toyota cars not levied upon. Lita moved for reconsideration but was
denied. On appeal by Lita to the IAC, the IAC ordered Lita to pay fair market
value of the vehicles in the event that they are no longer serviceable or available.
Lita Enterprises wanted to annul the decision of the IAC.

Issue:
Who should be made liable given the nature of the contract between
respondent spouses and Lita enterprises?

Ruling:
The parties operated under an arrangement commonly known as the
Kabit System, whereby a person who has been granted a certificate of public
convenience allows another person who owns motor vehicles to operate under
such franchise for a fee. A certificate of public convenience is a special privilege
conferred by the government and abuse of such privilege by the grantees thereof
cannot be countenanced. The Kabit System has been identified as one of the
root causes of the prevalence of graft and corruption in the government
transportation offices.

Although not outrightly penalized as a criminal offense, the Kabit System

is invariably recognized as being contrary to public policy and therefore void and
inexistent under Art. 1409 of the Civil Code. The Court will not aid either party to
enforce an illegal contract but will leave them both where it finds them.

31
 Thus, all proceedings regarding the matter between respondent spouses
and Lita as well as the decisions rendered by the IAC are annulled and set aside.

32
OBLIGATIONS OF THE PARTIES IN CONTRACT OF
CARRIAGE
Transportation of Goods

33
Saludo vs. CA
G.R. No. 95536
March 23, 1992

OBLIGATIONS OF THE PARTIES IN THE CONTRACT OF CARRIAGE

Transportation of Goods

FACTS:
Crispina Galdo Saludo, mother of the petitioners, died in Chicago, Illinois.
Pomierski and Son Funeral Home of Chicago, made the necessary preparations
and arrangements for the shipment of the remains from Chicago to the
Philippines. Pomierski brought the remains to Continental Mortuary Air Services
(CMAS) at the Chicago Airport which made the necessary arrangements such as
flights, transfers, etc. CMAS booked the shipment with PAL thru the carriers
agent Air Care International. PAL Airway Bill Ordinary was issued wherein the
requested routing was from Chicago to San Francisco on board Trans World
Airline (TWA) and from San Francisco to Manila on board PAL.

Upon arrival at San Francisco, petitioner went to the TWA to inquire about her
mothers remains. She discovered that her mother is not there. She then called
Pomierski that her mothers remains were not at the West Coast terminal.
Pomierski immediately called CMAS, which informed that the remains were on a
plane to Mexico City, that there were two bodies at the terminal, and somehow
they were switched. CMAS called and told Pomierski that they were sending the
remains back to California via Texas.

Petitioners filed a complaint against TWA and PAL for the misshipment and delay
in the delay of the cargo containing the remains of the late Crispina Saludo.
Petitioners alleged that private respondents received the casketed remains of
Crispina on October 26, 1976, as evidenced by the issuance of PAL Airway Bill
by Air Care and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that the alleged
switching of the caskets on October 27, 1976, or one day after the private
respondents received the cargo, the latter must necessarily be liable.

ISSUE:
Whether or not the delay in the delivery of the casketed remains of petitioners
mother was due to the fault of respondent airline companies

RULING:
No. Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are delivered
to the carrier. This responsibility remains in full force and effect even when they
are temporarily unloaded or stored in transit, unless the shipper or owner
exercises the right of stoppage in transitu, and terminates only after the lapse of
a reasonable time for the acceptance, of the goods by the consignee or such
other person entitled to receive them. And, there is delivery to the carrier when
the goods are ready for and have been placed in the exclusive possession,
custody and control of the carrier for the purpose of their immediate
transportation and the carrier has accepted them. Where such a delivery has

34
thus been accepted by the carrier, the liability of the common carrier commences
eo instanti.

Hence, while we agree with petitioners that the extraordinary diligence statutorily
required to be observed by the carrier instantaneously commences upon delivery
of the goods thereto, for such duty to commence there must in fact have been
delivery of the cargo subject of the contract of carriage. Only when such fact of
delivery has been unequivocally established can the liability for loss, destruction
or deterioration of goods in the custody of the carrier, absent the excepting
causes under Article 1734, attach and the presumption of fault of the carrier
under Article 1735 be invoked.

As already demonstrated, the facts in the case at bar belie the averment that
there was delivery of the cargo to the carrier on October 26, 1976. Rather, as
earlier explained, the body intended to be shipped as agreed upon was really
placed in the possession and control of PAL on October 28, 1976 and it was from
that date that private respondents became responsible for the agreed cargo
under their undertakings in PAL Airway Bill No. 079-01180454. Consequently, for
the switching of caskets prior thereto which was not caused by them, and
subsequent events caused thereby, private respondents cannot be held liable.

The oft-repeated rule regarding a carrier's liability for delay is that in the absence
of a special contract, a carrier is not an insurer against delay in transportation of
goods. When a common carrier undertakes to convey goods, the law implies a
contract that they shall be delivered at destination within a reasonable time, in
the absence, of any agreement as to the time of delivery. But where a carrier has
made an express contract to transport and deliver property within a specified
time, it is bound to fulfill its contract and is liable for any delay, no matter from
what cause it may have arisen. This result logically follows from the well-settled
rule that where the law creates a duty or charge, and the party is disabled from
performing it without any default in himself, and has no remedy over, then the law
will excuse him, but where the party by his own contract creates a duty or charge
upon himself, he is bound to make it good notwithstanding any accident or delay
by inevitable necessity because he might have provided against it by contract.
Whether or not there has been such an undertaking on the part of the carrier to
be determined from the circumstances surrounding the case and by application
of the ordinary rules for the interpretation of contracts.

A common carrier undertaking to transport property has the implicit duty to carry
and deliver it within reasonable time, absent any particular stipulation regarding
time of delivery, and to guard against delay. In case of any unreasonable delay,
the carrier shall be liable for damages immediately and proximately resulting from
such neglect of duty. As found by the trial court, the delay in the delivery of the
remains of Crispina Saludo, undeniable and regrettable as it was, cannot be
attributed to the fault, negligence or malice of private respondents, a conclusion
concurred in by respondent court and which we are not inclined to disturb.

35
MAURO GANZON vs. COURT OF APPEALS and GELACIO E. TUMAMBING
G.R. No. L-48757
May 30, 1988

FACTS: On November 28, 1956, Gelacio Tumambing contracted the services of

Mauro B. Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan, to the
port of Manila on board the lighter LCT "Batman. Pursuant to that agreement,
Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three
feet of water. Gelacio Tumambing delivered the scrap iron to defendant Filomeno
Niza, captain of the lighter, for loading which was actually begun on the same
date by the crew of the lighter under the captain's supervision. When about half
of the scrap iron was already loaded, Mayor Jose Advincula of Mariveles,
Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter
resisted the shakedown and after a heated argument between them, Mayor Jose
Advincula drew his gun and fired at Gelacio Tumambing who sustained injuries.
After sometime, the loading of the scrap iron was resumed. But on December 4,
1956, Acting Mayor Rub, accompanied by 3 policemen, ordered captain
Filomeno Niza and his crew to dump the scrap iron where the lighter was
docked. The rest was brought to the compound of NASSCO. Later on Acting
Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken
custody of the scrap iron. Tumabing sued Ganzon; the latter alleged that the
goods have not been unconditionally placed under his custody and control to
make him liable.

ISSUE: Whether or not a contract of carriage has been perfected.

HELD: Yes. By the said act of delivery, the scraps were unconditionally placed in
the possession and control of the common carrier, and upon their receipt by the
carrier for transportation, the contract of carriage was deemed perfected.
Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction or deterioration of the goods commenced. Pursuant to Art. 1736,
such extraordinary responsibility would cease only upon the delivery, actual or
constructive, by the carrier to the consignee, or to the person who has a right to
receive them. The fact that part of the shipment had not been loaded on board
the lighter did not impair the said contract of transportation as the goods
remained in the custody and control of the carrier, albeit still unloaded.

Before Ganzon could be absolved from responsibility on the ground that he was
ordered by competent public authority to unload the scrap iron, it must be shown
that Acting Mayor Basilio Rub had the power to issue the disputed order, or that it
was lawful, or that it was issued under legal process of authority. The appellee
failed to establish this. Indeed, no authority or power of the acting mayor to issue
such an order was given in evidence. Neither has it been shown that the cargo of
scrap iron belonged to the Municipality of Mariveles. What we have in the record
is the stipulation of the parties that the cargo of scrap iron was accumulated by
the appellant through separate purchases here and there from private
individuals. The fact remains that the order given by the acting mayor to dump
the scrap iron into the sea was part of the pressure applied by Mayor Jose
Advincula to shakedown Tumambing for P5,000.00. The order of the acting
mayor did not constitute valid authority for Ganzon and his representatives to
carry out.

36
EASTERN SHIPPING LINES V BPI/IMS INSURANCE CORP
Gr No. 193986
January 15, 2014

Topic: Obligation of the parties in the contract of carriage

Facts:
Sumitomo shipped through MV Eastern Challenger a vessel owned by
petitioner, 31 various steel sheets in coil from Yokohama, Japan for delivery in
favor of the consignee Calamba Steel. The cargo was insured against all risk by
Sumitomo with respondent. In September 2003, the shipment arrived at the port
of Manila. Upon unloading from the vessel, nine coils were observed to be in bad
condition. The cargo was then turned over to Asian Terminals, Inc. (ATI) for
storage and safekeeping. When ATI delivered the cargo to Calamba Steel, the
latter rejected its damaged portion for being unfit for its intended purpose. Two
more similar incidents happened after that. 11 out of the 28 steel sheets in coil of
a second shipment suffered the same fate and another 6 out of 117 steel sheets
from a third shipment. Calamba Steel filed an insurance claim with Mitsui through
the latters settling agent, respondent BPI/MS and the former was paid and later
on, as the subrogee, Mitsui and BPI/MS filed a Complaint for Damages against
petitioner and ATI. The RTC decided against Eastern Shipping Lines. CA
Affirmed RTCs decision, adding that ATI is also negligent in handling the
cargoes.

Issue: Whether or not the CA committed any reversible error in finding that
petitioner is solidarily liable with ATI on account of the damage incurred by the
goods.

Ruling: No.

Verily, it is settled in maritime law jurisprudence that cargoes while being

unloaded generally remain under the custody of the carrier. As hereinbefore
found by the RTC and affirmed by the CA based on the evidence presented, the
goods were damaged even before they were turned over to ATI. Such damage
was even compounded by the negligent acts of petitioner and ATI which both
mishandled the goods during the discharging operations. Thus, it bears stressing
unto petitioner that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. Subject to certain exceptions
enumerated under Article 1734 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them. Owing
to this high degree of diligence required of them, common carriers, as a general
rule, are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving

37
that they observed such high level of diligence. In this case, petitioner failed to
hurdle such burden.

38
WESTWIND SHIPPING CORPORATION vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC.,
G.R. No. 200289
November 25, 2013

Obligation of parties

FACTS:
Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197
metal containers/skids of tin-free steel for delivery to the consignee, San Miguel
Corporation (SMC). The shipment, was loaded and received clean on board M/V
Golden Harvest Voyage No. 66, a vessel owned and operated by Westwind
Shipping Corporation (Westwind). SMC insured the cargoes against all risks with
UCPB General Insurance Co., Inc. The shipment was discharged in the custody
of the arrastre operator, Asian Terminals, Inc. (ATI), During the unloading
operation, however, six containers/skids sustained dents and punctures from the
forklift used by the stevedores of Ocean Terminal Services, Inc. (OTSI) in
centering and shuttling the containers/skids. As a consequence, the local ship
agent of the vessel, Baliwag Shipping Agency, Inc., issued two Bad Order Cargo
Receipt. Orient Freight International, Inc. (OFII), the customs broker of SMC,
withdrew from ATI the 197 containers/skids, including the six in damaged
condition, and delivered the same at SMCs warehouse in Calamba, Laguna
through J.B. Limcaoco Trucking (JBL). It was discovered upon discharge that
additional nine containers/skids were also damaged due to the forklift operations;
thus, making the total number of 15 containers/skids in bad order. SMC filed a
claim against UCPB, Westwind, ATI, and OFII to recover the amount
corresponding to the damaged 15 containers/skids. UCPB instituted on a
complaint for damages against Westwind, ATI, and OFII. RTC dismissed UCPBs
complaint and the counterclaims of Westwind, ATI, and OFII. It ruled that the
right, if any, against ATI already prescribed based on the stipulation in the 16
Cargo Gate Passes issued, RTC ruled against UCPBs claim. On appeal by
UCPB, the CA reversed and set aside the trial court. For the CA, Westwind, not
ATI, is responsible for the six damaged containers/skids at the time of its
unloading. Westwind argues that its responsibility already ceased from the
moment the cargoes were delivered to ATI, which is reckoned from the moment
the goods were taken into the latters custody. OFII maintains that it is not a
common carrier but only a customs broker whose participation is limited to
facilitating withdrawal of the shipment.

ISSUE: WON petitioners obligation ceased from the moment the cargoes were
delivered to ATI?

RULING:
NO. The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping,
Inc. applies, as it settled the query on which between a common carrier and an
arrastre operator should be responsible for damage or loss incurred by the
shipment during its unloading. We elucidated at length:

Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. Subject to certain exceptions enumerated under

39
Article 1734 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. The extraordinary responsibility of the
common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them. On the other hand, the functions of an
arrastre operator involve the handling of cargo deposited on the wharf or
between the establishment of the consignee or shipper and the ship's tackle.
Being the custodian of the goods discharged from a vessel, an arrastre
operator's duty is to take good care of the goods and to turn them over to the
party entitled to their possession. Handling cargo is mainly the arrastre operator's
principal work so its drivers/operators or employees should observe the
standards and measures necessary to prevent losses and damage to shipments
under its custody. In Regional Container Lines (RCL) of Singapore v. The
Netherlands Insurance Co. (Philippines), Inc.and Asian Terminals, Inc. v. Philam
Insurance Co., Inc., the Court echoed the doctrine that cargoes, while being
unloaded, generally remain under the custody of the carrier. What Westwind
failed to realize is that the extraordinary responsibility of the common carrier lasts
until the time the goods are actually or constructively delivered by the carrier to
the consignee or to the person who has a right to receive them. There is actual
delivery in contracts for the transport of goods when possession has been turned
over to the consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods. In this case, since the discharging of the
containers/skids, which were covered by only one bill of lading, had not yet been
completed at the time the damage occurred, there is no reason to imply that
there was already delivery, actual or constructive, of the cargoes to ATI.

40
Republic of the Philippines v Lorenzo Shipping Corporation
G.R.No. 153563
February 7, 2005

Transportation of Goods

Facts:
The government of the Philippines entered into a contract of carriage of goods
with National Trucking and Forwarding Corporation (NTFC) for the transport of
non-fat dried milk from the United States government donations based on an
agreement of the Philippine government through the Department of Health
(DOH) and the Cooperative for American Relief Everywhere, Inc. (CARE) which
the Philippines would distribute to intended beneficiaries in the country. Thus,
NTFC shipped the said goods through respondent Lorenzo Shipping Corporation
(LSC). The consignee named in the bills of lading was Abdurahman Jama,
petitioners branch supervisor in Zamboanga City.

On reaching Zamboanga City, LSCs agent, Efren Ruste Shipping Agency,

unloaded tge goods to petitioners warehouse. Before each delivery, Rogelio
RIzada and Ismael Zamora, both delivery checkers of the agency requested
Abdurahman to surrender the original bills of lading, but the latter merely
presented certified true copies thereof. After completion of each delivery, the
checkers asked Abdurahman to sign delivery receipts, however, Abdurahman
had to attend to other business and instructed his subordinates to sign the
delivery receipts for him. Allegedly, the petitioner did not receive subject goods.
Thus, NTFC filed a formal claim for non-delivery of the goods shipped. LSC
replied that the goods had already been delivered. An investigation was
conducted by petitioner. Before the investigation was over, Abdurahman
resigned as branch supervisor of petitioner. Petitioner, filed an action for breach
of contract of carriage against LSC in the RTC of Manila. After trial, the RTC
rendered judgment in favor of LSC. Aggrieved, the government appealed to the
CA which affirmed the RTCs judgment.

Issue:
Whether LSC breached the contract of carriage and should be held liable

Ruling:
No. Article 1733 of the Civil Code demands that a common carrier observe
extraordinary diligence over the goods transported by it. In the instant case, LSC
was able to prove that it exercised the diligence required of it. Although, the
original bills of lading remained with the petitioner, the respondent LSC
demanded for certified true copies and asked the petitioners supervisor and in
his absence the supervisors subordinates to sign the cargo delivery receipts.

41
Macam vs. Court of Appeals
G.R. No. 125524
August 25, 1999

Topics: Duty to deliver in carriage of goods

Facts:

Macam shipped thousands of boxes of fruits on board a vessel owned and

operated by China Ocean Shipping Co. through its local agent Wallem Philippine
Shipping, Inc. The shipment was bound for Hong Kong with Pakistan Bank as
consignee and GPC as notify party. Meanwhile, petitioners depositary bank,
Solidbank, paid petitioner Macam in advance the total value of the shipment. The
bills of lading contained the following pertinent provision: one of the bills of
lading must be surrendered duly endorsed in exchange for the goods or delivery
order. Upon arrival in Hong Kong, the shipment was delivered by Wallem
directly to GPC, not Pakistan Bank, and without surrender of the required bill of
lading. Subsequently, GPC failed to pay Pakistan Bank such that the latter, still in
possession of the original bills of lading, refused to pay petitioner through
Solidbank. Solidbank demanded payment from Wallem but was refused.
Petitioner Macam was thus constrained to return the amount advanced by
Solidbank. Petitioner then demanded payment from Wallem but to no avail.

Hence, petitioner sued respondents for collection of the total value of the
shipment based on delivery of the shipment to GPC without presentation of the
bills of lading and bank guarantee.

Respondents argued inter alia that the shipment was delivered to GPC without
presentation of the bills of lading and bank guarantee per telex
instruction/request of petitioner himself. Further, it has been this way concerning
similar shipments. RTC favored petitioner, but CA ruled for the respondents.

Issue:

Was there fulfillment of the duty to deliver by the respondents?

Ruling:

Yes. The extraordinary responsibility of common carriers lasts until actual or

constructive delivery of the cargoes to the consignee or to the person who has
the right to receive them. In the case at bar, GPC was indicated in the bills of
lading only as a notify party. However, in the export invoices GPC was clearly
named as buyer/importer. Petitioner also referred to GPC as such in his demand
letters. Per telex instruction, GPC was named as consignee, and delivery without
presentation of the bills of lading was arranged. Hence, delivery to GPC as
buyer/importer was proper. Consequently, the duty of the carrier to deliver the
goods was fulfilled. Respondents are not liable.

42
PHILAMGEN VS CA AND FELMAN
G.R. No. 116940
June 11, 1997

TRANSPORTATION OF GOODS

Facts:
Coca-Cola Bottlers Philippines, Inc., loaded on MV Asilda owned and
operated by respondent Felman Shipping Lines (FELMAN), 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu
City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. The shipment
was insured with petitioner Philippine American General Insurance Co., Inc.
(PHILAMGEN), under a Marine Open Policy. The vessel sank in the waters of
Zamboanga del Norte bringing down its entire cargo ncluding the 7,500 cases of
1-liter Coca-Cola softdrink bottles. Coca-Cola Bottlers Philippines, Inc., Cebu
plant, filed a claim with respondent FELMAN for recovery of damages.
PHILMAGEN after paying Coca Cola the amount of P755,250.00, subrogated
itself.

PHILAMGEN alleged that: (1) The sinking and total loss of the vessel and
its cargo were due to the vessels unseaworthiness as she was put to sea in an
unstable condition; (2) that the vessel was improperly manned and that its
officers were grossly negligent in failing to take appropriate measures to proceed
to a nearby port or beach after the vessel started to list.

FELMAN on the other hand argues that no right of subrogation in favor of

PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN
had abandoned all its rights, interests and ownership over the vessel together
with her freight and appurtenances for the purpose of limiting and extinguishing
its liability under Art. 587 of the Code of Commerce.

Court of Appeals found MV Asilda unseaworthy for being top- heavy as

2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. The
vessel was seaworthy with respect to the structure of the ship itself, but it was not
seaworthy with respect to the cargo. Nonetheless, the appellate court denied the
claim of PHILAMGEN on the ground that the assureds implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not
properly subrogated to the rights and interests of the shipper. Furthermore,
respondent court held that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.

Issue:
Whether or not PHILAMGEN was properly subrogated to the rights and
legal actions which the shipper had against FELMAN, the shipowner.

Ruling:
Yes. Felman was liable. The general rule is that a person cannot claim on
an insurance policy if there has been a violation of the implied warranty of
seaworthiness. In this case, however, PHILAMGEN had in its policy an
admission of seaworthiness," in effect, seaworthiness is presumed and the
insured may claim despite the absence of seaworthiness. Hence, PHILAMGEN

43
as subrogee has a claim against Felman based on Art. 2207 of the Civil Code
which provides: If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury. Also, as ruled in the case
Pan Malayan Insurance Corporation v. Court of Appeals, we said that payment
by the assurer to the assured operates as an equitable assignment to the assurer
of all the remedies which the assured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or upon payment
by the insurance company of the insurance claim. It accrues simply upon
payment by the insurance company of the insurance claim. The payment made
by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right
to bring an action as subrogee against FELMAN. Having failed to rebut the
presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-
liter Coca-Cola softdrink bottles is inevitable.

44
CENTRAL SHIPPING CO., INC. vs. INSURANCE CO. OF NORTH AMERICA
G.R. No. 150751
September 20, 2004

TRANSPORTATION OF GOODS

FACTS:
The petitioner received on board its vessel 376 pieces of Philippine Apitong
Round Logs and undertook to transport said shipment to Manila for delivery. The
cargo was insured for P3M against total loss under the defendant. While enroute
to Manila, the vessel encountered a monsoon and lost its balance due to the
shifting of logs in the hold, until it completely sank and cargo was totally lost.

The RTC was unconvinced that the sinking of M/V Central Bohol had been
caused by the weather or any other caso fortuito and held that the petitioner shall
be liable for the loss of the cargo, to which the CA affirmed. Hence, the petition.

ISSUE:
Whether or not petitioner should be liable for the loss of the cargo

RULING:
Yes. From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case. In the event of loss,
destruction or deterioration of the insured goods, common carriers are
responsible; that is, unless they can prove that such loss, destruction or
deterioration was brought about -- among others -- by "flood, storm, earthquake,
lightning or other natural disaster or calamity. In all other cases not specified
under Article 1734 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.

Even if the weather encountered by the ship is to be deemed a natural

disaster under Article 1739 of the Civil Code, petitioner failed to show that such
natural disaster or calamity was the proximate and only cause of the loss. Human
agency must be entirely excluded from the cause of injury or loss. In other words,
the damaging effects blamed on the event or phenomenon must not have been
caused, contributed to, or worsened by the presence of human participation. The
defense of fortuitous event or natural disaster cannot be successfully made when
the injury could have been avoided by human precaution.

45
Nocum v. Laguna Tayabas Bus Co.
L-23733, October 31, 1961

Facts:
Herminio Nocum filed a case against Laguna Tayabas Bus Co. for damages.
Nocum was a passenger in Laguna Tayabas Bus No. 120 making a trip within
the barrio of Dita, Municipality of Bay, Laguna. Nocum and other passengers
were injured and as a consequence of the explosion of firecrackers, contained in
a box, loaded in said bus. The contents of the box was declared to its conductor
as containing clothes and miscellaneous items by a co-passenger. The bus
conductor did not opened the box relying on the word of the owner.

The CFI ruled that Laguna Tayabas Bus Co. is liable because extraordinary or
utmost diligence of a very cautious person was not observed. The service
manual prohibits the employees to allow explosives, such as dynamite and
firecrackers to be transported on its buses. To implement this particular rule for
the safety of passengers, it was therefore incumbent upon the employees of the
company to make the proper inspection of all the baggages which are carried by
the passengers. If proper and rigid inspection were observed by the defendant,
the contents of the box could have been discovered and the accident avoided.

Issue:
Whether or not Laguna Tayabas Bus Co. is obliged to conduct proper and rigid
inspection of passenger goods to exercise extraordinary diligence for common
carriers?

Ruling:
No. Article 1733 is not as unbending as the lower court held, for it reasonably
qualifies the extraordinary diligence required of common carriers for the safety of
passengers transported by them to be according to all the circumstances of
each case. In fact, Article 1755 repeats this same qualification: A common
carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with
due regard for all the circumstances.

Fairness demands that in measuring a common carriers duty towards its

passengers, allowance must be given to the reliance that should be reposed on
the sense of responsibility of all the passengers in regard to their common safety.
It is to be presumed that a passenger will not take with him anything dangerous
to the lives and limbs of his co-passenger, not to speak of his own. Not to be
lightly considered must be the right to privacy to which each passenger is
entitled. He cannot be subjected to any unusual search, when he protests the
innocuousness of his baggage and nothing appears to indicate the contrary, as in
the case at bar. There is need for evidence of circumstances indicating cause or
causes for apprehension that the passengers baggage is dangerous and that it
is failure of common carriers employees to act in that face of such evidence that
constitutes the cornerstone of the common carriers liability.

46
 Shippers Right to Abandon

47
Magellan Marketing Mfg. Corp. v. Court of Appeals
G.R. No. 95529
August 22, 1991

Shippers Right to Abandon

Facts:
Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with
Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of credit was issued to
plaintiff MMMC by the buyer. MMMC then contracted F.E. Zuellig, a shipping
agent, to ship the anahaw fans through the other appellee, Orient Overseas
Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of
lading and that transhipment is not allowed under the letter of credit. However,
MMMC was informed that the payment was refused by the buyer allegedly
because there was no on-board bill of lading, and there was a transhipment of
goods. As a result of the refusal of the buyer to accept the anahaw fans were
shipped back to Manila by Zuelig, for which the latter demanded from appellant
payment of P246,043.43. MMMC opted to abandon the cargo in exchange for the
demurrages.

Issue:
Whether or not MMMC has the right to abandon the whole cargo.

Ruling:
Ordinarily, the shipper is liable for freightage due to the fact that the shipment
was made for its benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services. This is particularly true in this
case where the reshipment of the goods was made at the instance of petitioner.
However, Zuelig belatedly informed MMMC of the arrival of its goods from Japan
and that if it wished to take delivery of the cargo it would have to pay P51,271.02,
but was given the option to have the cargo auctioned to recover the costs
involved. Clearly, therefore, private respondents unequivocally offered petitioner
the option of paying the shipping and demurrage charges in order to take delivery
of the goods or of abandoning the same so that private respondents could sell
them at public auction and thereafter apply the proceeds in payment of the
shipping and other charges. Having given such option, especially since it was
accepted by petitioner, private respondents are estopped from reneging thereon.
It will be remembered that in overland transportation, an unreasonable delay in
the delivery of transported goods is sufficient ground for the abandonment of
goods. By analogy, this can also apply to maritime transportation. Further, with
much more reason can petitioner in the instant case properly abandon the goods,
not only because of the unreasonable delay in its delivery but because of the
option which was categorically granted to and exercised by it as a means of
settling its liability for the cost and expenses of reshipment. And, said choice
having been duly communicated, the same is binding upon the parties on legal
and equitable considerations of estoppel.

48
 Transportation of Passengers

49
TRANS-ASIA SHIPPING LINES, Inc. v COURT OF APPEALS
GR No. 118126, March 4, 1996

Transportation of Passengers

FACTS:

Private respondent Atty. Renato Arroyo bought a ticket from Petitioner

Corporation engaged in inter-island shipping, for the voyage of M/V Asia
Thailand vessel to Cagayan de Oro City from Cebu City on November 12, 1991.
When private respondent boarded the said vessel, at that instance, he noticed
that some repair works were being undertaken on the engine of the vessel. After
an hour of slow voyage, the vessel stopped near Kawit Island. After half an hour
of stillness, some passengers demanded that they should be allowed to return to
Cebu City for they were no longer willing to continue their voyage to, Cagayan de
Oro City. The captain acceded to their request and thus the vessel headed back
to Cebu City. At Cebu City, private respondent together with the other
passengers who requested to be brought back to Cebu City, were allowed to
disembark. Thereafter, the vessel proceeded to Cagayan de Oro City. Atty.
Arroyo, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de
Oro City, likewise a vessel of defendant. On account of this failure of defendant
to transport him to the place of destination on November 12, 1991, plaintiff filed
before the trial court a complaint for damages against defendant.

The RTC ruled in favor of the Petitioner Corporation. If the plaintiff,

therefore, was not able to make the trip that night it was not because defendant
maliciously did it to exclude him from the trip. If he was left, it was because of his
fault or negligence. The CA reversed the decision of the RTC by applying Article
1755 in relation to Articles 2201, 2208, 2217, and 2232 of the Civil Code.

ISSUE: Whether there was a breach of contract of common carriage

HELD:
Undoubtedly, there was, between the petitioner and the private
respondent, a contract of common carriage. Pursuant to Article 1755 of the said
Code, petitioner bound to carry the private respondent safely as far as human
care and foresight could provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. In this case, petitioner failed
to discharge this obligation. Before commencing the contracted voyage, the
petitioner undertook some repairs on the cylinder head of one of the vessel's
engines. But even before it could finish these repairs, it allowed the vessel to
leave the port of origin on only one functioning engine, instead of two. Plainly, the
vessel was unseaworthy even before the voyage began. The failure of a common
carrier to maintain in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.
However, the petitioner is not liable for any pecuniary loss or loss of profit to
Private respondent. For the private respondent, such would be the loss of income
if unable to report to his office on the day he was supposed to arrive were it not
for the delay. This, however, assumes that he stayed on the vessel and was with
it when it thereafter resumed its voyage; but he did not. Any further delay then in

50
the private respondent's arrival at the port of destination was caused by his
decision to disembark.

51
La Mallorca v. Court of Appeals
G.R. No. L-20761
July 27, 1966
Transportation of Passengers

FACTS: On December 20, 1953, at about noon time, plaintiffs husband and wife,
together with their minor daughters, Milagros, 13 years old. Raquel, about 4 1/2
years old, and Fe, over 2 years old, boarded the Pambusco Bus No. 352 with
plate number TPU No. 757 owned an operated by the defendant at San
Fernando, Pampanga bound for Anao, Mexico, Pampanga. At that time, they
were carrying with them four pieces of baggages. After about an hour's trip, the
bus reached Anao whereat it stopped to allow the passengers to get off. Mariano
Beltran, then carrying some of their baggages was the first to get down the bus,
followed by his wife and his children. Mariano led his companions to a shaded
spot on the left pedestrians side of the road about four or five meters away from
the vehicle. Afterwards, he returned to the to get his other bayong, which he had
left behind, but in so doing, his daughter Raquel followed him, unnoticed by her
father. While said Mariano Beltran was on the running board of the bus waiting
for the conductor to hand him his bayong which he left under one of its seats
near the door, the bus, whose motor was not shut off while unloading, suddenly
started moving forward , evidently to resume its trip, notwithstanding the fact that
the conductor has not given the driver the customary signal to start, since said
conductor was still attending to the baggage left behind by Mariano Beltran.
Incidentally, when the bus was again placed into a complete stop, it had travelled
about ten meters from the point where the plaintiffs had gotten off. Sensing that
the bus was again in motion, Mariano Beltran immediately jumped from the
running board without getting his bayong from the conductor. That was the time
when he saw his daughter Raquel lying prostrate on the ground, her skull
crushed and without life. She was run over by the said bus. Thus, the plaintiff
commenced a suit against defendant seeking to recover from the latter an
amount of P16,000 to cover moral and actual damages.

ISSUE: whether as to the child, who was already led by the father to a place
about 5 meters away from the bus, the liability of the carrier for her safety under
the contract of carriage also persisted.

HELD: It has been recognized as a rule that the relation of carrier and passenger
does not cease at the moment the passenger alights from the carrier's vehicle at
a place selected by the carrier at the point of destination, but continues until the
passenger has had a reasonable time or a reasonable opportunity to leave the
carrier's premises. And, what is a reasonable time or a reasonable delay within
this rule is to be determined from all the circumstances. In the present case, the
father returned to the bus to get one of his baggages which was not unloaded
when they alighted from the bus. Raquel, the child that she was, must have
followed the father. However, although the father was still on the running board of
the bus awaiting for the conductor to hand him the bag or bayong, the bus
started to run, so that even he (the father) had to jump down from the moving
vehicle. It was at this instance that the child, who must be near the bus, was run
over and killed. In the circumstances, it cannot be claimed that the carrier's agent
had exercised the "utmost diligence" of a "very cautions person" required by
Article 1755 of the Civil Code to be observed by a common carrier in the

52
discharge of its obligation to transport safely its passengers. In the first place, the
driver, although stopping the bus, nevertheless did not put off the engine.
Secondly, he started to run the bus even before the bus conductor gave him the
signal to go and while the latter was still unloading part of the baggages of the
passengers Mariano Beltran and family. The presence of said passengers near
the bus was not unreasonable and they are, therefore, to be considered still as
passengers of the carrier, entitled to the protection under their contract of
carriage.

53
Aboitiz Shipping Corporation vs. Court of Appeals
G.R. No. 84458, November 6, 1989

Facts:
Anacleto Viana boarded MV Antonio from Occidental Mindoro bound to
Manila. Upon arrival, passengers disembarked through a gangplank connecting
the vessel to the pier. Viana disembarked through the third deck, instead of
disembarking through the gangplank. After the passengers have disembarked,
Pioneer Stevedoring Corp. pursuant to the Memorandum of Agreement with
Aboitiz Shipping Corp. started to unload the cargo from the ship. Viana went
back to the vessel upon realizing that he left some of his cargoes in the vessel.
While he was pointing at the crew of the vessel to where his cargoes were
loaded, a crane has hit him, pinning him between the crane and the side of the
vessel. He died three days after.

Vianas parents filed a complaint against Aboitiz for breach of contract of

carriage. Aboitiz argues that it should not be held liable since an hour has
already lapsed from the time Viana disembarked from the vessel and that he was
given more than ample time to unload his cargoes prior to the operation of the
crane. Aboitiz contends that Vianas presence in the vessel was no longer
reasonable and at that moment he was no longer a passenger of the vessel.

Issue:
Was Viana still considered a passenger of the vessel at the time of the
incident?

Ruling:
Yes. The relation of carrier and passenger continues until the passenger
has been landed at the port of destination and has left the vessels owner dock or
premises. Once created, the relationship will not ordinarily terminate until the
passenger has safely alighted from the carriers conveyance or had reasonable
opportunity to leave the carriers premises. All persons who remain on the
premises after leaving the conveyance are to be deemed passengers. What is
reasonable time or reasonable delay within this rule is to be determined from all
the circumstances and includes a reasonable time to see after his baggage and
prepare for his departure. The carrier-passenger relationship is not terminated
merely by the fact that the person transported has been carried to his destination
if, for example, such person remains in the carriers premises to claim his
baggage.

Petitioner failed to prove that one hour prior the incident, the victim had
already disembarked from the vessel. What is clear is that at the time the victim
was taking the cargoes, the vessel had already docked an hour later. In
consonance with common shipping procedure as to the minimum time of one
hour allowed for the passengers to disembark, it may be presumed that the
victim had just gotten off the vessel when he went to retrieve his baggage. Even
if he had disembarked an hour earlier, his presence in petitioners premises was
not without cause. The victim had to claim his baggage which was possible only
one hour after the vessel arrived since it was admittedly standard procedure in
the case of petitioners vessels that the unloading operations shall start only after
that time.

54
 Consequently, after the foregoing circumstances, the victim Viana is still
deemed to be a passenger of the said carrier at the time of the incident. The
reasonableness of time should be made to depend on the attending
circumstances of the case, such as the kind of common carrier, the nature of the
business, the customs of the place, and so forth, and therefore precludes a
consideration of the time element per se without taking into account such other
factors.

55
Dangwa Transportation Co., Inc. vs. CA
G.R. No. 95582
October 7, 1991

OBLIGATIONS OF THE PARTIES IN THE CONTRACT OF CARRIAGE

Transportation of Passengers

FACTS:

Pedro Cudiamat died in vehicular accident in March 25, 1985 because petitioner
Lardizabal, who was driving the passenger bus, made a sudden jerk movement
and commenced to accelerate the bus while Cudiamat was boarding the said bus
which caused Cudiamat to fall from the platform and was run over by the rear
right tires of the bus. In short, the driver was negligent in prematurely stepping on
the accelerator and in not waiting for the passenger to first secure his seat
especially we take into account that the platform of the bus was at the time
slippery and wet because of a drizzle.

ISSUE:

Whether the driver of the bus was negligent

RULING:

Yes. When the bus is not in motion there is no necessity for a person who wants
to ride the same to signal his intention to board. A public utility bus, once it stops,
is in effect making a continuous offer to bus riders. Hence, it becomes the duty of
the driver and the conductor, every time the bus stops, to do no act that would
have the effect of increasing the peril to a passenger while he was attempting to
board the same. The premature acceleration of the bus in this case was a breach
of such duty.

It is the duty of common carriers of passengers, to stop their conveyances a

reasonable length of time in order to afford passengers an opportunity to board
and enter, and they are liable for injuries suffered by boarding passengers
resulting from the sudden starting up or jerking of their conveyances while they
are doing so.

The victim herein, by stepping and standing on the platform of the bus, is already
considered a passenger and is entitled all the rights and protection pertaining to
such a contractual relation.

The court need not make an express finding of fault or negligence on the part of
the carrier in order to hold it responsible to pay the damages sought by the
passenger. By contract of carriage, the carrier assumes the express obligation to
transport the passenger to his destination safely and observe extraordinary
diligence with a due regard for all the circumstances, and any injury that might be
suffered by the passenger is right away attributable to the fault or negligence of
the carrier.

56
SPOUSES TEODORO and NANETTE PERENA v. SPOUSES NICOLAS and
TERESITA L. ZARATE, PHILIPPINE NATIONAL RAILWAYS, and the COURT
OF APPEALS
G.R. No. 157917 ; August 29, 2012

FACTS: Spouses Teodoro and Nanette Peres (Peres) were engaged in the
business of transporting students from their respective residences in Paraque
City to Don Bosco in Pasong Tamo, Makati City, and back. They employed
Clemente Alfaro (Alfaro) as driver of the van. Spouses Nicolas and Teresita
Zarate (Zarates) contracted the Peres to transport their son Aaron to and from
Don Bosco. Considering that the students were due at Don Bosco by 7:15 a.m.,
and that they were already running late because of the heavy vehicular traffic on
the South Superhighway, Alfaro took the van to an alternate route at about 6:45
a.m. by traversing the narrow path underneath the Magallanes Interchange. The
railroad crossing in the narrow path had no railroad warning signs, or watchmen,
or other responsible persons manning the crossing. In fact, the bamboo
barandilla was up, leaving the railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter
No. 302 (train), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van
eastward across the railroad tracks, closely tailing a large passenger bus. His
view of the oncoming train was blocked because he overtook the passenger bus
on its left side. The train blew its horn to warn motorists of its approach. The
passenger bus successfully crossed the railroad tracks, but the van driven by
Alfaro did not. The impact threw nine of the 12 students in the rear, including
Aaron, out of the van. Aaron landed in the path of the train, which dragged his
body and severed his head, instantaneously killing him.

ISSUES: Whether or not the defense of due diligence of a good father by the
Pereas is untenable. Whether or not the award of damages for loss of income is
proper.

HELD: Yes, in both issues.Defense of Due Diligence of a Good Father. This

defense is not tenable in this case. The Pereas are common carriers. They are
not merely private carriers. (Prior to this case, the status of private transport for
school services or school buses is not well settled as to whether or not they are
private or common carriers but they were generally regarded as private
carriers). Private transport for schools are common carriers. The Pereas, as the
operators of a school bus service were: (a) engaged in transporting passengers
generally as a business, not just as a casual occupation; (b) undertaking to carry
passengers over established roads by the method by which the business was
conducted; and (c) transporting students for a fee. Despite catering to a limited
clientle, the Pereas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a
particular school living within or near where they operated the service and for a
fee. Being a common carrier, what is required of the Pereas is not mere
diligence of a good father. What is specifically required from them by law is
extraordinary diligence a fact which they failed to prove in court. Verily, their
obligation as common carriers did not cease upon their exercise of diligently
choosing Alfaro as their employee.

57
 Presumption of Negligence

58
PLANTERS PRODUCTS INC v CA
Gr No. 101503
September 15, 1993

Topic: Presumption of Negligence

Facts:
Planters Products, Inc. (PPI), purchased from Mitsubishi International
Corporation (MITSUBISHI) 9,329.7069 metric tons of Urea 46% fertilizer which
the latter shipped in aboard the cargo vessel M/V "Sun Plum" owned by private
respondent Kyosei Kisen Kabushiki Kaisha (KKKK). Prior to its voyage, a time-
charter party was entered into between Mitsubishi as shipper, and KKKK a as
shipowner. Before loading the fertilizer aboard the vessel, 4 of her holds were
presumably inspected by the charterers representative and found it fit to take the
load. After loading the cargo, the steel hatches were closed with heavy iron lids,
covered with 3 layers of tarpaulin then tied with steel bonds. It remained sealed
throughout the entire voyage. Petitioner unloaded the cargo into its steelbodied
dump trucks using metal scoops attached to the ship. Each time a dump truck
was filled up, its load of urea was covered with tarpaulin before it was transported
to the consignees warehouse located some 50 meters from the wharf. The port
area was windy, certain portions of the route to the warehouse were sandy and
the weather was variable, raining occasionally while the discharge was in
progress. After 11 days of unloading the cargo, a private marine and cargo
surveyor was hired by PPI to determine the outturn of the cargo shipped. The
survey revealed a shortage in the cargo and that a portion of the Urea fertilizer
was contaminated with dirt. PPI filed an action for damages. The defendants
argued that strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the
charter-party.

Issue: WON a charter-party between a shipowner and a charterer transform a

common carrier into a private one as to negate the civil law presumption of
negligence in case of loss or damage to its cargo.

Ruling: No.
A "charter-party" is defined as a contract by which an entire ship, or
some principal part thereof, is let by the owner to another person for a specified
time or use; a contract of affreightment by which the owner of a ship or other
vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of
freight; Charter parties are of two types: (a) contract of affreightment which
involves the use of shipping space on vessels leased by the owner in part or as a
whole, to carry goods for others; and, (b) charter by demise or bareboat charter,
by the terms of which the whole vessel is let to the charterer with a transfer to
him of its entire command and possession and consequent control over its
navigation, including the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased
for a single voyage. In both cases, the charter-party provides for the hire of
vessel only, either for a determinate period of time or for a single or consecutive
voyage, the shipowner to supply the ship's stores, pay for the wages of the

59
master and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732
of the Civil Code. The distinction between a "common or public carrier" and a
"private or special carrier" lies in the character of the business, such that if the
undertaking is a single transaction, not a part of the general business or
occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. Article 1733 of the New Civil
Code mandates that common carriers, by reason of the nature of their business,
should observe extraordinary diligence in the vigilance over the goods they carry.
In the case of private carriers, however, the exercise of ordinary diligence in the
carriage of goods will suffice. Moreover, in the case of loss, destruction or
deterioration of the goods, common carriers are presumed to have been at fault
or to have acted negligently, and the burden of proving otherwise rests on them.
On the contrary, no such presumption applies to private carriers, for whosoever
alleges damage to or deterioration of the goods carried has the onus of proving
that the cause was the negligence of the carrier.

It is therefore imperative that a public carrier shall remain as such,

notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-
charter or voyage-charter. It is only when the charter includes both the vessel
and its crew, as in a bareboat or demise that a common carrier becomes private,
at least insofar as the particular voyage covering the charter-party is concerned.
Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of
the charterer.

To our mind, respondent carrier has sufficiently overcome, by clear and

convincing proof, the prima facie presumption of negligence. The primary cause
of these spillages is the clamped shell which does not seal very tightly. Also, the
wind tends to blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused
either by an extremely high temperature in its place of storage, or when it comes
in contact with water. When Urea is drenched in water, either fresh or saline,
some of its particles dissolve. But the salvaged portion which is in liquid form still
remains potent and usable although no longer saleable in its original market
value. The probability of the cargo being damaged or getting mixed or
contaminated with foreign particles was made greater by the fact that the fertilizer
was transported in "bulk," thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it. Indeed, we agree with respondent carrier that bulk
shipment of highly soluble goods like fertilizer carries with it the risk of loss or
damage. More so, with a variable weather condition prevalent during its
unloading, as was the case at bar. This is a risk the shipper or the owner of the
goods has to face. Clearly, respondent carrier has sufficiently proved the inherent
character of the goods which makes it highly vulnerable to deterioration; as well
as the inadequacy of its packaging which further contributed to the loss. On the
other hand, no proof was adduced by the petitioner showing that the carrier was
remise in the exercise of due diligence in order to minimize the loss or damage to
the goods it carried.

60
Regional Container Lines of Singapore (RCL) v. The Netherlands Insurance Co.
(Philippines), inc.
GR No. 168151 September 4, 2009

Topic: Presumption of Negligence

Facts:
RCL is a foreign corporation and does business in the Philippines through its
agent Edsa Shipping. Netherlands insurance is a domestic corporation engaged
in the maritime underwriting business. 405 cartons of epoxy molding were
assigned to be shipped from Singapore to Manila for Temic Philippines. U freight
Sinpagapore contracted the services of Pacific Eagle to transport the cargo. The
cargo was packed and sealed in a refrigerated container and since such was
highly perishable, the inside of the container had to be kept at a 0 Celsius.
Pacific then loaded the container on board M/V Pilfa Blum, a vessel owned by
RCL of which the Pacific had a slot charter agreement. RCL issued its own bill of
lading in favor of Pacific to insure the cargo against loss and damage.
Netherlands issued an insurance policy in favor of Temic. Rocha, the VP for
operations of marines adjustment corp. found that when the cargo had already
been unloaded from the ship, the temperature fluctuated with a reading of
33celsius. Rocha believed that fluctuation was caused by the burnt condensed
fan motor of the refrigerated container. Temic received the shipment. It found the
cargo completely damaged. Netherland Insurance filed a complaint for
subrogation of insurance settlement with the RTC of Manila against the unknown
owners of M/V Blum and TMS ship agencies. Netherlands amended the
complaint to include Edsa shipping, RCL et. al. RCL and Edsa insisted that
Netherlands failed to establish that any diligence on their part or that the loss was
sustained while the cargo was in their custody. TC ruled in favor of RCL. CA
reversed TCs decision and ruled in favor of Netherlands.

ISSUE: WON the CA correctly held RCL and Edsa Shipping liable as common
carriers under the theory of presumption of negligence?

RULING:
YES. A common carrier is presumed to have been negligent if it fails to prove
that it exercised extraordinary vigilance over the goods it transported. When the
goods shipped are either lost or arrived in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence and there need
not be an express findings of negligence to hold it liable. To overcome the
presumption of negligence of common carrier, the common carrier must establish
by adequate proof that it exercise extraordinary diligence over the goods. It must
also be more than merely showing that some other party would be responsible
for the damage. RCL and Edsa shipping failed to prove that they did exercise
that degree of diligence required by law over the goods they transported. There
is sufficient evidence that the fluctuation of the temperature as recorded in the
temperature chart, occurred after the cargo had been discharged from the vessel
and was already under the custody of the arrastre operator ICTSI. It is settled in
maritime law jurisprudence that cargoes while being unloaded generally remaim
under the custody of the carrier. TCL and Edsa shipping failed to dispute this.

61
Aboitiz Shipping Corporation v New India Assurance Company, LTD
G.R.No. 156978
May 2, 2006

Presumption of Negligence

Facts:
Societe Francaise Des Colloides (Societe) loaded a cargo of textiles and
auxiliary chemicals from France in board a vessel owned by Franco-Belgian
Services, Inc (Franco) consigned to General Textile, Inc. (General) in Manila and
insured by respondent New India Assurance Company, LTD (New India). While
in Hongkong, the cargo was transferred to M/V Aboitiz for transshipment to
Manila.

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 path. To avoid the typhoon, the vessel
changed course. However, it was still caught by the typhoon which resulted to a
hull breach, the sinking of the vessel and the loss of the cargo.

Issue:
Whether petitioner is liable for the loss of the cargo

Ruling:
Yes. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence over the goods they
transport and in case of loss, destruction, or deterioration of the goods are
responsible for such unless they can prove that such extraordinary diligence was
observed by them.

In this case, the petitioners vessel was not seaworthy. This fault or negligence
on its part to ensure the seaworthiness of its vessel makes it liable for the loss of
the cargo.

62
Mariano, Jr. vs. Callejas
G.R. No. 166640
July 31, 2009

Topic: Presumption of negligence

Facts:

Dr. Frelinda Mariano died due to an accident involving the bus Celyrosa Express,
on which she was a passenger, and a truck. Her husband thus filed a complaint
for breach of contract of carriage against respondents Callejas, the bus owner,
and De Borja, the bus driver. Respondent Callejas filed a third-party complaint
against the owner of the truck. Meanwhile in another case, the truck driver Arcilla
was convicted of reckless imprudence resulting to homicide, multiple slight
physical injuries and damage to property. The trial court held the respondents
liable for damages. However, the Court of Appeals reversed the judgment stating
that the injury sustained by the petitioner was not due to respondents lack of
diligence and care.

Issue:

Did the respondents overcome the presumption of negligence?

Ruling:

Celyrosa Express, a common carrier, through its driver, respondent De Borja,

and its registered owner, respondent Callejas, has the express obligation "to
carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with a due regard for all the
circumstances," and to observe extraordinary diligence in the discharge of its
duty. The death of the wife of the petitioner gave rise to the presumption of
negligence of the carrier. To overcome the presumption, respondents have to
show that they observed extraordinary diligence in the discharge of their duty, or
that the accident was caused by a fortuitous event.

In the case at bar, the respondents were able to overcome the presumption of
negligence. The totality of evidence shows that the death of petitioners spouse
was caused by the reckless negligence of the driver of the trailer truck which lost
its brakes and bumped the passenger bus.

The evidence shows that before the collision, the passenger bus was cruising on
its rightful lane when the trailer truck coming from the opposite direction, on full
speed, suddenly swerved and encroached on its lane, and bumped the
passenger bus on its left middle portion. Respondent driver De Borja had every
right to expect that the trailer truck coming from the opposite direction would stay
on its proper lane. He was not expected to know that the trailer truck had lost its
brakes. The swerving of the trailer truck was abrupt and it was running on a fast
speed. Secondly, any doubt as to the culpability of the driver of the trailer truck
ought to vanish when he pleaded guilty to the charge of reckless imprudence
resulting to multiple slight physical injuries and damage to property.

63
HEIRS OF JOSE MARCIAL OCHOA VS G & S TRANSPORT CORP.
Gr. No. 170071 & 170125
March 9, 2011

PRESUMPTION OF NEGLIGENCE

Facts:
Jose Marcial K. Ochoa died while on board an Avis taxicab owned and
operated by G & S Transport Corporation, a common carrier. The death
certificate issued by the Office of the Civil Registrar of Quezon City cited the
cause of his death as vehicular accident it was found that the death of Jose
Marcial Ochoa was caused by negligence on the part of the taxicab driver
employed by G & S Transport Corporation, Bibiano Padilla. However, the taxicab
driver, Bibiano Padilla, was acquitted of the crime of reckless imprudence
resulting in homicide. Regardless, the petitioners alleged that respondent, as a
common carrier, was under legal obligation to observe and exercise
extraordinary diligence in transporting its passengers to their destination safely
and securely. The contract was entered the moment Ochoa entered the vehicle
owned by the respondent. The failure of the respondent, as evidenced by the
death of Ochoa, led the petitioners to aver that they, the respondents, are liable
for having breached the contract of common carriage.

Issue:
Whether or not the accident which led to Jose Marcials death was due to
the reckless driving and gross negligence of G & S driver.

Ruling:
Yes. What is clear from the records is that there existed a contract of
carriage between G & S, as the owner and operator of the Avis taxicab, and Jose
Marcial, as the passenger of said vehicle. As a common carrier, G & S "is bound
to carry [Jose Marcial] safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all the
circumstances." However, Jose Marcial was not able to reach his destination
safely as he died during the course of the travel." In a contract of carriage, it is
presumed that the common carrier is at fault or is negligent when a passenger
dies or is injured. In fact, there is even no need for the court to make an express
finding of fault or negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence." Unfortunately, G & S miserably failed to overcome this
presumption. Both the trial court and the CA found that the accident which led to
Jose Marcials death was due to the reckless driving and gross negligence of G &
S driver, Padilla, thereby holding G & S liable to the heirs of Jose Marcial for
breach of contract of carriage.

64
ASIAN TERMINALS, INC. vs. SIMON ENTERPRISES, INC.,
G.R. No. 177116
February 27, 2013

PRESUMPTION OF NEGLIGENCE

FACTS:
Contiquincybunge Export Company loaded several metric tons of U.S.
Soybean Meal in Bulk on board the vessel MN "Sea Dream" and M/Vin Tern,
the latter allegedly weighed 3,300.000, in Darrow, Louisiana, U.S.A for delivery to
the Port of Manila to respondent Simon Enterprises, Inc., as consignee. The
shipment was discharged to the receiving barges of petitioner Asian Terminals,
Inc. (ATI), the arrastre operator. The carrier issued its clean Berth Term Grain Bill
of Lading. However, there were alleged shortages on both shipment which
prompted the respondent to file a claim for shortage against the petitioner to
which the trial court ruled in favor of the respondent and ATI was made solidarily
liable to the respondent on such loss it incurred. On appeal, the appellate court
affirmed the appealed decision. Hence, the petition.

ISSUE:
Whether or not the common carrier was negligent in this case.

RULING:
No. Though it is true that common carriers are presumed to have been at
fault or to have acted negligently if the goods transported by them are lost,
destroyed, or deteriorated, and that the common carrier must prove that it
exercised extraordinary diligence in order to overcome the presumption, the
plaintiff must still, before the burden is shifted to the defendant, prove that the
subject shipment suffered actual shortage. This can only be done if the weight of
the shipment at the port of origin and its subsequent weight at the port of arrival
have been proven by a preponderance of evidence, and it can be seen that the
former weight is considerably greater than the latter weight, taking into
consideration the exceptions provided in Article 1734 of the Civil Code.

In this case, respondent failed to prove that the subject shipment suffered
shortage, for it was not able to establish that the subject shipment was weighed
at the port of origin at Darrow, Louisiana, U.S.A. and that the actual weight of the
said shipment was 3,300 metric tons. The bill of lading indicated that the contract
of carriage was under a "said to weigh" clause, the shipper is solely responsible
for the loading while the carrier is oblivious of the contents of the shipment.

65
 DEFENSES

66
Sealoder Shipping Corporation vs. Grand Cement Manufacturing Corporation
GR No. 167363, Gr No. 177466, December 15, 2010

Facts:
Sealoader Shipping Corporation (Sealoader) is a domestic corporation engaged
in the business of shipping and hauling cargo from one point to another using
sea-going inter-island barges. Grand Cement Manufacturing Corporation (now
Taiheiyo Cement Philippines, Inc.), on the other hand, is a domestic corporation
engaged in the business of manufacturing and selling cement through its
authorized distributors and, for which purposes, it maintains its own private wharf
in San Fernando, Cebu, Philippines.

Sealoader executed a Time Charter Party Agreement with Joyce Launch and Tug
Co., Inc. (Joyce Launch), a domestic corporation, which owned and operated the
motor tugboat M/T Viper. By virtue of the agreement, Sealoader chartered the
M/T Viper in order to tow the formers unpropelled barges for a minimum period
of fifteen days from the date of acceptance, renewable on a fifteen-day basis
upon mutual agreement of the parties. Subsequently, Sealoader entered into a
contract with Grand Cement for the loading of cement clinkers and the delivery
thereof to Manila. On March 31, 1994, Sealoaders barge, the D/B Toploader,
arrived at the wharf of Grand Cement tugged by the M/T Viper. The D/B
Toploader, however, was not immediately loaded with its intended cargo as the
employees of Grand Cement were still loading another vessel, the Cargo Lift
Tres.

On April 4, 1994, Typhoon Bising struck the Visayas area. Public storm signal
number 3 was raised over the province of Cebu. The D/B Toploader was, at that
time, still docked at the wharf of Grand Cement. In the afternoon of said date, as
the winds blew stronger and the waves grew higher, the M/T Viper tried to tow
the D/B Toploader away from the wharf. The efforts of the tugboat were foiled,
however, as the towing line connecting the two vessels snapped. This occurred
as the mooring lines securing the D/B Toploader to the wharf were not cast off.
The following day, the employees of Grand Cement discovered the D/B
Toploader situated on top of the wharf, apparently having rammed the same and
causing significant damage thereto amounting to P2.4 M.
Grand Cement filed a Complaint for Damages against Sealoader; Romulo
Diantan, the Captain of the M/T Viper; and Johnny Ponce, the Barge Patron of
the D/B Toploader.

RTC ruled against Sealoder making them liable for the damage due to their
negligence of not taking precautionary measures as demanded or required of
them in complete disregard of the public storm signal warnings.
Based on the bases cided by the RTC, before Typhoon Bising hit the province of
Cebu on April 4, 1994, Marita Santos (General Manager of Sealoader) stated
that Sealoader tried to relay the weather bulletins pertaining to the storm directly
with the M/T Viper but the radio signal was always poor.

On appeal Grand Cement was made liable to 50% of the damage due to
contributory negligence for not casting off the mooring lines.

67
Issue:
Whether or not Sealoaders defense of relying on other vessels for weather
updates and warnings on approaching storms is valid?

Ruling:
No. The Court holds that Sealoader had the responsibility to inform itself of the
prevailing weather conditions in the areas where its vessel was set to sail.
Sealoader cannot merely rely on other vessels for weather updates and warnings
on approaching storms, as what apparently happened in this case. Common
sense and reason dictates this. To do so would be to gamble with the safety of its
own vessel, putting the lives of its crew under the mercy of the sea, as well as
running the risk of causing damage to the property of third parties for which it
would necessarily be liable.

Santos statements were put to doubt, however, when Sealoaders own witness,
Renee Cayang, stated on cross-examination that there was no radio on board
the D/B Toploader. The Court, therefore, agrees with the conclusion of Grand
Cement that there was either no radio on board the D/B Toploader, the radio was
not fully functional, or the head office of Sealoader was negligent in failing to
attempt to contact the D/B Toploader through radio. Either way, this negligence
cannot be ascribed to anyone else but Sealoader.

Regrettably, Acosta (Sealoaders Clearing Officer) merely relied on the

assurances of the M/T Beejay crew and the opinion of Romulo Diantan that the
typhoon was nowhere near their area. As it turned out, such reliance was utterly
misplaced. Within a few hours, the weather quickly deteriorated as huge winds
and strong waves began to batter the vessels. At the height of the typhoon, the
M/T Viper tried in vain to tow the D/B Toploader away from the wharf. Since the
barge was still moored to the wharf, the line connecting the same to the M/T
Viper snapped and the latter vessel drifted to the Bohol area. The violent waves
then caused the D/B Toploader to ram against the wharf, thereby causing
damage thereto.

The liability of Grand Cement was revoked because evidence proffered by

Sealoader to prove the negligence of Grand Cement was marred by
contradictions and are, thus, weak at best, thus contributory negligence was not
established.

68
Philippine Charter Insurance Corp v. Unknown Owner of Vessel M/V Honor
G.R. Nos. 161833
July 8, 2005

Defenses

Facts:
PCIC is the insurer of a shipment on board the vessel M/V National Honor,
represented in the Philippines by its agent NSCP. M/V National Honor arrived
at the Manila International Container Terminal (MICT). The International
Container Terminal Services, Incorporated (ICTSI) was furnished with a copy of
the crate cargo list and bill of lading, and it knew the contents of the crate. The
following day, the vessel started discharging its cargoes using its winch crane.
NSCP, along with the crew and the surveyor of the ICTSI, conducted an
inspection of the cargo which was apparently in good condition. ICTSs stevedore
placed two sling cables on each end of Crate No. 1. As the crate was being
hoisted from the vessels hatch, the mid-portion of the wooden flooring suddenly
snapped in the air, about five feet high from the vessels twin deck, sending all its
contents crashing down hard, resulting in extensive damage to the shipment.
PCIC paid the damage, and as subrogee, filed a case against M/V National
Honor, NSCP and ICTSI. Both RTC and CA dismissed the complaint.

ISSUE:
Whether or not the presumption of negligence is applicable in the instant case.

HELD:
No. The common carriers duty to observe the requisite diligence in the shipment
of goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance, by the
person entitled to receive them. When the goods shipped are either lost or arrive
in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to
hold it liable. To overcome the presumption of negligence in the case of loss,
destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. However, under Article 1734 of the New Civil
Code, the presumption of negligence does not apply to any of the following
causes: 1. Flood, storm, earthquake, lightning or other natural disaster or
calamity; 2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods; 4. The character of the
goods or defects in the packing or in the containers; 5. Order or act of competent
public authority. In the present case, the trial court declared that based on the
record, the loss of the shipment was caused by the negligence of the petitioner
as the shipper. The same may be said with respect to defendant ICTSI. The
breakage and collapse of Crate No. 1 and the total destruction of its contents
were not imputable to any fault or negligence on the part of said defendant in
handling the unloading of the cargoes from the carrying vessel, but was due
solely to the inherent defect and weakness of the materials used in the
fabrication of said crate.

69
BELGIAN CHARTERING, N.V v. PHIL. FIRST INSURANCE Co., Inc.
GR No. 143133, June 5, 2002

Defenses

FACTS:
June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel
Sky' at Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets
for transportation to Manila, consigned to the Philippine Steel Trading
Corporation. On July 28, 1990, M/V Anangel Sky arrived at the port of Manila
and, within the subsequent days, discharged the subject cargo. Four (4) coils
were found to be in bad order, thus making unfit for its intended purpose. The
consignee Philippine Steel Trading Corporation declared the same as total loss.
Consequently, the respondent paid the consignee and was subrogated to the
latter's rights and causes of action against petitioner. The petitioner imputed that
the damage and/or loss was due to pre-shipment damage or to the act or
omission of the shipper of the goods or their representatives. They averred that,
in any event, they exercised due diligence and foresight required by law to
prevent any damage/loss to said shipment. The RTC dismissed the complaint.
The CA ruled that petitioners were liable for the loss or the damage of the goods
shipped, because they had failed to overcome the presumption of negligence
imposed on common carriers.

ISSUE: Whether petitioners have overcome the presumption of negligence of a

common carrier.

HELD:
Well-settled is the rule that common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary
diligence and vigilance with respect to the safety of the goods and the
passengers they transport. Owing to this high degree of diligence required of
them, common carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed. That
is, unless they prove that they exercised extraordinary diligence in transporting
the goods. In order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such diligence. However, the
presumption of fault or negligence will not arise if the loss is due to any of the
following causes enumerated in Article 1734 of the Civil Code. That is a closed
list. If the cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor. The mere proof of delivery of
the goods in good order to a common carrier and of their arrival in bad order at
their destination constitutes a prima facie case of fault or negligence against the
carrier. If no adequate explanation is given as to how the deterioration, the loss
or the destruction of the goods happened, the transporter shall be held
responsible. Thus, petitioners failed to rebut the prima facie presumption of
negligence.

70
Delsan Transport Lines v. CA
G.R. No. 127897
November 15, 2001
Defenses

FACTS: Caltex Philippines entered into a contract of affreightment with petitioner,

Delsan Transport Lines, Inc. for a period of one year whereby the latter agreed to
transport Caltex's industrial fuel oil from the Batangas-Bataan Refinery to
different parts of the country. Under the contract, petitioner took on board its
vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be
delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was
insured with the private respondent, American Home Assurance Corporation. On
August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City.
Unfortunately, the vessel sank in the early morning of August 16, 1986 near
Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. Subsequently,
private respondent paid Caltex the insured value of the lost cargo. Exercising its
right of subrogation, the private respondent demanded of the petitioner the same
amount it paid to Caltex. Due to its failure to collect from the petitioner despite
prior demand, private respondent filed a complaint with the Regional Trial Court
of Makati City , for collection of a sum of money. The RTC found that the vessel
was seaworthy to undertake the voyage as determined by the Philippine Coast
Guard per Survey Certificate Report and that the incident was caused by
unexpected inclement weather condition or force majeure, thus exempting the
common carrier from liability for the loss of its cargo.

ISSUE: Whether or not the payment made by the private respondent to Caltex for
the insured value of the lost cargo amounted to an admission that the vessel was
seaworthy, thus precluding any action for recovery against the petitioner

HELD: Petitioner attributes the sinking of MT Maysun to a sudden and

unexpected change of weather however, it was belied by the report of PAGASA
showing that the wind speed remained at 10-20 knots per hour at that time. Thus,
petitioner's vessel sank with its entire cargo for the reason that it was not
seaworthy. There was no bad weather or extremely poor sea condition in the
vicinity when the said vessel sank. Neither may petitioner escape liability by
presenting in evidence certificates by Philippine Coast Guard that the vessel was
fit for voyage because seaworthiness relates to a vessel's actual condition.
Neither the issuance of certificates established seaworthiness. In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil
belonging to Caltex for its failure to rebut the presumption of fault or negligence
as common carrier19 occasioned by the unexplained sinking of its vessel, MT
Maysun, while in transit.

71
Philippine American General Insurance vs. PKS Shipping Co.
G.R. No. 149038, April 9, 2003

Facts:
Davao Union Marketing Corp. contracted the services of PKS for the
shipment to Tacloban City of 75,000 bags of cement worth P3,375,000.00.
Davao insured the goods with Philamgen, herein petitioner. The bags were
loaded aboard the barge Limar I belonging to PKS. While PKS tugboat MT Iron
Eagle was towing the barge, Limar I sank bringing down the entire cargo. Davao
filed a complaint against Philamgen, which promptly made payment and sought
reimbursement from PKS. PKS refused pay which cause Philamgen to file a
complaint. RTC ruled against Philamgen and stated that PKS could not be held
liable in cases of fortuitous event or through the negligence of the captain or its
crew leading to abandonment. The Court of Appeals affirmed the decision of the
RTC saying that there was lack of evidence to establish that PKS was a common
carrier and that the peculiar method of the shipping companys carrying of goods
for others was not generally held out as business but as a casual occupation.

Issue:
Is PKS Shipping Co. a common carrier?
Did PKS exercised the required diligence over the goods they carry,
hence could not be made liable?

Ruling:
PKS Shipping Co. is a common carrier. It has engaged itself in the
business of carrying goods for others, although only for a limited clientele,
undertaking to carry such goods for a fee. The regularity of activities in this area
indicates more than just a causal activity. Neither can the concept of a common
carrier change immediately merely because individual contracts are executed or
entered into with patrons of the carrier.

PKS should not be held liable since the vessel was suddenly tossed by
waves of extraordinary height of six to eight feet and buffeted by strong winds of
one and a half knots resulting in the entry of water into the barges hatches. The
official certificate of inspection presented could attest to the seaworthiness of the
vessel.

Art. 1733 of the Civil Code states that common carriers are exempt from
liability for loss, destruction or deterioration of the goods due to any of the
following causes among others: flood, storm, earthquake, lightning, or other
natural disaster of calamity.

Hence, PKS should not be held liable for the loss of the goods caused by
the sinking of the vessel due to fortuitous event.

72
Edgar Cokaliong Shipping Lines vs. UCPB General Insurance Company
G.R. No. 146018
June 25, 2003

DEFENSES

FACTS:

A fire ensued in the engine room, despite earnest efforts of the officers and crew
of the vessel, the fire engulfed and destroyed the entire vessel resulting in the
loss of the vessel and the cargoes therein.

The cargoes were insured to UCPB and thus, EDGAR despite demands, did not
pay. UCPB filed a complaint. RTC absolved EDGAR of any liability.

ISSUE:

Whether EDGAR is liable or not

RULING:

Yes. The uncontroverted findings of the Philippine Coast Guard show that
the M/V Tandag sank due to a fire, which resulted from a crack in the auxiliary
engine fuel oil service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into flames. The crack was
located on the side of the fuel oil tank, which had a mere two-inch gap from the
engine room walling, thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire
could not have been caused by force majeure.

73
ROBERTO JUNTILLA VS. CLEMENTE FONTANAR, FERNANDO BANZON and
BERFOL CAMORO
G.R. No. L-45637; May 31, 1985

Facts: Herein plaintiff was a passenger of the public utility jeepney on course
from Danao City to Cebu City. The jeepney was driven by driven by defendant
Berfol Camoro and registered under the franchise of Clemente Fontanar. When
the jeepney reached Mandaue City, the right rear tire exploded causing the
vehicle to turn turtle. In the process, the plaintiff who was sitting at the front seat
was thrown out of the vehicle. Plaintiff suffered a lacerated wound on his right
palm aside from the injuries he suffered on his left arm, right thigh, and on his
back. Aside from the injuries suffred by the plaintiff, the latter also discovered that
his Omega watch was missing. Plaintiff filed a case for breach of contract with
damages before the City Court of Cebu City. Defendants, in their answer, alleged
that the tire blow out was beyond their control, taking into account that the tire
that exploded was newly bought and was only slightly used at the time it blew
up.

Issue: Whether or not the tire blow-out is a fortuitous event and gives rise to no
liability for negligence?

RULING: In the case at bar, there are specific acts of negligence on the part of
the respondents. The records show that the passenger jeepney turned turtle and
jumped into a ditch immediately after its right rear tire exploded. The evidence
shows that the passenger jeepney was running at a very fast speed before the
accident. We agree with the observation of the petitioner that a public utility jeep
running at a regular and safe speed will not jump into a ditch when its right rear
tire blows up. There is also evidence to show that the passenger jeepney was
overloaded at the time of the accident. The petitioner stated that there were 3
passengers in the front seat and 14 passengers in the rear. While it may be true
that the tire that blew-up was still good because the grooves of the tire were still
visible, this fact alone does not make the explosion of the tire a fortuitous event.
No evidence was presented to show that the accident was due to adverse road
conditions or that precautions were taken by the jeepney driver to compensate
for any conditions liable to cause accidents. The sudden blowing-up, therefore,
could have been caused by too much air pressure injected into the tire coupled
by the fact that the jeepney was overloaded and speeding at the time of the
accident. The elements of a "fortuitous event" are: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors to comply
with their obligations, must have been independent of human will; (b) the event
that constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a normal manner;
and (d) the obligor must have been free from any participation in the aggravation
of the resulting injury to the creditor. To fully free a common carrier from any
liability, the fortuitous event must have been the proximate and only cause of the
loss. And it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event.

74
CENTRAL SHIPPING COMPANY, INC. v INSURANCE COMPANY OF NORTH
AMERICA
GR No 150751
September 20, 2004

Topic: Defenses

Facts:
Petitioner received on board its vessel, M/V Central Bohol, while at
Puerto Princesa Palawan, 376 pieces [of] Philippine Apitong Round Logs and
undertook to transport said shipment to Manila for delivery to Alaska Lumber Co.,
Inc. Upon completion of loading of the cargo, the vessel left Palawan and
commenced the voyage to Manila. However, while enroute to Manila, the vessel
listed about 10 degrees starboardside, due to the shifting of logs in the hold. After
some time, the ship captain ordered his men to abandon ship and after a few
hours, the vessel completely sank. Due to the sinking of the vessel, the cargo
was totally lost.The consignee, Alaska Lumber Co. Inc., presented a claim for the
value of the shipment to the [petitioner] but the latter failed and refused to settle
the claim, hence [respondent], being the insurer, paid said claim and now seeks
to be subrogated to all the rights and actions of the consignee as against the
petitioner. Petitioner, while admitting the sinking of the vessel, interposed the
defense that the vessel was fully manned, fully equipped and in all respects
seaworthy; that all the logs were properly loaded and secured; that the vessels
master exercised due diligence to prevent or minimize the loss before, during
and after the occurrence of the storm. It raised as its main defense that the
proximate and only cause of the sinking of its vessel and the loss of its cargo was
a natural disaster, a tropical storm which neither petitioner nor the captain of its
vessel could have foreseen.

Issues: (1) whether the carrier is liable for the loss of the cargo
(2) whether the doctrine of limited liability is applicable.

Ruling:
(1) Petitioner disclaims responsibility for the loss of the cargo by claiming the
occurrence of a storm under Article 1734(1). It attributes the sinking of its vessel
solely to the weather condition. Established is the fact that between 10:00 p.m.
on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered
a southwestern monsoon in the course of its voyage. Nonetheless, to our mind it
would not be sufficient to categorize the weather condition at the time as a storm
within the absolutory causes enumerated in the law. Significantly, no typhoon
was observed within the Philippine area of responsibility during that period.
Even if the weather encountered by the ship is to be deemed a natural disaster
under Article 1739 of the Civil Code, petitioner failed to show that such natural
disaster or calamity was the proximate and only cause of the loss. Human
agency must be entirely excluded from the cause of injury or loss. In other words,
the damaging effects blamed on the event or phenomenon must not have been
caused, contributed to, or worsened by the presence of human participation. The
defense of fortuitous event or natural disaster cannot be successfully made when
the injury could have been avoided by human precaution. Hence, if a common
carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss

75
before, during and after the occurrence of the natural disaster, the carrier shall be
deemed to have been negligent. The loss or injury is not, in a legal sense, due to
a natural disaster under Article 1734(1).

(2) The doctrine of limited liability under Article 587 of the Code of Commerce
is not applicable to the present case. This rule does not apply to situations in
which the loss or the injury is due to the concurrent negligence of the shipowner
and the captain. It has already been established that the sinking of M/V Central
Bohol had been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs. Closer supervision
on the part of the shipowner could have prevented this fatal miscalculation. As
such, the shipowner was equally negligent. It cannot escape liability by virtue of
the limited liability rule.

76
ESTRELLITA M. BASCOS vs. COURT OF APPEALS
G.R. No. 101089. April 7, 1993
Defenses
FACTS:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE)
entered into a hauling contract 2 with Jibfair Shipping Agency Corporation
whereby the former bound itself to haul the latter's 2,000 m/tons of soya bean
meal from Magallanes Drive, Manila to the warehouse of Purefoods Corporation
in Laguna. To carry out its obligation, CIPTRADE, through Cipriano,
subcontracted with Bascos to transport and to deliver 400 sacks of soya bean
meal. Petitioner failed to deliver the said cargo. As a consequence of that failure,
Cipriano paid Jibfair Shipping Agency the amount of the lost goods in
accordance with their the contract. Cipriano demanded reimbursement from
petitioner but the latter refused to pay. Eventually, Cipriano filed a complaint for a
sum of money and damages for breach of a contract of carriage. TC ruled in
favor of Cipriano. Petitioner contends that there was no contract of carriage since
CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to
Laguna;; that the truck carrying the cargo was hijacked along Canonigo St.,
Paco, Manila that the hijacking was immediately reported to CIPTRADE and that
petitioner and the police exerted all efforts to locate the hijacked properties; that
an information for robbery and carnapping were filed against Jose Opriano, et al.;
and that hijacking, being a force majeure, exculpated petitioner from any liability
to CIPTRADE. CA affirmed TCs decision.

ISSUE: WON petitioner was able to establish that her contractual relationship
with Cipriano was a lease of contract and not a carriage of goods?

RULING:
NO. The Court of Appeals, in holding that petitioner was a common carrier, found
that she admitted in her answer that she did business under the name A.M.
Bascos Trucking and that said admission dispensed with the presentation by
private respondent, Rodolfo Cipriano, of proofs that petitioner was a common
carrier. Both courts appreciated the following pieces of evidence as indicators
that petitioner was a common carrier: the fact that the truck driver of petitioner,
Maximo Sanglay, received the cargo consisting of 400 bags of soya bean meal
as evidenced by a cargo receipt signed by Sanglay; the fact that the truck helper,
Juanito Morden, was also an employee of petitioner; and the fact that control of
the cargo was placed in petitioner's care. Article 1732 of the Civil Code defines a
common carrier as "(a) person, corporation or firm, or association engaged in the
business of carrying or transporting passengers or goods or both, by land, water
or air, for compensation, offering their services to the public." The test to
determine a common carrier is "whether the given undertaking is a part of the
business engaged in by the carrier which he has held out to the general public as
his occupation rather than the quantity or extent of the business transacted." In
this case, petitioner herself has made the admission that she was in the trucking
business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same.

77
Jose Pilapil v Honorable Court of Appeals and ALATCO Transportation
Company, Inc
G.R.No. 52159
December 22, 1989

Defenses

Facts:
Petitioner Pilapil boarded respondents bus at San Nicolas, Iriga City on
September 16, 1971 at about 6pm. While the bus was on its way to Naga City,
an unidentified man, a bystander along the highway, hurled a stone at the left
side of the bus which hit petitioners left eye. Despite treatment, petitioner lost
partially his left eyes vision and sustained a permanent scar above the said eye.
He instituted an action for recovery of damages as a result of the incident.

The trial court ordered the bus company liable to pay petitioner for the damage
which resulted from the incident. However on appeal, the CA reversed and set
aside the judgment of the trial court. Hence this appeal.

Issue:
Whether the bus company is liable for the damage to petitioners left eye

Ruling:
No. While the law requires the highest degree of diligence from common carriers
in the transport of their passengers and creates a presumption of negligence
against them, it does not, however, make the carrier an insurer of the absolute
safety of its passengers.

The incident was beyond the control of the carrier and as such, it being not being
at fault or negligent is free from liability.

78
Fortune Express, Inc. vs. Court of Appeals
G.R. No. 119756
March 18, 1999

Topic: Negligence; Fortuitous event

Facts:

Petitioner Fortune Express, Inc. is a bus company in northern Mindanao. One of

its buses had figured in an accident on November 18, 1989 with a jeepney
owned by a Maranao. Several passengers including two Maranaos died in that
accident. According to investigation reports conducted by the Philippine
Constabulary, the Maranaos were planning to take revenge against the bus
company by burning some of its buses. Petitioners operations manager Bravo
was informed about this threat and the latter assured that necessary precautions
would be taken.

However, on November 22, 1989, three armed Maranaos who pretended to be

passengers seized a bus of the petitioner on which victim Atty. Caorong was a
passenger. The driver was shot in the shoulder. The armed men let all the
passengers out, but then Atty. Caorong went back to recover something, and he
also pleaded the armed men to spare the life of the driver. During that time, the
injured driver was able to escape. The armed men shot Atty. Caorong and
burned the bus. The other passengers were able to pull him out of the burning
bus. But then, Atty. Caorong died while undergoing operation.

Issue:

(1) Was there a breach of contract of carriage by the petitioner?

(2) Was the incident a case of force majeure?
(3) Was the victim guilty of contributory negligence?

Ruling:

(1) Yes. There was breach of contract of carriage in this case. Article 1763
provides that a common carrier is responsible for injuries suffered by a
passenger on account of willful acts of other passengers, if the employees of the
common carrier could have prevented the act through the exercise of the
diligence of a good father of a family. In the present case, it is clear that because
of the negligence of petitioner's employees, the seizure of the bus by the armed
men was made possible.

Despite warning by the Philippine Constabulary and the assurance of petitioner's

operation manager that necessary precautions would be taken, petitioner did
nothing to protect the safety of its passengers. Under the circumstances, simple
precautionary measures to protect the safety of passengers, such as frisking
passengers and inspecting their baggages, preferably with non-intrusive gadgets
such as metal detectors, before allowing them on board could have been
employed without violating the passenger's constitutional rights. A common
carrier can be held liable for failing to prevent a hijacking by frisking passengers
and inspecting their baggages.

79
(2) No. Seizure of petitioner's bus was not a case of force majeure. Article 1174
defines a fortuitous event as an occurence which could not be foreseen, is
inevitable. To be considered as force majeure, it is necessary that (a) the cause
of the breach of the obligation must be independent of the human will; (b) the
event must be either unforeseeable or unavoidable; (c) the occurence must be
render it impossible for the debtor to fulfill the obligation in a normal manner; and
(d) the obligor must be free of participation in, or aggravation of, the injury to the
creditor. The absence of any of the requisites mentioned above would prevent
the obligor from being excused from liability.

Despite the report of the Philippine Constabulary that the Maranaos were going
to attack its buses, petitioner took no steps to safeguard the lives and properties
of its passengers. The seizure of the bus of the petitioner was foreseeable and,
therefore, was not a fortuitous event.

(3) No. Certainly, the attempt by Atty. Caorong to help the driver cannot be
considered an act of negligence, let alone recklessness.

80
GACAL VS PAL
Gr. No. 55300
March 15, 1990

DEFENSES

Facts:
Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal along with
three others were then passengers boarding defendants BAC 1-11 at Davao
Airport for a flight to Manila, not knowing that on the same flight were members of
the MNLF armed with grenades and pistols. Ten minutes after takeoff, the MNLF
announced the hijacking of the aircraft and directed its pilot to fly to Libya. With
the pilot explaining to them of the fuel limitations of the plane, the hijackers
directed the pilot to fly to Sabah. So they landed in Zamboanga Airport to refuel.
At the Zamboanga Airport, there ensued hostilities between the military and the
hijackers. As a result of such faceoff, the wives of Gacal and Anislag suffered
injuries. Several

Now, plaintiffs are claiming for damages averring that PAL exercised
negligence, finding basis on its breach of contract of carriage. There was a failure
to frisk the passengers adequately in order to discover hidden weapons in the
bodies of the hijackers. Despite the prevalence of skyjacking, PAL did not use a
metal detector which is the most effective means of discovering potential
skyjackers among the passengers.PAL invokes the defense of force majeure or
caso fortuito.

Issue:
Whether or not PAL can invoke caso fortuito to exculpate itself from
paying damages to herein plaintiffs?

Ruling:
Yes. The existence of force majeure has been established exempting
respondent PAL from the payment of damages to its passengers who suffered
death or injuries in their persons and for loss of their baggages. The source of a
common carriers legal liability is the contract of carriage, and by entering into
said contract, it binds itself to carry the passengers safely as far as human care
and foresight can provide. There is breach of this obligation if it fails to exert
extraordinary diligence according to all the circumstances of the case in exercise
of the utmost diligence of a very cautious person. The failure to transport
petitioners safely from Davao to Manila was due to the skyjacking incident, all
members of the MNLF, without any connection with private respondent, hence,
independent of the will of either the PAL or of its passengers.
Under normal circumstances, PAL might have foreseen the skyjacking incident
which could have been avoided had there been a more thorough frisking of
passengers and inspection of baggages as authorized by R.A. No. 6235. But the
incident in question occurred during Martial Law where there was a military take-
over of airport security including the frisking of passengers and the inspection of
their luggage preparatory to boarding domestic and international flights.The
security checks and measures and surveillance precautions in all flights,
including the inspection of baggages and cargo and frisking of passengers at the
Davao Airport were performed and rendered solely by military personnel who

81
under appropriate authority had assumed exclusive jurisdiction over the same in
all airports in the Philippines. Otherwise stated, these events rendered it
impossible for PAL to perform its obligations in a nominal manner and obviously
it cannot be faulted with negligence in the performance of duty taken over by the
Armed Forces of the Philippines to the exclusion of the former.

82
SOUTHERN LINES, INC. vs. COURT OF APPEALS
G.R. No. L-16629
January 31, 1962

DEFENSES

FACTS:
National Rice and Corn Corporation shipped 1,726 sacks of rice
consigned to the City of Iloilo on board the SS "General Wright" belonging to the
Southern Lines, Inc. Each sack of rice weighed 75 kilos and the entire shipment
as indicated in the bill of lading had a total weight of 129,450 kilos. Upon receipt
of the shipment it was then noted that here was an actual shortage of 41 sacks of
rice with a net weight of 13,319 kilos.

The City of Iloilo filed a complaint in the Court of First Instance of Iloilo
against NARIC and the Southern Lines, Inc. for the recovery of the value of the
shortage of the shipment of rice. The lower court absolved NARIC from the
complaint, but sentenced the Southern Lines, Inc. to pay the value of shortage, to
which the appellate court affirmed.

ISSUE:
Whether or not the Southern Lines Inc. is liable for the loss or shortage of
the rice shipped.

RULING:
Yes. Under the provisions of Article 361, the defendant-carrier in order to
free itself from liability, was only obliged to prove that the damages suffered by
the goods were "by virtue of the nature or defect of the articles."

Petitioner claims exemption from liability by contending that the shortage

in the shipment of rice was due to such factors as the shrinkage, leakage or
spillage of the rice on account of the bad condition of the sacks at the time it
received the same and the negligence of the agents of respondent City of Iloilo in
receiving the shipment. The contention is untenable, for, if the fact of improper
packing is known to the carrier or his servants, or apparent upon ordinary
observation, but it accepts the goods notwithstanding such condition, it is not
relieved of liability for loss or injury resulting therefrom. This finding, which is
binding upon this Court, shows that the shortage resulted from the negligence of
petitioner.

83
Ganzon V. CA
L-48757, May 30, 1988

Facts:
Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305
tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the
lighter LCT "Batman". Ganzon sent his lighter "Batman" to Mariveles where it
docked in three feet of water. Gelacio Tumambing delivered the scrap iron to
defendant Filomeno Niza, captain of the lighter, for loading which was actually
begun on the same date by the crew of the lighter under the captain's
supervision. When about half of the scrap iron was already loaded Mayor Jose
Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from
Tumambing. The latter resisted the shakedown and after a heated argument
between them, Mayor Jose Advincula drew his gun and fired at Gelacio
Tumambing. The gunshot was not fatal but Tumambing had to be taken to a
hospital in Balanga, Bataan, for treatment. After sometime, the loading of the
scrap iron was resumed. But on December 4, 1956, Acting Mayor Basilio Rub,
accompanied by three policemen, ordered captain Filomeno Niza and his crew to
dump the scrap iron where the lighter was docked. The rest was brought to the
compound of NASSCO. Later on Acting Mayor Rub issued a receipt stating that
the Municipality of Mariveles had taken custody of the scrap iron.
Tumambing instituted an action against Ganzon for damages based on culpa
contractual. CFI ruled in favor of Ganzon but was reversed and set aside upon
appeal.
Ganzon raised the following defenses:
(a) The scrap iron had not been unconditionally placed under his custody and
control to make him liable.
(b) He is exempt from any liability because the loss of the scraps was due
mainly to the intervention of the municipal officials of Mariveles which
constitutes a caso fortuito as defined in Article 1174 of the Civil Code.

Issue:
Whether or not the defenses are valid?

Ruling:
(a) No. By the said act of delivery, the scraps were unconditionally placed in
the possession and control of the common carrier, and upon their receipt
by the carrier for transportation, the contract of carriage was deemed
perfected. Consequently, the petitioner-carrier's extraordinary
responsibility for the loss, destruction or deterioration of the goods
commenced. Pursuant to Art. 1736, such extraordinary responsibility
would cease only upon the delivery, actual or constructive, by the carrier
to the consignee, or to the person who has a right to receive them. The
fact that part of the shipment had not been loaded on board the lighter did
not impair the said contract of transportation as the goods remained in the
custody and control of the carrier, albeit still unloaded.

(b) No. The petitioner has failed to show that the loss of the scraps was due
to any of the following causes enumerated in Article 1734 of the Civil
Code. In the courts below, the petitioner's defense was that the loss of the
scraps was due to an "order or act of competent public authority," and this

84
 contention was correctly passed upon by the Court of Appeals which
ruled that:

In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public
authority to unload the scrap iron, it must be shown that Acting Mayor
Basilio Rub had the power to issue the disputed order, or that it was
lawful, or that it was issued under legal process of authority. The appellee
failed to establish this. Indeed, no authority or power of the acting mayor
to issue such an order was given in evidence. Neither has it been shown
that the cargo of scrap iron belonged to the Municipality of Mariveles.
What we have in the record is the stipulation of the parties that the cargo
of scrap iron was accilmillated by the appellant through separate
purchases here and there from private individuals (Record on Appeal, pp.
38-39). The fact remains that the order given by the acting mayor to dump
the scrap iron into the sea was part of the pressure applied by Mayor
Jose Advincula to shakedown the appellant for P5,000.00. The order of
the acting mayor did not constitute valid authority for appellee Mauro
Ganzon and his representatives to carry out.

In any case, the intervention of the municipal officials was not In any
case, of a character that would render impossible the fulfillment by the
carrier of its obligation. The petitioner was not duty bound to obey the
illegal order to dump into the sea the scrap iron. Moreover, there is
absence of sufficient proof that the issuance of the same order was
attended with such force or intimidation as to completely overpower the
will of the petitioner's employees. The mere difficulty in the fullfilment of
the obligation is not considered force majeure. We agree with the private
respondent that the scraps could have been properly unloaded at the
shore or at the NASSCO compound, so that after the dispute with the
local officials concerned was settled, the scraps could then be delivered
in accordance with the contract of carriage.

85
Bachelor Express, Inc and Cresencio Rivera v. Court of Appeals
G.R. Nos. 85691
July 31, 1990

Defenses

Facts:
Bus No. 800 owned by Bachelor Express, Inc. was the situs of a stampede which
resulted in the death of its two passengers Ornominio Beter and Narcisa
Rautraut. The evidence shows that the bus picked up a passenger; that about
fifteen minutes later, a passenger at the rear portion suddenly stabbed a PC
soldier which caused commotion and panic among the passengers that when the
bus stopped, passengers Ornominio Beter and Narcisa Rautraut were found
lying down the road, the former already dead as a result of head injuries and the
latter also suffering from severe injuries which caused her death later. The
passenger assailant alighted from the bus and ran toward the bushes but was
killed by the police. Parents of the Beter and Rautraut filed a complaint for sum of
money against Bachelor Express, Inc. which denied liability for the death alleging
that the driver was able to transport his passengers safely to their respective
places of destination except Beter and Rautraut who jumped off the bus without
the knowledge and consent of the driver and conductor. Bachelor claims that it
had exercised due diligence in the choice of its employees to avoid as much as
possible accidents, it was an incident or event very much beyond the control of
the defendants which was not a party to the incident complained of as it was an
act of a third party who is not in any way connected with the defendant and of
which the latter have no control and supervision.

ISSUE:
Whether or not the presumption of negligence is applicable in the instant case.

Ruling:
ART. 1756 states that in case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as prescribed in Articles
1733 and 1755. While the sudden stabbing by a passenger of another passenger
inside the bus may be considered as force majeure as to absolve the carrier from
liability, the carrier must prove that it was not at fault of negligent causing the
injuries. It was shown that the buss door is not properly kept in that the mere
push makes it opens easily causing some of the passengers fell during the
commotion and despite of the panic inside the bus caused by the stabbing, the
conductor failed to blow his whistle to signal the driver to stop and the driver
continued driving unminding the commotion going on. Clearly the carriers
employees failed to exercise the extra ordinary diligence in preventing or
minimizing the injuries during and after the incident. The carrier failed to rebut the
presumption of being at fault or acted negligently.

86
ISAAC v. A.L. AMMEN TRANSPORTATION Co., Inc.
GR No. L-9671, August 23, 1957

Defenses
FACTS:
Respondent A. L. Ammen Transportation Co., Inc., is a corporation
engaged in the business of transporting passengers by land for compensation in
the Bicol provinces and one of the lines it operates is the one connecting Legaspi
City, Albay with Naga City, Camarines Sur. One of the buses which defendant
was operating is Bus No. 31. On May 31, 1951, plaintiff boarded said bus as a
passenger paying the required fare from Ligao, Albay bound for Pili, Camarines
Sur, but before reaching his destination, the bus collided with a motor vehicle of
the pick-up type coming from the opposite direction, as a result of which plaintiff's
left arm was completely severed and the severed portion fell inside the bus.
Defendant set up as special defense that the injury suffered by plaintiff was due
entirely to the fault or negligence of the driver of the pick-up car which collided
with the bus driven by its driver and to the contributory negligence of plaintiff
himself. Defendant further claims that the accident which resulted in the injury of
plaintiff is one which defendant could not foresee or, though foreseen, was
inevitable. The after trial found that the collision occurred due to the negligence
of the driver of the pick-up car.

ISSUE: Whether the respondent observed extraordinary diligence in avoiding the

collision

HELD: Yes. It appears that Bus No. 31, immediately prior to the collision, was
running at a moderate speed because it had just stopped at the school zone of
Matacong, Polangui, Albay. The pick-up car was at full speed and was running
outside of its proper lane. The driver of the bus, upon seeing the manner in which
the pick-up was then running, swerved the bus to the very extreme right of the
road until its front and rear wheels have gone over the pile of stones or gravel
situated on the rampart of the road. Said driver could not move the bus farther
right and run over a greater portion of the pile, the peak of which was about 3
feet high, without endangering the safety of his passengers. And notwithstanding
all these efforts, the rear left side of the bus was hit by the pick-up car. One who
is placed in such a predicament cannot exercise such coolness or accuracy of
judgment as is required of him under ordinary circumstances and he cannot
therefore be expected to observe the same judgment, care and precaution as in
the latter. For this reason, authorities abound where failure to observe the same
degree of care that as ordinary prudent man would exercise under ordinary
circumstances when confronted with a sadden emergency was held to be
warranted and a justification to exempt the carrier from liability. Considering all
the circumstances, the driver of the bus has done what a prudent man could
have done to avoid the collision. It is also apparent that petitioner is guilty of
contributory negligence. Had he not placed his left arm on the window sill with a
portion thereof protruding outside, perhaps the injury would have been avoided
as is the case with the other passenger, as he was the only victim of the collision.

87
Compania Maritima v. Court of Appeals

G.R. No. L-31379

August 29, 1988

Defenses

FACTS: Private respondent Vicente E. Concepcion, a civil engineer doing

business under the name and style of Consolidated Construction had a contract
with the Civil Aeronautics Administration (CAA) sometime in 1964 for the
construction of the airport in Cagayan de Oro City Misamis Oriental. Concepcion,
being a Manila based contractor, had to ship his construction equipment to
Cagayan de Oro City. Having shipped some of his equipment through petitioner
and having settled the balance of P2,628.77 with respect to said shipment,
Concepcion negotiated anew with petitioner, on August 28, 1964 for the
shipment to Cagayan de Oro City of one (1) unit payloader, four (4) units 6x6
Reo trucks and two (2) pieces of water tanks. He was issued Bill of Lading on the
same date upon delivery of the equipment at the Manila North Harbor. These
equipment were loaded aboard the MV Cebu in its Voyage No. 316, which left
Manila on August 30, 1964 and arrived at Cagayan de Oro City in the afternoon
of September 1, 1964. The Reo trucks and water tanks were safely unloaded
within a few hours after arrival, but while the payloader was about two (2) meters
above the pier in the course of unloading, the swivel pin of the heel block of the
port block of Hatch No. 2 gave way, causing the payloader to fall. The payloader
was damaged and was thereafter taken to petitioner's compound in Cagayan de
Oro City. Thus, Consolidated Construction thru Concepcion wrote Compaia
Maritima to demand a replacement of the payloader. Meanwhile, petitioner
shipped the payloader to Manila where it was weighed at the San Miguel
Corporation. Finding that the payloader weighed 7.5 tons and not 2.5 tons as
declared in the Bill of Lading. Petitioner denied the claim for damages of
Consolidated Construction contending that had Concepcion declared the actual
weight of the payloader, damage to their ship as well as to his payloader could
have been prevented. Concepcion filed an action for damages against petitioner
with the Court of First Instance of Manila for recovery of damages.

ISSUE: whether or not the act of private respondent Vicente E. Concepcion in

furnishing petitioner Compaia Maritima with an inaccurate weight of 2.5 tons
instead of the payloader's actual weight of 7.5 tons was the proximate and only
cause of the damage on the payloader when it fell while being unloaded by
petitioner's crew, as would absolutely exempt petitioner from liability for damages
under paragraph 3 of Article 1734 of the Civil Code

HELD: The general rule under Articles 1735 and 1752 of the Civil Code is that
common carriers are presumed to have been at fault or to have acted negligently
in case the goods transported by them are lost, destroyed or had deteriorated. To
overcome the presumption of liability for the loss, destruction or deterioration of
the goods under Article 1735, the common carriers must prove that they
observed extraordinary diligence as required in Article 1733 of the Civil Code.
Corollary is the rule that mere proof of delivery of the goods in good order to a
common carrier, and of their arrival at the place of destination in bad order,
makes out prima facie case against the common carrier, so that if no explanation

88
is given as to how the loss, deterioration or destruction of the goods occurred,
the common carrier must be held responsible. 10 Otherwise stated, it is
incumbent upon the common carrier to prove that the loss, deterioration or
destruction was due to accident or some other circumstances inconsistent with
its liability. We are not persuaded by the explanation of petitioner alleged to be
the proximate cause of the fall of the payloader while it was being unloaded at
the Cagayan de Oro City pier. Petitioner seems to have overlooked the
extraordinary diligence required of common carriers in the vigilance over the
goods transported by them by virtue of the nature of their business, which is
impressed with a special public duty. Extraordinary diligence requires common
carriers to render service with the greatest skill and foresight. In the instant case,
upon the testimonies of its own crew, failed to take the necessary and adequate
precautions for avoiding damage to, or destruction of, the payloader entrusted to
it for safe carriage and delivery to Cagayan de Oro City, it cannot be reasonably
concluded that the damage caused to the payloader was due to the alleged
misrepresentation of private respondent. As found by the CA, petitioner used a 5-
ton capacity lifting apparatus to lift and unload a visibly heavy cargo like a
payloader.

Private respondent has, likewise, sufficiently established the laxity and

carelessness of petitioner's crew in their methods of ascertaining the weight of
heavy cargoes offered for shipment before loading and unloading them, as is
customary among careful persons. It must be noted that the weight submitted by
private respondent Concepcion appearing at the left-hand portion of Exhibit 8 as
an addendum to the original enumeration of equipment to be shipped was
entered into the bill of lading by petitioner without seeing the equipment to be
shipped. Also, common carriers can protect themselves against mistakes in the
bill of lading as to weight by exercising diligence before issuing the same.
Although petitioner has proven that private respondent did not furnish it with
inaccurate weight, petitioner is nonetheless liable, for the damage could have
been avoided by the exercise of reasonable skills in overseeing the unloading of
such. While the act of private respondent in furnishing petitioner with an
inaccurate weight of the payloader cannot successfully be used as an excuse by
petitioner to avoid liability to the damage thus caused, said act constitutes a
contributory circumstance to the damage caused on the payloader, which
mitigates the liability for damages of petitioner in accordance with Article 1741 of
the Civil Code.

89
Philippine National Railways vs. Court of Appeals
G.R. No. L-55347, October 4, 1985

Facts:
Winifredo Tupang boarded the train of PNR at Libmanan, Camarines Sur
as a paying passenger bound for Manila. He sat on the open platform between
the coaches of the train since the train was full of passengers. Upon passing
Iyam bridge at Lucena, Quezon, Tupang fell off the train which resulted to his
death. The train did not stop even when some of the passengers alarmed the
train conductor that a passenger fell off the train. The train conductor only called
the station agent and verified the information given by some of the passengers.

Rosario Tupang, Winifredo Tupangs widow, filed a complaint in for

breach of contract. CFI held PNR liable for damages for breach of contract of
carriage. The Court of Appeals affirmed the decision of CFI and increased the
amount of exemplary damages. PNR raised the defense of doctrine of state
immunity for the first time in its motion for reconsideration. Such motion was
denied by the CA.

Issues:
May PNR be sued for damages as a government entity?
Was Tupang guilty of contributory negligence?

Ruling:
Yes. PNR has the characteristics and attributes of a corporation and there
is no question that PNR may sue and be sued. It can also be subjected to court
processes just like any corporation. When the government enters into
commercial business, it abandons its sovereign capacity and is to be treated like
any other corporation. It in effect abdicates part of its sovereign prerogatives and
descends to the level of a citizen.

Yes. Because the victim opted to sit on the open platform and between
the coaches of the train, he should have held tight to the upright metal railing at
the side of the platform to avoid falling. PNR is nevertheless liable for the death
suffered by the passenger since the presumption is that when death or injury
occurs, the common carrier is negligent in the performance of its obligation under
the contract of carriage.

90
 BILL OF LADING

91
Magellan Mfg. Marketing Corp. vs. CA
G.R. No. 95529; August 22, 1991
BILL OF LADING
FACTS:
Choju Co., Ltd purchased from MMMC 136,000 anahaw fans for $23,220.
MMMC contracted with F.E. Zuellig, a shipping agent of (OOCL) specifying that
he needed an on-board bill of lading and that transhipment is not allowed under
the letter of credit. MMMC paid Zuellig the freight charges and secured a copy of
the bill of lading which was presented to Allied Bank. The bank then credited the
amount of US$23,220 covered by the letter of credit to MMMC. When MMMC's
President went back to the bank later, he was informed that the payment was
refused by the buying for lack of bill of lading and there was a transhipment of
goods. The anahaw fans were shipped back to Manila through OOCL. MMMC
abandoned the whole cargo and asked OOCL for damages.

ISSUE:
Whether the bill of lading which reflected the transhipment against the letter of
credit is consented by MMMC

RULING:
Yes. Petitioner argued that assuming that there was transhipment, it cannot be
deemed to have agreed thereto even if it signed the bill of lading containing such
entry because it had made known to private respondents from the start that
transhipment was prohibited under the letter of credit and that, therefore, it had
no intention to allow transhipment of the subject cargo. In support of its stand,
petitioner relies on the second paragraph of Article 1370 of the Civil Code which
states that "(i)f the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former."

As between such stilted thesis of petitioner and the contents of the bill of lading
evidencing the intention of the parties, it is irremissible that the latter must
prevail. Petitioner conveniently overlooks the first paragraph of the very article
that he cites which provides that "(i)f the terms of the contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control." In addition, Article 1371 of the same Code provides
that "(i)n order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered."

The terms of the contract as embodied in the bill of lading are clear and thus
obviates the need for any interpretation. The intention of the parties which is the
carriage of the cargo under the terms specified thereunder and the wordings of
the bill of lading do not contradict each other. The terms of the contract being
conclusive upon the parties and judging from the contemporaneous and
subsequent actuations of petitioner, to wit, personally receiving and signing the
bill of lading and paying the freight charges, there is no doubt that petitioner must
necessarily be charged with full knowledge and unqualified acceptance of the
terms of the bill of lading and that it intended to be bound thereby.

92
LORENZO SHIPPING CORP. vs. CHUBB and SONS, Inc., GEARBULK, Ltd.
and PHILIPPINE TRANSMARINE CARRIERS, INC.
G.R. No. 147724.
June 8, 2004

FACTS: Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a

domestic corporation engaged in coastwise shipping, was the carrier of 581
bundles of black steel pipes, the subject shipment, from Manila to Davao City.

Petitioner Lorenzo Shipping issued a clean bill of lading designated as Bill of

Lading No. T-3for the account of the consignee, Sumitomo Corporation of San
Francisco, California, USA, which in turn, insured the goods with respondent
Chubb and Sons, Inc.

Respondent Transmarine Carriers received the subject shipment which was

discharged on December 4, 1987, evidenced by Delivery Cargo Receipt No.
115090.It discovered seawater in the hatch of M/V Lorcon IV, and found the steel
pipes submerged in it.

Due to its heavily rusted condition, the consignee Sumitomo rejected the
damaged steel pipes and declared them unfit for the purpose they were intended.
Respondent then filed a collection of sum of money against Lorenzo Shipping,
Gearbulk and Transmarine.

Petitioner Lorenzo Shipping denied liability, alleging, among others: (a) that rust
easily forms on steel by mere exposure to air, moisture and other marine
elements; (b) that it made a disclaimer in the bill of lading; (c) that the goods
were improperly packed;

ISSUE: Whether petitioner Lorenzo Shipping is negligent in carrying the subject

cargo.

RULING: The steel pipes, subject of this case, were in good condition when they
were loaded at the port of origin (Manila) on board petitioner Lorenzo Shippings
M/V Lorcon IV en route to Davao City. Petitioner Lorenzo Shipping issued clean
bills of lading covering the subject shipment. A bill of lading, aside from being a
contract and a receipt, is also a symbol of the goods covered by it. A bill of
lading which has no notation of any defect or damage in the goods is called a
clean bill of lading. A clean bill of lading constitutes prima facie evidence of the
receipt by the carrier of the goods as therein described.

The case law teaches us that mere proof of delivery of goods in good order to a
carrier and the subsequent arrival in damaged condition at the place of
destination raises a prima facie case against the carrier. In the case at bar, M/V
Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good order
and condition, evidenced by the clean bills of lading it issued. When the cargo
was unloaded from petitioner Lorenzo Shippings vessel at the Sasa Wharf in
Davao City, the steel pipes were rusted all over.

93
MOF Company Inc v Shin Yang Brokerage Corp

GR No 172822
December 18, 2009

Topic: Bill of Lading

Facts:
Halla Trading Co., a company based in Korea, shipped to Manila
secondhand cars and other articles on board the vessel Hanjin Busan. The bill of
lading covering the shipment which was prepared by the carrier Hanjin Shipping
Co., Ltd. (Hanjin), named respondent Shin Yang Brokerage Corp. (Shin Yang) as
the consignee and indicated that payment was on a Freight Collect basis. The
shipment arrived in Manila. Thereafter, petitioner MOF Company, Inc. (MOF),
Hanjins exclusive general agent in the Philippines, repeatedly demanded the
payment of ocean freight, documentation fee and terminal handling charges from
Shin Yang. The latter, however, failed and refused to pay contending that it did
not cause the importation of the goods, that it is only the Consolidator of the said
shipment, that the ultimate consignee did not endorse in its favor the original bill
of lading and that the bill of lading was prepared without its consent. Thus MOF
filed a case for sum of money. MOF alleged that Shin Yang, a regular client,
caused the importation and shipment of the goods and assured it that ocean
freight and other charges would be paid upon arrival of the goods in Manila. Yet,
after Hanjin's compliance, Shin Yang unjustly breached its obligation to pay.
MOF argued that Shin Yang, as the named consignee in the bill of lading,
entered itself as a party to the contract and bound itself to the Freight Collect
arrangement. Claiming that it is merely a consolidator/forwarder and that Bill of
Lading was not endorsed to it by the ultimate consignee, Shin Yang denied any
involvement in shipping the goods or in promising to shoulder the freightage.

Issue: Whether or not a consignee, who is not a signatory to the bill of lading, is
bound by the stipulations thereof

Ruling:
The bill of lading is oftentimes drawn up by the shipper/consignor and the
carrier without the intervention of the consignee. However, the latter can be
bound by the stipulations of the bill of lading when a) there is a relation of agency
between the shipper or consignor and the consignee or b) when the consignee
demands fulfillment of the stipulation of the bill of lading which was drawn up in
its favor. In Keng Hua Paper Products Co., Inc. v. CA, we held that once the bill
of lading is received by the consignee who does not object to any terms or
stipulations contained therein, it constitutes as an acceptance of the contract and
of all of its terms and conditions, of which the acceptor has actual or constructive
notice. In sum, a consignee, although not a signatory to the contract of carriage
between the shipper and the carrier, becomes a party to the contract by reason
of either a) the relationship of agency between the consignee and the shipper/
consignor; b) the unequivocal acceptance of the bill of lading delivered to the
consignee, with full knowledge of its contents or c) availment of the stipulation
pour autrui, i.e., when the consignee, a third person, demands before the carrier
the fulfillment of the stipulation made by the consignor/shipper in the consignees
favor, specifically the delivery of the goods/cargoes shipped.

94
In the instant case, Shin Yang consistently denied in all of its pleadings that it
authorized Halla Trading, Co. to ship the goods on its behalf; or that it got hold of
the bill of lading covering the shipment or that it demanded the release of the
cargo. Basic is the rule in evidence that the burden of proof lies upon him who
asserts it, not upon him who denies, since, by the nature of things, he who
denies a fact cannot produce any proof of it. Thus, MOF has the burden to
controvert all these denials, it being insistent that Shin Yang asserted itself as the
consignee and the one that caused the shipment of the goods to the Philippines.

95
AGUSTINO B. ONG YIU vs. CA
G.R. No. L-40597 June 29, 1979

Bill of Lading

FACTS:
On august 26, 1967 petitioner was a fare paying passenger of respondent PAL,
on board from Mactan Cebu, bound for Butuan City. He was scheduled to attend
the trial of in the CFI Branch II, thereat, set for hearing on August 28-31, 1967.
As a passenger, he checked in one piece of luggage, a blue "maleta" for which
he was issued a Claim Check. Upon arrival, petitioner claimed his luggage but it
could not be found. According to petitioner, it was only after reacting indignantly
to the loss that the matter was attended to by the porter clerk, Maximo Gomez,
which, however, the latter denies. Petitioner was worried about the missing
luggage because it contained vital documents needed for trial the next day.
Petitioner wired PAL Cebu demanding the delivery of his baggage before noon
the next day, otherwise, he would hold PAL liable for damages, and stating that
PAL's gross negligence had caused him undue inconvenience. Early in the
morning of August 27 petitioner went to the Bancasi Airport to inquire about his
luggage. He did not wait, however, for the morning flight which arrived at 10am.
This flight carried the missing luggage. The porter clerk, Gomez, paged
petitioner, but the latter had already left. A certain Dagorro who also used to drive
for petitioner, volunteered to take the luggage to petitioner. As Gomez knew
Dagorro to be the same driver used by petitioner whenever the latter was in
Butuan City, Gomez took the luggage and placed it on the counter. Dagorro
examined the lock, pressed it, and it opened. After calling the attention of
Gomez, the "maleta" was opened, Gomez took a look at its contents, but did not
touch them. Dagorro then delivered the "maleta" to petitioner, with the
information that the lock was open. Upon inspection, petitioner found that a folder
containing certain exhibits, transcripts and private documents needed for the
case were missing, aside from two gift items for his parents-in-law. Petitioner
refused to accept the luggage. Dagorro returned it to the porter clerk, Gomez,
who sealed it and forwarded the same to PAL Cebu. Petitioner asked for
postponement of the hearing due to loss of his documents, which was granted by
the Court. Petitioner demanded that his luggage be produced intact, and that he
be compensated in the sum of P250K for actual and moral damages within five
days from receipt of the letter, otherwise, he would be left with no alternative but
to file suit. Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to
petitioner's office to deliver the "maleta". In the presence of Mr.Yap and
Atty.Maranga the contents were listed and receipted for by petitioner. Petitioner
filed a Complaint against PAL for damages for breach of contract of
transportation with the CFI of Cebu. Lower Court found PAL to have acted in
bad faith and with malice and declared petitioner entitled to moral damages. CA
found PAL was guilty only of simple negligence, reversed the judgment of the
trial Court granting petitioner moral and exemplary damages, but ordered PAL to
pay plaintiff the sum of P100.00, the baggage liability assumed by it under the
condition of carriage printed at the back of the ticket.

ISSUE: WON the CA was correct in limiting PALs carriage liability?

96
RULING:
YES. As a general proposition, the plaintiff's maleta having been pilfered while in
the custody of the defendant, it is presumed that the defendant had been
negligent. The liability, however, of PAL for the loss, in accordance with the
stipulation written on the back of the ticket, is limited to P100.00 per baggage,
plaintiff not having declared a greater value, and not having called the attention
of the defendant on its true value and paid the tariff therefor. The validity of this
stipulation is not questioned by the plaintiff. They are printed in reasonably and
fairly big letters, and are easily readable. Moreover, plaintiff had been a frequent
passenger of PAL from Cebu to Butuan City and back, and he, being a lawyer
and businessman, must be fully aware of these conditions. The pertinent
Condition of Carriage printed at the back of the plane ticket reads:

8. BAGGAGE LIABILITY ... The total liability of

the Carrier for lost or damaged baggage of the
passenger is LIMITED TO P100.00 for each
ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in
excess, however, of a total valuation of
P1,000.00 and additional charges are paid
pursuant to Carrier's tariffs.

There is no dispute that petitioner did not declare any higher value for his
luggage, much less did he pay any additional transportation charge. While it may
be true that petitioner had not signed the plane ticket he is nevertheless bound
by the provisions thereof. "Such provisions have been held to be a part of the
contract of carriage, and valid and binding upon the passenger regardless of the
latter's lack of knowledge or assent to the regulation". It is what is known as a
contract of "adhesion", in regards which it has been said that contracts of
adhesion wherein one party imposes a ready made form of contract on the other,
as the plane ticket in the case at bar, are contracts not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. Considering, therefore, that petitioner had failed
to declare a higher value for his baggage, he cannot be permitted a recovery in
excess of P100.00.Besides, and passengers are advised not to place valuable
items inside their baggage but to avail of our V-cargo service. It is likewise to
be noted that there is nothing in the evidence to show the actual value of the
goods allegedly lost by petitioner.

97
Wallem Philippines Shipping Inc. and Seacoast Maritime Corporation v
Prudential Guarantee & Assurance Inc. and Court of Appeals
G.R.No. 152158
February 7, 2003

Bill of Lading

Facts:
Respondent Prudential Guarantee & Assurance Inc (Prudential) brought an
action for damages against petitioner Wallem Philippines Shipping (Wallem) and
Seacost Maritime Corporation (Seacoast) filed with the RTC of Makati for the
recovery of the amount it aid to its insured General Milling Corporation (GMC) for
alleged shortage incurred in shipment of Indian toasted soyabean extraction
meal, yellow. The RTC ruled that Prudential failed to prove by clear, convincing
and competent evidence that there was shortage in the shipment when it failed to
establish by competent evidence the genuineness and due execution of the bill of
lading and, therefore, the true and exact weight of the shipment when it was
loaded unto the vessel. Having no way by which a shortage could be determined,
then it is not entitled for damages. On appeal, the CA reversed the RTCs
decision.

Issue:
Whether there was shortage in the shipment and whether Wallem could be held
liable for the shortage

Ruling:
No. The CA erred in finding that shortage had taken place. The Prudential
claims processor had no personal knowledge of the contents of the documents
as she had no participation in the preparation of the documents upon which it
based its cause of action against Wallem.

The contents of the bill of lading can be controverted by evidence to the contrary
as the said bill of lading indicated that the contract of carriage was under a said
to weigh clause.

98
Ace Navigation Co., Inc. vs. FGU Insurance Corp.
G.R. No. 171591
June 25, 2012

Topics: Bill of Lading

Facts:

Cardia Limited shipped tons of cement aboard a vessel from Shanghai Port,
China to Manila Port to its consignee, Heindrich Trading Corp. The subject
shipment was insured with respondents, FGU Insurance Corp. and Pioneer
Insurance & Surety Corp. The subject vessel is owned by Pakarti, which
chartered the ship to Shinwa, which in turn chartered it to Sky, an agent of Kee
Yeh, which further chartered it to Regency. It was Regency that directly dealt with
the consignee Heindrich, and accordingly issued Clean Bill of Lading No. SM-1.

When the shipment arrived, it was found upon inspection that some portions
were in bad order or condition. Respondents co-insurers paid the consignee
Heindrich and became subrogees therein. Hence, the respondents brought suit
against several defendants, but were dismissed by the RTC. However in CA,
defendants Pakarti, Shinwa, Kee Yeh, and Sky were held solidarily liable for 70%
of the claim, while 30% will be shouldered by Cardia and its agent, petitioner Ace
Navigation.

Among all the petitions concerning such CA decision, only the petition of Ace
Navigation remained. Petitioner argued that it cannot be held liable since it was
not a party to the bill of lading, and its principal Cardia was not impleaded as
party-defendant and thus no liability attaches to the agent. Furthermore, Ace
Navigation remarked that there was death of evidence linking it to the supposed
defective packing of the shipment. On the other hand, respondents maintained
further that Ace Navigation was a ship agent.

Issue:

(1) Did petitioner Ace Navigation become a party to the bill of lading?
(2) Is petitioner Ace Navigation a ship agent or a mere agent of Cardia?

Ruling:

(1) Yes. A bill of lading is defined as "an instrument in writing, signed by a carrier
or his agent, describing the freight so as to identify it, stating the name of the
consignor, the terms of the contract for carriage, and agreeing or directing that
the freight to be delivered to the order or assigns of a specified person at a
specified place." It operates both as a receipt and as a contract. As a receipt, it
recites the date and place of shipment, describes the goods as to quantity,
weight, dimensions, identification marks and condition, quality, and value. As a
contract, it names the contracting parties, which include the consignee, fixes the
route, destination, and freight rates or charges, and stipulates the rights and
obligations assumed by the parties. As such, it shall only be binding upon the
parties who make them, their assigns and heirs.

99
In this case, the original parties to the bill of lading are: (a) the shipper Cardia; (b)
the carrier Pakarti; and (c) the consignee Heindrich. However, by virtue of their
relationship with Pakarti under separate charter arrangements, Shinwa, Kee Yeh
and its agent Sky likewise became parties to the bill of lading. In the same vein,
Ace Navigation, as admitted agent of Cardia, also became a party to the said
contract of carriage.

(2) Ace Navigation is not a ship agent. Under Article 586, Code of Commerce,
ship agent is understood to be the person entrusted with the provisioning of a
vessel, or who represents her in the port in which she may be found.

Records show that the obligation of Ace Navigation was limited to informing the
consignee Heindrich of the arrival of the vessel in order for the latter to
immediately take possession of the goods. No evidence was offered to establish
that Ace Navigation had a hand in the provisioning of the vessel or that it
represented the carrier, its charterers, or the vessel at any time during the
unloading of the goods. Clearly, petitioner's participation was simply to assume
responsibility over the cargo when they were unloaded from the vessel. Hence,
Ace Navigation was not a ship agent, but a mere agent of Cardia, the shipper.

100
ASIAN TERMINALS VS SIMON ENTERPRISES
Gr. No. 177116
February 27, 2013

BILL OF LADING

Facts:
Simon Enterprise Inc. (Simon) has entered into contract with Contiquincybunge
Export Company (Contiquincybunge) as its consignee of the shipped Soybean
Meal. Contiquincybunge has made a shipment through M/V Sea Dream and M/V
Tern respectively at the Port of Darrow, Louisiana, U.S.A. For the first shipment,
Contiquincybunge made a shipment of 6,825.144 metric tons of U.S. Soybean
Meal which when the M/V Sea Dream arrived at the Port of Manila the bulk of
soybean meal was received by the Asian Terminals, Inc. (ATI), for shipment to
Simon. However, when it reached its receiver Simon, it was already short by
18.556 metric tons. For the second shipment, Contiquincybunge made shipment,
through M/V Tern, of 3,300.000 metric tons of U.S. Soybean Meal in Bulk for
delivery to Simon at the Port of Manila. The carrier issued its clean Berth Term
Grain Bill of Lading. The shipment was received by ATI again for delivery to
Simon. However, the shipped cargos were found lacking 199.863 metric tons.

Simon has filed an action for damages against the unknown owner of the vessels
M/V Sea Dream and M/V Tern, its local agent Inter-Asia Marine Transport, Inc.,
and petitioner ATI alleging that it suffered the losses through the fault or
negligence of the said defendants. The case of the unknown owner of the vessel
M/V Sea Dream has been settled in release and quitclaim and therefore has
been stricken out of the case, leaving M/V Tern, its local agent Inter-Asia Marine
Transport, Inc., and petitioner ATIs case remaining. The RTC has ruled that the
defendants be solidarily liable for the damages incurred by Simon.

Unsatisfied with the RTC ruling, the owner of the M/V Tern, and Inter-Asia Marine
Transport, Inc. appealed to CA on the issue whether RTC has erred in finding
that they did not exercise extraordinary diligence in the handling of the goods. On
the other hand, the petitioner ATI has also appealed to CA on the issue that the
RTC, the court-a-quo, committed serious and reversible error in holding ATI
solidarily liable with co-defendant appellant Inter-Asia Marine Transport, Inc.
contrary to the evidence presented. The CA ruled that the RTC ruling be assailed
with some modifications on the basis that M/V Tern and Inter-Asia Marine
Transport, Inc. have failed to establish that they exercised extraordinary diligence
in transporting the goods or exercised due diligence to forestall or lessen the loss
as provided in Article 1742 of the Civil Code. And on ATIs RTC ruling, it was
assailed as well on the basis that the stevedore of the M/V Tern has witnessed
that during the dischargement of the cargo, there has been spillage done by the
stevedores of ATI which is an evidence that ATI has been negligible in handling
the goods.

Issue:
Whether or not the appellate court erred in affirming the decision of the
trial court holding petitioner ATI solidarily liable with its co-defendants for the
shortage incurred in the shipment of the goods to respondent.
Ruling:

101
 Yes. The petition for review on certiorari was granted to ATI. The SC
agreed to ATIs claim that the CA erred in affirming the decision of the trial court
holding petitioner ATI solidarily liable with its co-defendants for the shortage
incurred in the shipment of the goods to respondent. The CA misapprehended
the following facts: First, petitioner ATI is correct in arguing that the respondent
failed to prove that the subject shipment suffered actual shortage, as there was
no competent evidence to prove that it actually weighed 3,300 metric tons at the
port of origin. Second, as correctly asserted by petitioner ATI, the shortage, if
any, may have been due to the inherent nature of the subject shipment or its
packaging since the subject cargo was shipped in bulk and had a moisture
content of 12.5%. Third, SC agreed with the petitioner ATI that respondent has
not proven any negligence on the part of the former.

The Berth Term Grain Bill of Lading, the Proforma Invoice, and the
Packing List being used by respondent to prove that the subject shipment
weighed 3,300 metric tons, do not, in fact, help its cause. The Berth Term Grain
Bill of Lading states that the subject shipment was carried with the qualification
"Shippers weight, quantity and quality unknown," meaning that it was
transported with the carrier having been oblivious of the weight, quantity, and
quality of the cargo. Supreme Court held that as the bill of lading indicated that
the contract of carriage was under a "said to weigh" clause, the shipper is solely
responsible for the loading while the carrier is oblivious of the contents of the
shipment. The meaning of clauses analogous to "Shippers weight, quantity and
quality unknown", means that the shipper was solely responsible for the loading
of the container, while the carrier was oblivious to the contents of the shipment.
The arrastre operator was, like any ordinary depositary, duty-bound to take good
care of the goods received from the vessel and to turn the same over to the party
entitled to their possession, subject to such qualifications as may have validly
been imposed in the contract between the parties. The arrastre operator was not
required to verify the contents of the container received and to compare them
with those declared by the shipper because, as earlier stated, the cargo was at
the shippers load and count.

The recital of the bill of lading for goods thus transported [i.e., transported
in sealed containers or "containerized"] ordinarily would declare "Said to
Contain", "Shippers Load and Count", "Full Container Load", and the amount or
quantity of goods in the container in a particular package is only prima facie
evidence of the amount or quantity.

A shipment under this arrangement is not inspected or inventoried by the

carrier whose duty is only to transport and deliver the containers in the same
condition as when the carrier received and accepted the containers for transport.

Hence, as can be culled from the above-mentioned cases, the weight of

the shipment as indicated in the bill of lading is not conclusive as to the actual
weight of the goods. Consequently, the respondent must still prove the actual
weight of the subject shipment at the time it was loaded at the port of origin so
that a conclusion may be made as to whether there was indeed a shortage for
which petitioner must be liable. This, the respondent failed to do.

102
 The presumption that the bill of lading, which petitioner relies upon to
support its claim for restitution, constitutes prima facie evidence of the goods
therein described was correctly deemed by the appellate court to have been
rebutted in light of abundant evidence casting doubts on its veracity. The bill of
lading carried an added clause the shipments weight, measure, quantity,
quality, condition, contents and value unknown. Evidently, the weight of the cargo
could not be gauged from the bill of lading.

103
 Negotiability

104
NATIONAL DEVELOPMENT COMPANY vs. THE COURT OF APPEALS
G.R. No. L-49407 & No. L-49469
August 19, 1988

NEGOTIABILITY

FACTS:
Petitioner appointed Maritime Co. of the Phil. (MCP) as its agent to
manage and operate said vessel for and in its behalf and account. Thus, the E.
Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San
Francisco, California, a total of 1,200 bales of American raw cotton. Also loaded
on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum
foil. En route to Manila the vessel Dofia Nati figured in a collision at Ise Bay,
Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which some of
the cargoes were damaged and lost, all of which was paid for by the
Development Insurance & Surety Corporation (DISC) as insurer to those holder
of a duly endorsed bill of lading. Hence, plaintiff filed this complaint to recover
said amount from the defendants-NDC and MCP as owner and ship agent
respectively, of the said 'Dofia Nati' vessel.

The trial court rendered a decision ordering the defendants MCP and
NDC to pay jointly and solidarity to DISC and was affirmed in toto by the CA.

ISSUE:
Whether or not the bills of lading were negotiable.

RULING:
Yes. The records show that the Riverside Mills Corporation and Guilcon,
Manila are the holders of the duly endorsed bills of lading covering the shipments
in question and an examination of the invoices in particular, shows that the actual
consignees of the said goods are the aforementioned companies. Moreover, no
less than MCP itself issued a certification attesting to this fact. Accordingly, as it
is undisputed that the insurer, plaintiff appellee paid to said consignees for the
loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a
cause of action to recover (what it has paid) from defendant-appellant MCP.

105
 NOTICE OF CLAIM AND PRESCRIPTION

106
Philam Insurance Co. v. Heung-A Shipping Corp.
GR No. 187701, July 23, 2014

Facts:
Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from Jinsuk
Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of Ovaltine
Power 18 Glaminated plastic packaging material. JINSUK engaged the services
of Protop Shipping Corporation (PROTOP), a freight forwarder likewise based in
South Korea, to forward the goods to their consignee, NOVARTIS to ship the
goods to the Philippines.

Based on Bill of Lading issued by PROTOP, the cargo was on freight prepaid
basis and on "shippers load and count" which means that the "container [was]
packed with cargo by one shipper where the quantity, description and condition
of the cargo is the sole responsibility of the shipper." Likewise stated in the bill of
lading is the name Sagawa Express Phils., Inc., (SAGAWA) designated as the
entity in the Philippines which will obtain the delivery contract.

PROTOP shipped the cargo through Dongnama Shipping Co. Ltd.

(DONGNAMA) which in turn loaded the same on M/V Heung-A Bangkok V-019
owned and operated by Heung-A Shipping Corporation, (HEUNG-A), a Korean
corporation, pursuant to a slot charter agreement whereby a space in the latters
vessel was reserved for the exclusive use of the former. Wallem Philippines
Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the Philippines.
NOVARTIS insured the shipment with Philam Insurance Company, Inc.
(PHILAM, now Chartis Philippines Insurance, Inc.) under All Risk Marine Open
Insurance against all loss, damage, liability, or expense before, during transit and
even after the discharge of the shipment from the carrying vessel until its
complete delivery to the consignees premises. The vessel arrived at the port of
Manila, South Harbor and was discharged without exception into the possession,
custody and care of Asian Terminals, Inc. (ATI) as the customs arrastre operator.
The shipment was thereafter withdrawn on January 4, 2001, by NOVARTIS
appointed broker, Stephanie Customs Brokerage Corporation (STEPHANIE)
from ATIs container yard.

Upon initial inspection of NOVARTIS, the boxes of the shipment were wet and
damp due to the parts of the container van that were damaged and rusty. Since
the damaged packaging materials might contaminate the product they were
meant to hold, Caparoso rejected the entire shipment. This was also certified by
certified Adjusters and Surveyors with similar observations.

NOVARTIS demanded indemnification for the lost/damaged shipment from

PROTOP, SAGAWA, ATI and STEPHANIE but was denied. Insurance claims
were, thus, filed with PHILAM which paid the insured value of the shipment and
was subrogated to all the rights and claims of NOVARTIS against the parties
liable for the lost/ damaged shipment impleading also PROTOP, HEUNG-A and
WALLEM.

RTC rendered judgement making PROTOP, HEUNG-A and WALLEM solidarily

liable for the damaged goods and exonerated the others.

107
The CA modified the decision and limited the liability of PROTOP, WALLEM and
HEUNG-A. HEUNG-A and WALLEM argued that NOVARTIS/PHILAM failed to
file a timely claim against them.

Issue:
Whether or not did NOVARTIS/PHILAM failed to file a timely claim against
HEUNG-A and WALLEM upon failure to give within three days of the delivery.

Ruling:
No. Citing the case of Asian Terminals, Inc. v. Philam Insurance Co., Inc., the
prescriptive period for filing an action for lost/damaged goods governed by
contracts of carriage by sea to and from Philippine ports in foreign trade is
governed by paragraph 6,Section 3 of the COGSA which states:
(6) Unless notice of loss or damage and the
general nature of such loss or damage be given in
writing to the carrier or his agent at the port of
discharge before or at the time of the removal of
the goods into the custody of the person entitled to
delivery thereof under the contract of carriage,
such removal shall be prima facie evidence of the
delivery by the carrier of the goods as described in
the bill of lading. If the loss or damage is not
apparent, the notice must be given within three
days of the delivery.

Said notice of loss or damage maybe endorsed

upon the receipt for the goods given by the person
taking delivery thereof.

The notice in writing need not be given if the state

of the goods has at the time of their receipt been
the subject of joint survey or inspection. In any
event the carrier and the ship shall be discharged
from all liability in respect of loss or damage
unless suit is brought within one year after delivery
of the goods or the date when the goods should
have been delivered: Provided, That if a notice of
loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact
shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of
the goods or the date when the goods should have
been delivered.

It was further ruled in Asian Terminals that pursuant to the foregoing COGSA
provision, failure to comply with the notice requirement shall not affect or
prejudice the right of the shipper to bring suit within one year after delivery of the
goods.

The consignee, NOVARTIS, received the subject shipment on January 5, 2001.

PHILAM, as the subrogee of NOVARTIS, filed a claim against PROTOP on June

108
4, 2001, against WALLEM on October 12, 2001 and against HEUNG-A on
December 11, 2001, or all within the one-year prescriptive period. Verily then,
despite NOVARTIS' failure to comply with the three-day notice requirement, its
subrogee PHILAM is not barred from seeking reimbursement from PROTOP,
HEUNG-A and WALLEM because the demands for payment were timely filed.

109
UCPB General Insurance Co. v. Aboitiz Shipping Corp.
G.R. No. 168433
February 10, 2009

Notice of Claim and Prescription

Facts

Three units of waste water treatment with accessories were purchased by SMC.
The goods came from Charleston, U.S.A and arrived at the port of Manila on
board MV SCANDUTCH STAR., which then was transported to Cebu on board
MV ABOITIZ SUPERCON II. After its arrival at the port of Cebu and clearance
from the Bureau of Customs, the goods were delivered to and received by SMC
at its plant site but it was then discovered that one electrical motor of DBS Drive
was damaged. UCPB paid SMC the amount representing the value of the
damaged unit. In turn, SMC executed a Subrogation Form in favor of UCBP
which consequently filed a Complaint as subrogee of SMC seeking to recover
from defendants the amount it had paid SMC. defendant EAST filed a Motion for
Preliminary Hearing on its affirmative defenses seeking the dismissal of the
complaint against it on the ground of prescription

ISSUE: Whether or not UCPB can claim damages against the respondents under
Article 366 of the Code of Commerce.

HELD:
Art. 366 provides that within twenty-four hours following the receipt of the
merchandise, the claim against the carrier for damage or average which may be
found therein upon opening the packages, may be made, provided that the
indications of the damage or average which gives rise to the claim cannot be
ascertained from the outside part of such packages, in which case the claim shall
be admitted only at the time of receipt. After the periods mentioned have
elapsed, or the transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in which the goods
transported were delivered. The shipment in this case was received by SMC
on August 2, 1991. However, as found by the Court of Appeals, the claims were
dated October 30, 1991, more than three (3) months from receipt of the shipment
and, at that, even after the extent of the loss had already been determined by
SMCs surveyor. The claim was, therefore, clearly filed beyond the 24-hour time
frame prescribed by Art. 366 of the Code of Commerce.

110
PHILIPPINE CHARTER INSURANCE Co., v. CHEMOIL LIGHTERAGE
GR No. 136888, June 29, 2005

Notice of Claim

FACTS:
Samkyung Chemical Company, Ltd., based in Ulsan, South Korea,
shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP)
on board MT "TACHIBANA" under Bill of Lading and another 436.70 metric tons
of DOP, also under Bill of Lading to the Philippines. The consignee was Plastic
Group Phils., Inc. (PGP) in Manila. PGP insured the cargo with herein petitioner
Philippine Charter Insurance Corporation against all risks. The ocean tanker MT
"TACHIBANA" unloaded the cargo to Tanker Barge of respondent Chemoil
Lighterage Corporation, which shall transport the same to Del Pan Bridge in
Pasig River. Tanker Barge would unload the cargo to tanker trucks, also owned
by the respondent, and haul it by land to PGPs storage tanks in Calamba,
Laguna. Upon inspection by PGP, the samples taken from the shipment showed
discoloration from yellowish to amber, demonstrating that it was damaged, as
DOP is colorless and water clear. Petitioner paid PGP the amount of the loss.
Meanwhile, PGP paid the respondent for the latters services. An action for
damages was instituted by the petitioner-insurer against respondent-carrier. The
respondent alleged that PGP failed to file any notice, claim or protest within the
period required by Article 366 of the Code of Commerce, which is a condition
precedent to the accrual of a right of action against the carrier. A telephone call
which was supposedly made by a certain Alfred Chan, an employee of PGP, to
one of the Vice Presidents of the respondent, informing the latter of the
discoloration, is not the notice required by Article 366 of the Code of Commerce.

ISSUE: Whether the notice of claim was filed within the required period.

HELD: No. Article 366 of the Code of Commerce has profound application in the
case at bar. This provision of law imparts:
Art. 366. Within twenty-four hours following the receipt of the merchandise a
claim may be made against the carrier on account of damage or average found
upon opening the packages, provided that the indications of the damage or
average giving rise to the claim cannot be ascertained from the exterior of said
packages, in which case said claim shall only be admitted at the time of the
receipt of the packages.
After the periods mentioned have elapsed, or after the transportation charges
have been paid, no claim whatsoever shall be admitted against the carrier with
regard to the condition in which the goods transported were delivered.

The filing of a claim with the carrier within the time limitation therefore actually
constitutes a condition precedent to the accrual of a right of action against a
carrier for loss of, or damage to, the goods. The shipper or consignee must
allege and prove the fulfillment of the condition. If it fails to do so, no right of
action against the carrier can accrue in favor of the former. The aforementioned
requirement is a reasonable condition precedent; it does not constitute a
limitation of action.

111
Lorenzo Shipping Corp. v. Chubb and Sons
G.R. No. 147724
June 8, 2004

Notice of Claim and Prescription

FACTS:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila,
loaded 581 bundles of ERW black steel pipes worth US$137,912.844 on board
the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment to
Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading for the
account of the consignee, Sumitomo Corporation of San Francisco, California,
USA, which in turn, insured the goods with respondent Chubb and Sons, Inc. On
December 2, 1987 M/V Lorcon IV arrived at the Sasa Wharf in Davao City.
Respondent Transmarine Carriers received the subject shipment which was
discharged on December 4, 1987, evidenced by Delivery Cargo Receipt. It
discovered underwater seawater in the hatch of M/V Lorcon IV, and found the
steel pipes submerged in it. The consignee Sumitomo then hired the services of
R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to
discharge. It found out that the subject shipment was no longer in good
condition, in fact, the pipes were found with rust formation on top and/or at the
sides. Moreover, the surveyor hold that M/V Lorcon IV was flooded with seawater
and the tanktop was rusty, thinning and with several holes at different places.
After the survey, respondent Gearbulk loaded the shipment on board its vessel
M/V San Mateo Victory to the United States. It issued Bills of Lading for 364
bundles of steel pipes to be discharged at Oakland, USA and Bills of Lading for
217 bundles of steel pipes to be discharged at Vancouver, Washington, USA. All
bills of lading were marked "ALL UNITS HEAVILY RUSTED".

While the cargo was in transit from Davao City to the USA, consignee Sumitomo
sent a letter of intent to petitioner Lorenzo Shipping informing it that it will be filing
a claim based on the damaged cargo once such damage has been ascertained.
When the vessels unloaded the subjects to their destinations, Toplis and
Harding, Inc. surveyed the steel pipes and discovered that it is heavily rusted and
tested with a silver nitrate solution. Due to its condition, the consignee Sumitomo
rejected the damages steel pipes and declared them unfit for the purpose they
intended. It then filed a marine insurance claim with respondent Chubb and
Sons, Inc. which the latter setted in the amount of US$104,151.00. Then, on
December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint16 for
collection of a sum of money against respondents Lorenzo Shipping, Gearbulk,
and Transmarine. Respondents Gearbulk and Transmarine filed their answer
with counterclaim and cross-claim against petitioner denying liability.

ISSUE: whether respondent Chubb and Sons'claim for damages has prescribed

HELD: The twenty-four-hour period prescribed by Art. 366 of the Code of

Commerce within which claims must be presented does not begin to run until the
consignee has received such possession of the merchandise that he may
exercise over it the ordinary control pertinent to ownership. There must be
delivery of the cargo by the carrier to the consignee at the place of destination. In
the case at bar, consignee Sumitomo has not received possession of the cargo,

112
and has not physically inspected the same at the time the shipment was
discharged from M/V Lorcon IV in Davao City. Lorenzo Shipping failed to
establish that an authorized agent of the consignee Sumitomo received the cargo
at Sasa Wharf in Davao City. What is clear from the evidence is that the
consignee received and took possession of the entire shipment only when the
latter reached the United States shore. Only then was delivery made and
completed. And only then did the 24-hour prescriptive period start to run.

113
Philippine American General Isurance vs. Sweetlines Inc., et.al.
G.R. No. 87434, August 5, 1992

Facts:
SS Vishva Yash took on board at Baton Rouge Los Angeles two
consignments of cargoes for the shipment to Manila and later to Davao City,
which consisted of 600 bags of Low Density Polyethylene 631 and 6,400 bags
Polyethylene 647, both consigned to the order of Far Eastern Bank and Trust
Company of Manila.

The said vessel arrived at Manila and discharged the cargoes at Port of
Manila for further shipment to Davao City. The foreign carrier owner and operator
of the vessel hired the services of the vessel called MV Sweet Love, which was
owned and operated by Sweetlines Inter Island Carrier. The cargoes were
cominggled with other cargoes.

When the shipments were discharged from the interisland carrier into the
custody of the consignee. Shortages, damages and losses were shown. The
original shipment was a total of 7,000 bags originally contained in 175 pallets but
only a total of 5820 bags were delivered to the consignee in good condition.
There was a shortage of 1,080 bags that were either missing, torn or partially
spilled or totally emptied. Some contents were contaminated with foreign matters
and could no longer serve their purpose.

A complaint was filed by petitioner Philamgen for the recovery of the

amount of lost or damaged cargoes.

Issue:
Is a Notice of Claim necessary to enforce the carriers liability?

Ruling:
Yes. Where a contract of shipment contains a reasonable requirement of
giving notice of loss or injury to the goods, the giving of such notice is a condition
precedent to the action for loss or injury, hence the right to enforce the carriers
liability.

Such requirement is not an empty formality but serves a means not to

relieve the carrier from liability but to inform the carrier that the shipment has
been damaged and that it is charged with liability and to give the carrier the
opportunity to examine the nature and extent of the injury. This also protects the
carrier by affording it an opportunity to make an investigation of a claim wile the
matter is fresh and easily investigated so as to safeguard itself from false or
fraudulent claims.

Stipulations in the bills of lading or other contracts of shipment which

require notice of claim for damage to goods shipped in order to impose liability on
the carrier to operate to prevent the enforcement of the contract when not
complied with, that is, the notice is a condition precedent and the carrier is not
liable if the notice given in accordance with the stipulation. The failure to comply
with such stipulation in the contract of carriage with respect to the notice of claim
for damage bars recovery for the loss or damage suffered.

114
Belgian Overseas Chartering and Shipping N.V. vs. PhiL. First Insurance Co.,
Inc.
G.R. No 143133
June 5, 2002

NOTICE OF CLAIM AND PRESCRIPTION

FACTS:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky'
at Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine Steel Trading Corporation.
On July 28, 1990, it arrived at the port of Manila and was subsequently
discharged after a few days. It was found that four coils were in bad order, and
was then declared as total loss by the consignee.

ISSUE:
Whether the notice of loss was timely filed

RULING:
Yes. Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of
Goods by Sea Act44 (COGSA), respondent should have filed its Notice of Loss
within three days from delivery. They assert that the cargo was discharged on
July 31, 1990, but that respondent filed its Notice of Claim only on September 18,
1990.

The court is not persuaded because the said provision the notice of claim need
not be given if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to unloading the
cargo, an Inspection Report as to the condition of the goods was prepared and
signed by representatives of both parties. Also, a failure to file a notice of claim
within three days will not bar recovery if it is nonetheless filed within one year.

In the present case, the cargo was discharged on July 31, 1990, while the
Complaint was filed by respondent on July 25, 1991, within the one-year
prescriptive period.

115
LOADSTAR SHIPPING CO., INC., petitioner, vs.COURT OF APPEALS and THE
MANILA INSURANCE CO., INC.,
G.R. No. 131621
September 28, 1999

FACTS: On 19 November 1984, LOADSTAR received on board a) 705 bales of

lawanit hardwood; b) 27 boxes and crates of tilewood assemblies and the others
;and c) 49 bundles of mouldings R & W (3) Apitong Bolidenized. On its way to
Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its
cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the
consignee made a claim with LOADSTAR which, however, ignored the same.
MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of
the vessel was due to the fault and negligence of LOADSTAR and its employees.
LOADSTAR denied any liability for the loss of the shippers goods and claimed
that sinking of its vessel was due to force majeure. LOADSTAR submits that the
vessel was a private carrier because it was not issued certificate of public
convenience, it did not have a regular trip or schedule nor a fixed route, and
there was only one shipper, one consignee for a special cargo.

Issues:(1) Is the M/V Cherokee a private or a common carrier? (2) Did

LOADSTAR observe due and/or ordinary diligence in these premises.

Held: Petition is dismissed: SC hold that LOADSTAR is a common carrier. It is

not necessary that the carrier be issued a certificate of public convenience, and
this public character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled. The bills of lading
failed to show any special arrangement, but only a general provision to the effect
that the M/VCherokee was a general cargo carrier. 14 Further, the bare fact
that the vessel was carrying a particular type of cargo for one shipper, which
appears to be purely coincidental, is not reason enough to convert the vessel
from a common to a private carrier, especially where, as in this case, it was
shown that the vessel was also carrying passengers. Under Article 1732 of the
Civil Code the Civil Code defines common carriers in the following terms:
Art 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or
goods or both, by land, water, or air for
compensation, offering their services to the public.

On to the second assigned error, we find that the M/V Cherokee was not
seaworthy when it embarked on its voyage on 19 November 1984. The vessel
was not even sufficiently manned at the time. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to
maintain in seaworthy condition its vessel involved in a contract of carriage is a
clear breach of its duty.

116
Benjamin Cua v Wallem Philippine Shipping

GR no 171337
July 11, 2012

Topic: Notice of Claim and Prescription

Facts:
Cua filed a civil action for damages against Wallem and Advance
Shipping before the RTC of Manila. Cua sought the payment of P2,030,303.52
for damage to 218 tons and for a shortage of 50 tons of shipment of Brazilian
Soyabean consigned to him, as evidenced by Bill of Lading No. 10. He claimed
that the loss was due to the respondents failure to observe extraordinary
diligence in carrying the cargo. Advance Shipping (a foreign corporation) was the
owner and manager of M/V Argo Trader that carried the cargo, while Wallem was
its local agent.Advance Shipping filed a motion to dismiss the complaint, arguing
that Cuas claim should have first been brought to arbitration. Wallem filed its
own motion to dismiss, raising the sole ground of prescription. Section 3(6) of the
Carriage of Goods by Sea Act (COGSA) provides that "the carrier and the ship
shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods." Wallem alleged that the
goods were delivered to Cua on August 16, 1989, but the damages suit was
instituted only on November 12, 1990 more than one year than the period
allotted under the COGSA. Since the action was filed beyond the one year
prescriptive period, Wallem argued that Cuas action has been barred.

Issue: Whether or not Cuas claim for payment of damages against the
respondents has prescribed

Ruling: No. Prescription may be considered by the courts motu proprio if the facts
supporting the ground are apparent from the pleadings or the evidence on
record. The COGSA is the applicable law for all contracts for carriage of goods
by sea to and from Philippine ports in foreign trade; it is thus the law that the
Court shall consider in the present case since the cargo was transported from
Brazil to the Philippines.Under Section 3(6) of the COGSA, the carrier is
discharged from liability for loss or damage to the cargo "unless the suit is
brought within one year after delivery of the goods or the date when the goods
should have been delivered." Jurisprudence, however, recognized the validity of
an agreement between the carrier and the shipper/consignee extending the one-
year period to file a claim. The vessel MV Argo Trader arrived in Manila on July
8, 1989; Cuas complaint for damages was filed before the RTC of Manila on
November 12, 1990. Although the complaint was clearly filed beyond the one-
year period, Cua additionally alleged in his complaint that "the defendants x x x
agreed to extend the time for filing of the action up to November 12, 1990." The
allegation of an agreement extending the period to file an action in Cuas
complaint is a material averment that, under Section 11, Rule 8 of the Rules of
Court, must be specifically denied by the respondents; otherwise, the allegation
is deemed admitted. A review of the pleadings submitted by the respondents
discloses that they failed to specifically deny Cuas allegation of an agreement
extending the period to file an action to November 12, 1990. Wallems motion to
dismiss simply referred to the fact that Cuas complaint was filed more than one

117
year from the arrival of the vessel, but it did not contain a denial of the extension.
Advance Shippings motion to dismiss, on the other hand, focused solely on its
contention that the action was premature for failure to first undergo arbitration.
While the joint answer submitted by the respondents denied Cuas allegation of
an extension, they made no further statement other than a bare and unsupported
contention that Cuas "complaint is barred by prescription and/or laches[.]" The
respondents did not provide in their joint answer any factual basis for their belief
that the complaint had prescribed. We cannot consider the respondents
discussion on prescription in their Memorandum filed with the RTC, since their
arguments were based on Cuas supposed failure to comply with Article 366 of
the Code of Commerce, not Section 3(6) of the COGSA the relevant and
material provision in this case. Article 366 of the Code of Commerce requires that
a claim be made with the carrier within 24 hours from the delivery of the cargo;
the respondents alleged that they were informed of the damage and shortage
only on September 13, 1989, months after the vessels arrival in Manila. Since
the COGSA is the applicable law, the respondents discussion to support their
claim of prescription under Article 366 of the Code of Commerce would,
therefore, not constitute a refutation of Cuas allegation of extension. Given the
respondents failure to specifically deny the agreement on the extension of the
period to file an action, the Court considers the extension of the period as an
admitted fact.

118
INSURANCE COMPANY OF NORTH AMERICA, (ICNA)
vs.
ASIAN TERMINALs, INC. (ATI)
G.R. No. 180784 February 15, 2012

Prescription

FACTS:
Macro-lite Korea corporation shipped to San Miguel corp. through M/V Dimi
vessel 180 packages of electrolytic tin steel which was insured with ICNA. When
the shipment was discharged 7 packages thereof were damaged and in bad
order. This shipment was then turnover to the custody of ATI for storage and
safekeeping pending withdrawal by the consignees authorized customs broker
Marzan. The shipment was then withdrawn by Marzan. Prior to the withdrawal of
the shipment, a joint inspection was done and additional 5 packages were
damaged and in bad order. ICNA demanded reparation against ATI. As ATI
failed to satisfy the demand, ICNA filed an action fir damages against ATI with
the RTC of Makati city. RC found ATI liable for the damages in the shipment but
likewise dismissed it on the ground of prescription under the COGSA. ICNA
contends that COGSA is not applicable in this case because the prescriptive
period applies only to carriers and ships. It argues that ATI which is a
warehousing. Arrastre and stevedoring business is not a carrier as defined in the
COGSA because it is not engaged in the transportation of goods by sea in
international trade as a common carrier. Morever ICNA contends that the term
carriage of goods in the COGSA covers the period from the time the goofs are
loaded to the vessel up to the time they are discharged therefrom.

ISSUE: WON the 1 year prescriptive period for filing a suit under the COGSA
applies to this action for damages against ATI arrastre operator?

RULING:
NO. The Carriage of goods by sea act (COGSA), Public act no. 521of the 74th
congress, was accepted o be made applicable to all contracts for the carriage of
goods by sea to and from ports in the foreign trade by virtue of CA no. 65.
Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by
Sea, the term "carriage of goods" covers the period from the time when the
goods are loaded to the time when they are discharged from the ship; thus, it can
be inferred that the period of time when the goods have been discharged from
the ship and given to the custody of the arrastre operator is not covered by the
COGSA. The prescriptive period for filing an action for the loss or damage of the
goods under the COGSA is found in paragraph (6), Section 3. The carrier and
the ship may put up the defense of prescription if the action for damages is not
brought within one year after the delivery of the goods or the date when the
goods should have been delivered. It has been held that not only the shipper, but
also the consignee or legal holder of the bill may invoke the prescriptive period.
However, the COGSA does not mention that an arrastre operator may invoke the
prescriptive period of one year; hence, it does not cover the arrastre operator.

119
Vector Shipping Corporation and Francisco Soriano v American Home
Assurance Company and Sulpicio Lines, Inc.
G.R.No. 159213
July 3, 2013

Notice of Claim and Prescription

Facts:
Caltex entered into a contract of affreightment with Vector Shipping Corporation
(Vector) owned by Francisco Soriano for the transport of Caltexs petroleum
cargo which was insured by Caltex to American Home Insurance Company
(American). The vessel of Vector carrying the cargo and Sulpicio Lines vessel
collided in the open sea between Marinduque and Oriental Mindoro which led to
the sinking of both vessels and the loss of the cargo of Caltex. Subsequently,
American indemnified Caltex for the loss of the cargo and filed a complaint
against Vector, Soriano and Sulpicio to recover the full amount paid to Caltex.

The RTC issued a resolution dismissing the civil case reasoning that the action is
based on a quasi-delict and as such must be commenced within 4 years from the
day the quasi-delict occurred. When the case was filed the action had already
prescribed under the law. The letter of demand upon Sulpicio did not interrupt
the tolling of the prescriptive period since there is no evidence that it was actually
received by the addressee. The cross-claim of Sulpicio against Vector and
Soriano filed belatedly had likewise prescribed.

On appeal to the CA, the CA ruled that Vector and Soriano liable since the
relationship between Caltex and Vector and Soriano is culpa contractual based
on the contract of affreightment. Under Article 1144 of the New Civil Code,
actions based on a written contract must be brought within 10 years from the
time the right of action accrued. In this case the action was filed well within the
time required by law.

Issue:
Whether the action was already barred by prescription and whether the right of
subrogation was inadmissible for not being properly identified by the
respondents witness.

Ruling:
No. The Supreme Court concurs with the CAs ruling that the action did not yet
prescribe. The formal written claim of Caltex was duly presented, marked and
admitted during trial evidencing that there was proof of claim and payment and
respondent became subrogated as a matter of law.

120
Asian Terminals, Inc. vs. Philam Insurance Co., Inc.
G.R. No. 181163
July 24, 2013

Topics: Notice of Claim and Prescription

Facts:

Nichimen Corporation shipped to Universal Motors Corporation 219 packages

containing 120 units of Nissan Pickup Truck, without engine, tires and batteries,
on board the vessel "Calayan Iris" from Japan to Manila. The shipment was
insured with Philam against all risks.

Upon arrival at Manila Port, two packages were identified as being dented and
broken. Thereafter, the cargoes were stored for temporary safekeeping inside
CFS Warehouse. The shipment was withdrawn by R.F. Revilla Customs
Brokerage, Inc., the authorized broker of Universal Motors, and delivered to the
latters warehouse in Mandaluyong City. A bad order survey was conducted on
the cargoes, and it was found that one Frame Axle Sub without Lower was
deeply dented, while six Frame Assembly with Bush were deformed.

Philam paid the insurance, and as subrogee, it filed a complaint against

Westwind, ATI, and RFRCBI. The trial court found both petitioners Westwind and
ATI, jointly and severally, liable for the damage to the cargo. The appellate court
affirmed the solidary liability of Westwind and ATI, but only for the damage to one
Frame Axle Sub without Lower.

Issue:

(1) Has Philams right of action already prescribed?

(2) Who should be liable for the damage to the cargo?

Ruling:

(1) No. Philams right of action has not prescribed. The prescriptive period for
filing an action for the loss or damage of the goods under the COGSA is found in
paragraph (6), Section 3, thus:

(6) Unless notice of loss or damage and the general nature of such loss
or damage be given in writing to the carrier or his agent at the port of
discharge before or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by
the carrier of the goods as described in the bill of lading. If the loss or
damage is not apparent, the notice must be given within three days of the
delivery.

Said notice of loss or damage maybe endorsed upon the receipt for the
goods given by the person taking delivery thereof.

121
 The notice in writing need not be given if the state of the goods has at the
time of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not
affect or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should have
been delivered.

The vessel "Calayan Iris" arrived at Manila Port on April 20, 1995, and the
subject cargoes were discharged to the custody of ATI the next day. The goods
were then withdrawn from the CFS Warehouse on May 11, 1995 and the last of
the packages delivered to Universal Motors on May 17, 1995. Prior to this, the
latter filed a Request for Bad Order Survey on May 12, 1995 following a joint
inspection where damages were discovered. Yet, it was not until August 4, 1995
that Universal Motors filed a claim for damages against petitioners.

Even so, a request for, and the result of a bad order examination, done within the
reglementary period for furnishing notice of loss or damage to the carrier or its
agent, serves the purpose of a claim. A claim is required to be filed within the
reglementary period to afford the carrier or depositary reasonable opportunity
and facilities to check the validity of the claims while facts are still fresh in the
minds of the persons who took part in the transaction and documents are still
available. In this case, Universal Motors filed a request for bad order survey on
May 12, 1995, even before all the packages could be unloaded to its warehouse.

Moreover, Par. (6), Section 3, COGSA clearly states that failure to comply with
the notice requirement shall not affect or prejudice the right of the shipper to
bring suit within one year after delivery of the goods. Petitioner Philam filed the
complaint for damages on January 18, 1996, just eight months after all the
packages were delivered to its possession on May 17, 1995. Evidently, petitioner
Philams action against petitioners was seasonably filed.

(2) Both Westwind and ATI are liable for the damage to the particular cargo.
Since the damage to the cargo was incurred during the discharge of the
shipment and while under the supervision of the carrier (Westwind), the latter is
liable for the damage caused to the cargo.

On the other hand, ATI is not without liability. Handling cargo is mainly the
arrastre operators principal work, so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and damage
to shipments under its custody. The facts of these cases show that apart from
ATIs stevedores being directly in charge of the physical unloading of the cargo,
its foreman picked the cable sling that was used to hoist the packages for
transfer to the dock. Moreover, the fact that 218 of the 219 packages were
unloaded with the same sling unharmed is telling of the inadequate care with
which ATIs stevedore handled and discharged the particular damaged package.

122
 MARITIME LAW

123
PHILAM INSURANCE VS HEUNG-A SHIPPING CORP.
Gr. No. 187701
July 23, 2014

MARITIME LAW

Facts:
Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from
Jinsuk Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of
Ovaltine Power 18 Glaminated plastic packaging material. In order to ship the
goods to the Philippines, JINSUK engaged the services of Protop Shipping
Corporation (PROTOP), a freight forwarder likewise based in South Korea, to
forward the goods to their consignee, NOVARTIS. Based on Bill of Lading No.
PROTAS 200387 issued by PROTOP, the cargo was on freight prepaid basis
and on "shippers load and count" which means that the "container [was] packed
with cargo by one shipper where the quantity, description and condition of the
cargo is the sole responsibility of the shipper." Likewise stated in the bill of lading
is the name Sagawa Express Phils., Inc., (SAGAWA) designated as the entity in
the Philippines which will obtain the delivery contract.

PROTOP shipped the cargo through Dongnama Shipping Co. Ltd.

(DONGNAMA) which in turn loaded the same on M/V Heung-A Bangkok V-019
owned and operated by Heung-A Shipping Corporation, (HEUNG-A), a Korean
corporation, pursuant to a slot charter agreement whereby a space in the latters
vessel was reserved for the exclusive use of the former. Wallem Philippines
Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the Philippines.
NOVARTIS insured the shipment with Philam Insurance Company, Inc.
(PHILAM, now Chartis Philippines Insurance, Inc.) under All Risk Marine Open
Insurance Policy No. MOP-0801011828 against all loss, damage, liability, or
expense before, during transit and even after the discharge of the shipment from
the carrying vessel until its complete delivery to the consignees premises. The
vessel arrived at the port of Manila, South Harbor, on December 27, 2000 and
the subject shipment contained in Sea Van Container No. DNAU 420280-9 was
discharged without exception into the possession, custody and care of Asian
Terminals, Inc. (ATI) as the customs arrastre operator.

The shipment reached NOVARTIS premises and was thereupon

inspected by the companys Senior Laboratory Technician.

Upon initial inspection, Caparoso found the container van locked with its
load intact. After opening the same, she inspected its contents and discovered
that the boxes of the shipment were wet and damp. The boxes on one side of the
van were in disarray while others were opened or damaged due to the
dampness. Caparoso further observed that parts of the container van were
damaged and rusty. There were also water droplets on the walls and the floor
was wet. Since the damaged packaging materials might contaminate the product
they were meant to hold, Caparoso rejected the entire shipment.

All 17 pallets of the 184 cartons/rolls contained in the sea van were found
wet/water damaged. NOVARTIS demanded indemnification for the lost/damaged
shipment from PROTOP, SAGAWA, ATI and STEPHANIE but was denied.

124
Insurance claims were, thus, filed with PHILAM which paid the insured value of
the shipment. PHILAM sent a demand letter to WALLEM for reimbursement of
the insurance claims paid to NOVARTIS. When WALLEM ignored the demand,
PHILAM impleaded it as additional defendant in an Amended Complaint.

PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied

liability for the lost/damaged shipment. RTC ruled that the damage to the
shipment occurred onboard the vessel while in transit from Korea to the
Philippines. HEUNG-A was adjudged as the common carrier of the subject
shipment by virtue of the admissions of WALLEMs witness, Ronald Gonzales
(Gonzales) that despite the slot charter agreement with DONGNAMA, it was still
the obligation of HEUNG-A to transport the cargo from Busan, Korea to Manila
and thus any damage to the shipment is the responsibility of the carrier to the
consignee. The RTC further observed that HEUNG-A failed to present evidence
showing that it exercised the diligence required of a common carrier in ensuring
the safety of the shipment. CA agreed with the RTC that PROTOP, HEUNG-A
and WALLEM are liable for the damaged shipment. The fact that HEUNG-A was
not a party to the bill of lading did not negate the existence of a contract of
carriage between HEUNG-A and/or WALLEM and NOVARTIS. A bill of lading is
not indispensable for the creation of a contract of carriage. By agreeing to
transport the goods contained in the sea van providedby DONGNAMA, HEUNG-
A impliedly entered into a contract of carriage with NOVARTIS with whom the
goods were consigned. Hence, it assumed the obligations of a common carrier to
observe extraordinary diligence in the vigilance over the goods transported by it.
Further the Slot Charter Agreement did not change HEUNG-As character as a
common carrier.

Issue:
Whether or not HEUNG-A, WALLEM and PROTOP were liable only for
the lost/damaged 17 pallets instead of 19 pallets stated in the bill of lading.

Ruling:
Yes. When there is a loss/damage to goods covered by contracts of
carriage from a foreign port to a Philippine port and in the absence a shippers
declaration of the value of the goods in the bill of lading, as in the present case,
the foregoing provisions of the COGSA shall apply. The CA, therefore, did not err
in ruling that HEUNG-A, WALLEM and PROTOPs liability is limited to $500 per
package or pallet. The Court likewise affirms the CA in pronouncing HEUNG-A,
WALLEM and PROTOP liable only for the lost/damaged 17 pallets instead of 19
pallets stated in the bill of lading. This is because, per the "Shippers Load and
Count" arrangement, the contents are not required to be checked and inventoried
by the carrier at the port of loading or before said carrier enters the port of
unloading in the Philippines since it is the shipper who has the sole responsibility
for the quantity, description and condition of the cargoes shipped in container
vans. As such, the carrier cannot be held responsible for any discrepancy if the
description in the bill of lading is different from the actual contents of the
container.

The prescriptive period for filing an action for lost/damaged goods

governed by contracts of carriage by sea to and from Philippine ports in foreign
trade is governed by paragraph 6,Section 3 of the COGSA which states: (6)

125
Unless notice of loss or damage and the general nature of such loss or damage
be given in writing to the carrier or his agent at the port of discharge before or at
the time of the removal of the goods into the custody of the person entitled to
delivery thereof under the contract of carriage, such removal shall be prima facie
evidence of the delivery by the carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent, the notice must be given within
three days of the delivery. Said notice of loss or damage maybe endorsed upon
the receipt for the goods given by the person taking delivery thereof. The notice
in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection. In any event the carrier and
the ship shall be discharged from all liability in respect of loss or damage unless
suit is brought withinone year after delivery of the goods or the date when the
goods should have been delivered: Provided, That if a notice of loss or damage,
either apparent or concealed, is not given as provided for in this section, that fact
shall not affect or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should have been
delivered.

126
MONARCH INSURANCE CO., INC vs. COURT OF APPEALS
G.R. No. 92735
June 8, 2000
MARITIME LAW

FACTS:
This case is a consolidated petition. All three cases arose from the loss of
cargoes of various shippers when the M/V P. Aboitiz, a common carrier owned
and operated by Aboitiz, sank on her voyage from Hong Kong to Manila. Seeking
indemnification for the loss of their cargoes, the shippers, their successors-in-
interest, and the cargo insurers such as the instant petitioners filed separate suits
against Aboitiz before the Regional Trial Courts.

In those cases, the RTCs all ruled against Aboitiz Shipping Corporation and was
ordered to pay the petitioners insurance companies. On appeal, the Court of
Appeals affirmed the decision of the RTC.

ISSUE:
Whether or not limited liability rule in maritime law can be applied in favor
of Aboitiz in this case in order to stay the execution of the judgments for full
indemnification of the losses suffered by the petitioners.

RULING:
Yes. "No vessel, no liability," expresses in a nutshell the limited liability
rule. The shipowner's or agent's liability is merely co-extensive with his interest in
the vessel such that a total loss thereof results in its extinction. The total
destruction of the vessel extinguishes maritime liens because there is no longer
any res to which it can attach. This doctrine is based on the real and hypothecary
nature of maritime law which has its origin in the prevailing conditions of the
maritime trade and sea voyages during the medieval ages, attended by
innumerable hazards and perils. To offset against these adverse conditions and
to encourage shipbuilding and maritime commerce, it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to
the vessel, equipment, and freight, or insurance, if any.

127
Aboitiz Shipping Corporation vs. General Accident Fire and Life Insurance Corp.
Ltd.
G.R. No. 100446 January 21, 1993

Facts:
Aboitiz Shipping Corporation is a corporation organized and operating under
Philippine laws and engaged in the business of maritime trade as a carrier. As
such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier
which sank on a voyage from Hongkong to the Philippines on October 31, 1980.
General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the
other hand, is a foreign insurance company pursuing its remedies as a subrogee
of several cargo consignees whose respective cargo sank with the said vessel
and for which it has priorly paid.

The sinking was initially investigated by the Board of Marine Inquiry, which found
that such sinking was due to force majeure and that subject vessel, at the time of
the sinking was seaworthy.

The trial court in said Civil Case No. 144425 found against the carrier on the
basis that the loss subject matter therein did not occur as a result of force
majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was
later awarded, its claim. This decision which was affirmed by CA, in favor of
GAFLAC was elevated all the way up to this Court with Aboitiz. The attempted
execution of the judgment award in said case in the amount of P1,072,611.20
plus legal interest has given rise to the instant petition.

Aboitiz Shipping seeks a pronouncement as to the applicability of the doctrine of

limited liability on the totality of the claims vis a vis the losses brought about by
the sinking of the vessel M/V P. ABOITIZ, as based on the real and hypothecary
nature of maritime law. The application of this established principle of maritime
law would necessarily result in a probable reduction of the amount to be
recovered by GAFLAC, since it would have to share with a number of other
parties similarly situated in the insurance proceeds on the vessel that sank.

Issue:
Whether or not the real and hypothecary nature of maritime law applies to the
case.

Ruling:
Yes. The real and hypothecary nature of maritime law simply means that the
liability of the carrier in connection with losses related to maritime contracts is
confined to the vessel, which is hypothecated for such obligations or which
stands as the guaranty for their settlement. It has its origin by reason of the
conditions and risks attending maritime trade in its earliest years when such
trade was replete with innumerable and unknown hazards since vessels had to
go through largely uncharted waters to ply their trade. It was designed to offset
such adverse conditions and to encourage people and entities to venture into
maritime commerce despite the risks and the prohibitive cost of shipbuilding.
Thus, the liability of the vessel owner and agent arising from the operation of
such vessel were confined to the vessel itself, its equipment, freight, and
insurance, if any, which limitation served to induce capitalists into effectively

128
wagering their resources against the consideration of the large profits attainable
in the trade.

The only time the Limited Liability Rule does not apply is when there is an actual
finding of negligence on the part of the vessel owner or agent (Yango v. Laserna,
73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abd2e 1ulhanan, 101 Phil. 32
[1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649
[1967]).

The trial court in as well as the entirety of the records in the instant case will
show that there has been no actual finding of negligence on the part of petitioner.
In its Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that the vessel M/V
"Aboitiz" and its cargo were not lost due to fortuitous event or force majeure." (p.
32, Rollo)

The same is true of the SC decision affirming the CA since both decisions did not
make any new and additional finding of fact. Both merely affirmed the factual
findings of the trial court, adding that the cause of the sinking of the vessel was
because of unseaworthiness due to the failure of the crew and the master to
exercise extraordinary diligence. Indeed, there appears to have been no
evidence presented sufficient to form a conclusion that petitioner shipowner itself
was negligent.

The trial court was directed to desist from proceeding with the execution of the
judgment in Civil Case No. 144425 pending determination of the totality of claims
recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner was
directed to institute the necessary action and to deposit the proceeds of the
insurance of subject vessel as above-described within fifteen (15) days from
finality of the SCs decision.

129
Dela Torre v. Court of Appeals
G.R. No. 160088
July 13, 2011

Maritime Law

Facts:

FACTS: Concepcion, owner of LCT-Josephine, a vessel registered with the

Philippine Coast Guard and the Philippine Trigon Shipyard Corporation (PTSC),
entered into a "Contract of Agreement," wherein the latter would charter LCT-
Josephine. PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines
(TSL), a single proprietorship owned by Rolands father, Agustin de la Torre
(Agustin). TSL, this time represented by Roland per Agustins Special Power of
Attorney, sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the
transport of cargo consisting of sand and gravel to Leyte. The LCT-Josephine
with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte. The vessel
was beached near the NDC Wharf. With the vessels ramp already lowered, the
unloading of the vessels cargo began with the use of Larrazabals payloader.
While the payloader was on the deck of the LCT-Josephine scooping a load of
the cargo, the vessels ramp started to move downward, the vessel tilted and sea
water rushed in. Shortly thereafter, LCT-Josephine sank. Concepcion demanded
that PTSC/ Roland refloat LCT-Josephine. Unfortunately, this did not materialize.
For this reason, Concepcion was constrained to institute a complaint for "Sum of
Money and Damages" against PTSC and Roland before the RTC. PTSC and
Roland filed their answer together with a third-party complaint against Agustin.
Agustin, in turn, filed his answer plus a fourth-party complaint against Larrazabal.
The latter filed his answer and counterclaim but was subsequently declared in
default by the RTC. Eventually, the fourth-party complaint against Larrazabal was
dismissed when the RTC rendered its decision in favor of Concepcion. The
appellate court, in agreement with the findings of the RTC, affirmed its decision in
toto.

ISSUE: Whether or not the Code of Commerce is applicable.

HELD: No. Petitioners position is that the Limited Liability Rule under the Code
of Commerce should be applied to them, the argument is misplaced. In this
jurisdiction, this rule is provided in three articles of the Code of Commerce. One
of which, Article 837 specifically applies to cases involving collision which is a
necessary consequence of the right to abandon the vessel given to the
shipowner or ship agent under the first provision Article 587. Similarly, Article
590 is a reiteration of Article 587, only this time the situation is that the vessel is
co-owned by several persons. Thus, what is contemplated is the liability to third
persons who may have dealt with the shipowner, the agent or even the charterer
in case of demise or bareboat charter. The only person who could avail of this is
the shipowner, Concepcion. He is the very person whom the Limited Liability
Rule has been conceived to protect. The petitioners cannot invoke this as a
defense. The shipowners or agents liability is merely coextensive with his
interest in the vessel such that a total loss thereof results in its extinction. The
total destruction of the vessel extinguishes maritime liens because there is no
longer any res to which it can attach.

130
ACE NAVIGATION, Co. FGU INSURANCE Corp.,
GR No. 171591, June 25, 2012

Maritime Law

FACTS:

Cardia Limited shipped on board the vessel M/V Pakarti Tiga at Shanghai
Port, China, 8260metric tons (or 165,200 bags) of Grey Portland Cement to be
discharged at the Port of Manila and delivered to its consignee, Heindrich
Trading Corp. The subject shipment was insured with respondents FGU
Insurance Corp. and Pioneer Insurance and Surety Corp. against all
risks. Regency Express Lines S.A., chartered by Sky International, Inc. having
entered into a contract with Shinwa Kaiun Kaisha Ltd. to which the subject vessel
was chartered by the owner Pakarti Tata, was the one which directly dealt with
Heindrich and accordingly issued Clean Bill of Lading No. SM-1.The vessel
arrived at the Port of Manila and the shipment was discharged. Upon inspection
by Heindrich and Ace Navigation Co. Inc, agent of Cardia Limited, it was found
that out of the165,200 bags of cement, 43,905 bags were in bad order and
condition. The respondents, unable to collect the sustained damages from Cardia
Limited and Regency Express Lines S.A., each paid Heindrich separately and
became subrogated to all the rights and causes of action accruing to Heindrich.
Respondents filed a complaint for damages. Ace Navigation Co. Inc. claimed it
was not a real party-in-interest from whom the respondents can
demand compensation. The respondents maintain that Ace Navigation Co. Inc is
a ship agent and not a mere agent of Cardia, as found by both the CA and the
RTC.

ISSUE:
Whether or not Ace Navigation Co. Inc. be held liable for damages sought by
FGU Insurance Corporation and Pioneer Insurance and Surety Corporation.

HELD:
Article 586 of the Code of Commerce provides that the ship owner and
the ship agent shall be civilly liable for the acts of the captain and for the
obligations contracted by the latter to repair, equip and provision the vessel,
provided the creditor proves the amount claimed was invested therein. By ship
agent is understood the person entrusted with the provisioning of a vessel, or
who represents her in the port in which she may be found.

Due to the above provision, the Court disagreed with respondents

contention. Thus, Ace Navigation Co. Inc. cannot be held liable for damages
sought by the respondents.

131
Vasquez v. Court of Appeals
G.R. No. L-42926
September 13, 1995
Maritime Law

FACTS: On May 15, 1966, early in the morning, MV "Pioneer Cebu", inter-island
vessel, left the Port of Manila for Cebu. Among its passengers on board are
spouses Alfonso Vasquez and a four-year old boy, Mario Marlon Vasquez. The
vessel encountered typhoon "Klaring" and struck a reef on the southern part of
Malapascua Island, located somewhere north of the island of Cebu and
sunsequently sunk. The aforementioned passengers were unheard from since
then. Plaintiffs were the parents of the missing passengers. They sought the
recovery of damages due to the loss of the three passengers during said voyage.
Respondent defended on the plea of force majuere and the extinction of its
liability by the actual total loss of the vessel.

ISSUE: whether respondent has the liability for damages of private respondent
for the presumptive death of petitioner's children

HELD: While typhoon was an inevitable occurrence, yet, having been kept
posted on the course of the typhoon by weather bulletins at intervals of six hours,
the captain and crew were well aware of the risk they were taking as they hopped
from island to island from Romblon up to Tanguingui. They failed to exercise
extra ordinary diligence required of them by the law. With respect to private
respondent's defense that the total loss of the vessel extinguished its liability
pursuant to Art 587 of the Code of Commerce, it was held that the liability of
shipowner is limited to value of the vessel or to the insurance thereon. Despite
the total loss of the vessel, its insurance answers for the damages that a
shipowner or agent may be held liable for by reason of the death of its
passengers.

132
 AVIATION LAWS AND WARSAW CONVENTION

133
Edna Diago Lhuillier vs British Airways
G.R. No. 171092, March 15, 2010

Facts:
Edna Diago Lhuillier, herein petitioner took one of British Airways flight
from London, United Kingdom to Rome, Italy. While on board, she requested one
of the flight attendants Halliday to assist her in placing her hand-carried luggage
in the overhead bin but Halliday refused and made a sarcastic remark. When the
flight was about to land in Rome, another flight attendant Kerrigan singled her out
from all the passengers in the business class to lecture on plane safety and
made her appear ignorant and uneducated.

Upon arrival in Rome, petitioner complained to the ground manager of

British Airways and demanded apology but the ground manager said that the
flight attendants were only doing their job. Thus, petitioner filed a complaint for
damages.

Respondent British Airways filed a Motion to Dismiss based on grounds

of lack of jurisdiction over the case and over the person of the respondent.
Respondent alleged that only the courts in London or Rome Italy have jurisdiction
over the complaint for damages pursuant to the Warsaw Convention, Art. 28(1)
which provides:
An action for damages must be brought at the option
of the plaintiff, either before the court of domicile of
the carrier or his principal place of business, or where
her has a place of business through which the
contract has been made or before the court of the
place of destination. Thus, since respondent is
domiciled in London, her principal place of business
is in London, she bought the ticket in Italy and Rome,
Italy is her destination, then it follows that the
complaint should only be filed in courts of London,
United Kingdom or Rome, Italy.

RTC Makati granted the Motion to Dismiss and ruled that even if the court
symphatizes with petitioners suffering of ill-treatment, the court has to apply the
principles of international law such as the Warsaw Convention to which the
Philippines is a signatory.

Petitioner argues that her cause of action arose not from the contract of
carriage but from the tortious act committed by airline personnel of British
Airways.

Issue:
Is Art. 28(1) of the Warsaw Convention applicable in the case?

Ruling:
Yes. The Convention is a treaty commitment voluntarily assumed by the
Philippine government and as such has the force and effect of law in this country.
The Convention is applicable because the air travel, where the alleged tortious

134
conduct occurred, was between the UK and Italy, which are both signatories to
the Warsaw Convention. Art.1 of the Convention provides that:
1. This convention applies to all
international carriage of persons, luggage or goods
performed by aircraft for reward. It applies equally
to gratuitous carriage by an air transport
undertaking.
2. For purposes of the convention, the
expression international carriage means any
carriage in which according to the contract made by
the parties, the place of departure and the place of
destinationwhether or not there be a break in the
carriage or transshipment, are situated either within
the territories of the two High Contracting Parties

Thus, when the place of departure and the place of destination in a

contract of carriage are situated within the territories of the two High Contracting
Parties, said carriage is deemed to be and international carriage. In the case at
bar, petitioners place of departure was in London, United Kingdom while her
place of destination was in Rome, Italy.

The Warsaw Convention is jurisdictional in character. Hence petitioner

may bring her case in London, United Kingdom and Rome, Italy under the
premise of Art.28(1). It is ruled that RTC Makati correctly ruled that it does not
have jurisdiction over the case filed by the petitioner.

135
Phil. Airlines, Inc. vs. Savillo
G.R. No. 149547; July 4, 2008

AVIATION LAW AND WARSAW CONVENTION

FACTS:
Private respondent was invited to participate in the 1993 ASEAN Seniors Annual
Golf Tournament held in Jakarta, Indonesia. He and several companions decided
to purchase their respective passenger tickets from PAL. Private respondent and
his companions were made to understand by PAL that its plane would take them
from Manila to Singapore, while Singapore Airlines would take them from
Singapore to Jakarta. When they were already in Singapore, they discovered that
Singapore Airlines couldnt honor their tickets without PALs endorsement,
because then PAL would not pay them. Private respondent was forced to
purchase ticket from another airline and became ill afterwards so he was not able
to participate in the golf tournament. On 15 August 1997, private respondent filed
a Complaint for Damages before the RT, seeking compensation for moral
damages in the amount of P1,000,000.00 and attorneys fees.

ISSUE:
Whether the Warsaw Convention is applicable

RULING:
No. In the case at hand, Singapore Airlines barred private respondent from
boarding the Singapore Airlines flight because PAL allegedly failed to endorse
the tickets of private respondent and his companions, despite PALs assurances
to respondent that Singapore Airlines had already confirmed their passage. While
this fact still needs to be heard and established by adequate proof before the
RTC, an action based on these allegations will not fall under the Warsaw
Convention, since the purported negligence on the part of PAL did not occur
during the performance of the contract of carriage but days before the scheduled
flight. Thus, the present action cannot be dismissed based on the statute of
limitations provided under Article 29 of the Warsaw Convention.

Had the present case merely consisted of claims incidental to the airlines delay in
transporting their passengers, the private respondents Complaint would have
been time-barred under Article 29 of the Warsaw Convention. However, the
present case involves a special species of injury resulting from the failure of PAL
and/or Singapore Airlines to transport private respondent from Singapore to
Jakarta.

These claims are covered by the Civil Code provisions on tort, and not within the
purview of the Warsaw Convention. Hence, the applicable prescription period is
that provided under Article 1146 of the Civil Code. Art. 1146. The following
actions must be instituted within four years: (1) Upon an injury to the rights of
the plaintiff; (2) Upon a quasi-delict.

Private respondents Complaint was filed with the RTC on 15 August 1997, which
was less than four years since PAL received his extrajudicial demand on 25
January 1994. Thus, private respondents claims have not yet prescribed and
PALs Motion to Dismiss must be denied.

136
FEDERAL EXPRESS CORPORATION vs. AMERICAN HOME ASSURANCE
COMPANY and PHILAM INSURANCE COMPANY, INC.
G.R. No. 150094
August 18, 2004

FACTS: On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity)

of Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent
of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of
veterinary biologicals for delivery to consignee SMITHKLINE and French
Overseas Company in Makati City, Metro Manila. The shipment was covered by
Burlington Airway Bill No. 11263825 with the words, 'REFRIGERATE WHEN
NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face.

"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after
the cargoes arrived in Manila, a non-licensed custom's broker who was assigned
by GETC to facilitate the release of the subject cargoes, found out, while he was
about to cause the release of the said cargoes, that the same [were] stored only
in a room with two (2) air conditioners running, to cool the place instead of a
refrigerator. When he asked an employee of Cargohaus why the cargoes were
stored in the 'cool room' only, the latter told him that the cartons where the
vaccines were contained specifically indicated therein that it should not be
subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions
from GETC, did not proceed with the withdrawal of the vaccines and instead,
samples of the same were taken and brought to the Bureau of Animal Industry of
the Department of Agriculture in the Philippines by SMITHKLINE for examination
wherein it was discovered that the 'ELISA reading of vaccinates sera are below
the positive reference serum.'

"As a consequence of the foregoing result of the veterinary biologics test,

SMITHKLINE abandoned the shipment and, declaring 'total loss' for the unusable
shipment, filed a claim with AHAC through its representative in the Philippines,
the Philam Insurance Co., Inc. ('PHILAM') which recompensed SMITHKLINE for
the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED
THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action
for damages against the [petitioner] imputing negligence on either or both of
them in the handling of the cargo.

Trial ensued and ultimately concluded with the FEDEX being held solidarily liable
for the loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled
in favor of PHILAM and held that the shipping Receipts were a prima facie proof
that the goods had indeed been delivered to the carrier in good condition.

ISSUE: Is Federal Express liable for damage to or loss of the insured goods?

RULING: Basic is the requirement that before suing to recover loss of damage o
transported goods, the plaintiff must give the carriers notice of the loss or
damage, within the period prescribed by the Warsaw Convention and/or the
airway bill.

Condition Precedent. In this jurisdiction, the filing of a claim with the carrier within
the time limitation therefor actually constitutes a condition precedent to the

137
accrual of a right of action against a carrier for loss of or damage to the goods.
The shipper or consignee must allege and prove the fulfillment of the condition.
If it fails to do so, no right of action against the carrier can accrue in favor of the
former. The aforementioned requirement is a reasonable condition precedent; it
does not constitute a limitation of action.

The requirement of giving notice of loss of or injury to the goods is not an empty
formalism. The fundamental reasons for such a stipulation are (1) to inform the
carrier that the cargo has been damaged, and that it is being charged with liability
therefor; and (2) to give it an opportunity to examine the nature and extent of the
injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to
safeguard itself from false and fraudulent claims.

Being a condition precedent, the notice must precede a suit for enforcement. In
the present case, there is neither an allegation nor a showing of respondents
compliance with this requirement within the prescribed period. While respondents
may have had a cause of action then, they cannot now enforce it for their failure
to comply with the aforesaid condition precedent.

138
United Airlines v Uy

GR No 127768
November 19, 1999

Topic: Aviation Laws and Warsaw Convention

Facts:
Respondent Willie J. Uy, a revenue passenger on United Airlines Flight
No. 819 for the San Francisco - Manila route, checked in together with his
luggage one piece of which was found to be overweight at the airline counter. To
his utter humiliation, an employee of petitioner rebuked him saying that he should
have known the maximum weight allowance to be 70 kgs. per bag and that he
should have packed his things accordingly. Then, in a loud voice in front of the
milling crowd, she told respondent to repack his things and transfer some of them
from the overweight luggage to the lighter ones. Not wishing to create further
scene, respondent acceded only to find his luggage still overweight. The airline
then billed him overweight charges which he offered to pay with a miscellaneous
charge order (MCO) or an airline pre-paid credit. However, the airlines employee
adamantly refused to honor the MCO pointing out that there were conflicting
figures listed on it. Faced with the prospect of leaving without his luggage,
respondent paid the overweight. Respondents troubles did not end there. Upon
arrival in Manila, he discovered that one of his bags had been slashed and its
contents stolen. He particularized his losses to be around US $5,310.00. In a
letter dated 16 October 1989 respondent bewailed the insult, embarrassment and
humiliating treatment he suffered in the hands of United Airlines employees,
notified petitioner of his loss and requested reimbursement thereof. Petitioner
United Airlines, did not refute any of respondents allegations and mailed a check
representing the payment of his loss based on the maximum liability of US $9.70
per pound. Respondent, thinking the amount to be grossly inadequate to
compensate him for his losses, as well as for the indignities he was subjected to,
sent two more letters to petitioner airline, demanding an out-of-court settlement
of P1,000,000.00. Petitioner United Airlines did not accede to his demands.

Respondent filed a complaint for damages against United Airlines which the latter
moved to dismiss the complaint on the ground that respondents cause of action
had prescribed, invoking Art. 29 of the Warsaw Convention which provides
Art. 29 (1) The right to damages shall be
extinguished if an action is not brought within two
(2) years, reckoned from the date of arrival at the
destination, or from the date on which the aircraft
ought to have arrived, or from the date on which the
transportation stopped.
(2) The method of calculating the period of
limitation shall be determined by the law of the
court to which the case is submitted.

Issue: WON the respondents claim has prescribed

Ruling:No. Respondent's complaint reveals that he is suing on two (2) causes of

action: (a) the shabby and humiliating treatment he received from petitioner's

139
employees at the San Francisco Airport which caused him extreme
embarrassment and social humiliation; and, (b) the slashing of his luggage and
the loss of his personal effects amounting to US $5,310.00.
While his second cause of action - an action for damages arising from theft or
damage to property or goods - is well within the bounds of the Warsaw
Convention, his first cause of action -an action for damages arising from the
misconduct of the airline employees and the violation of respondent's rights as
passenger - clearly is not.

Consequently, insofar as the first cause of action is concerned,

respondent's failure to file his complaint within the two (2)-year limitation of the
Warsaw Convention does not bar his action since petitioner airline may still be
held liable for breach of other provisions of the Civil Code which prescribe a
different period or procedure for instituting the action, specifically, Art. 1146
thereof which prescribes four (4) years for filing an action based on torts. As for
respondent's second cause of action, indeed the travaux preparatories of the
Warsaw Convention reveal that the delegates thereto intended the two (2)-year
limitation incorporated in Art. 29 as an absolute bar to suit and not to be made
subject to the various tolling provisions of the laws of the forum. This therefore
forecloses the application of our own rules on interruption of prescriptive periods.
Article 29, par. (2), was intended only to let local laws determine whether an
action had been commenced within the two (2)-year period, and within our
jurisdiction an action shall be deemed commenced upon the filing of a complaint.
Since it is indisputable that respondent filed the present action beyond the two
(2)-year time frame his second cause of action must be barred. Nonetheless, it
cannot be doubted that respondent exerted efforts to immediately convey his loss
to petitioner, even employed the services of two (2) lawyers to follow up his
claims, and that the filing of the action itself was delayed because of petitioner's
evasion.

Verily, respondent filed his complaint more than two (2) years later,
beyond the period of limitation prescribed by the Warsaw Convention for filing a
claim for damages. However, it is obvious that respondent was forestalled from
immediately filing an action because petitioner airline gave him the runaround,
answering his letters but not giving in to his demands. True, respondent should
have already filed an action at the first instance when his claims were denied by
petitioner but the same could only be due to his desire to make an out-of-court
settlement for which he cannot be faulted. Hence, despite the express mandate
of Art. 29 of the Warsaw Convention that an action for damages should be filed
within two (2) years from the arrival at the place of destination, such rule shall not
be applied in the instant case because of the delaying tactics employed by
petitioner airline itself. Thus, private respondent's second cause of action cannot
be considered as time-barred under Art. 29 of the Warsaw Convention.

140
PHILIPPINE AIRLINES, INC., Petitioner, v. THE COURT OF APPEALS and
CHUA MIN
G.R. No. L-44936. September 25, 1992
Warsaw Convention

FACTS:
Chua Min boarded herein petitioners Flight from Hongkong to Manila and
checked in four (4) pieces of baggage. When the plane landed in Manila, private
respondent was not able to locate the two pieces of baggage containing
cinematographic films despite diligent search therefor. Private respondent made
the claim for such loss to petitioner which admitted the loss and offered to
compensate private respondent. Instead of accepting the offer, private
respondent opted to file the case below to principally recover the value of the lost
items which he estimated to be worth P20K. Petitioner responded that plaintiff
was a passenger, economy class. As such passenger, plaintiff checked-in four
(4) pieces of baggage, with a total weight of only twenty (20) kilos, inclusive of
their contents such that it would be physically impossible for the two alleged lost
pieces, to have in themselves an aggregate weight of twenty-five (25) kilos. As
such passenger the contractual relationship between plaintiff and defendant is
wholly governed by the terms, conditions and stipulations which are clearly
printed on plaintiffs Passenger Ticket Among the stipulations embodied in said
ticket is a provision granting plaintiff a free baggage allowance of twenty (20)
kilos. In pursuant of this free baggage allowance plaintiff was issued
corresponding baggage checks covering plaintiffs two alleged lost pieces of
baggage. Under his Passenger Ticket, which is the contract of carriage between
plaintiff and defendant, it is an express condition of the contract that the same
shall be subject to the rules and limitations relating to liability established by the
Warsaw Convention. Under applicable rules and regulations of the Warsaw
Convention on International Carriage by Air (as amended by the Hague Protocol
of 1955), defendants liability for plaintiffs two (2) alleged lost pieces of baggage
is limited to a maximum of US$6.50 per kilogram. Accordingly, defendants
maximum liability to plaintiff is US$165.00, or its equivalent in Philippine
currency." Petitioner tried to call the attention of the trial judge to the provisions of
the Warsaw Convention which limit the liability of petitioner as an air carrier to
250 francs per kilogram.

ISSUE: WON petitioner can avail of the limitations on liability under the warsaw
convention which limits the liability of a common carrier for loss of baggage?

RULING:
NO. Article 4, paragraph 1 of the Warsaw convention reads:
"For the transportation of baggage, other than small personal objects of which
the passenger takes charge himself, the carrier must deliver a baggage check."
and the explicit wordings of Article 4, paragraph 4 of the same Convention that:
"The absence, irregularity, or loss of the baggage checks shall not affect the
existence or the validity of the contract of transportation which shall nonetheless
be subject to the rules of this Convention. Nevertheless, if the carrier accepts
baggage without a baggage check having been delivered, or if the baggage
check does not contain the particulars set out at (d), (f), and (h) above, the carrier
shall not be entitled to avail himself of those provisions of the Convention which
exclude or limit his liability," because these axioms will spell the difference

141
between success and failure of the petition at bar. It may be recalled that
petitioner made a categorical distinction between a passenger ticket and a
baggage check when petitioner responded to the complaint for a sum of money
In its motion for reconsideration before the court a quo, petitioner had a sudden
change of heart by asserting that the passenger ticket and the baggage check
are one and the same thing. But the question of semantics on whether the
passenger ticket, the baggage check, and the tag refer to the same object is
undoubtedly without legal significance and will not obliterate the fact that the
baggage check was not presented by petitioner in the trial court inasmuch as it
merely relied on, and adopted private respondents exhibits, none of which was
offered for the purpose of proving the missing link, so to speak To rectify these
lapses, petitioner argued that it is not in a position to introduce the baggage
check in evidence since private respondent as passenger, is the one who retains
possession thereof. Yet, such pretense does not sit well with what is expected of
petitioner as an air carrier under Article 4 (2), Section II of the Warsaw
Convention that "The baggage check shall be made out in duplicate, one part for
the passenger and the other part for the carrier."

Consequently, petitioner cannot capitalize on the limited liability clause under

Article 22 (2) of the Warsaw Convention because of the unequivocal condition
set forth under the second sentence of Article 4, paragraph 4 that:
". . . if the carrier accepts baggage without a baggage check having been
delivered, a if the baggage check does not contain the particulars set out at (d),
(f), and (h) above, the carrier shall not be entitled to avail himself of those
provisions of the Convention which exclude or limit his liability."

142
Air France v Bonifacio Gillego
G.R.No. 165266
December 15, 2010

Additional Materials

Facts:
Bonifacio Gillego then incumbent Congressman of the Second District of
Sorsogon was invited to participate as one of the keynote speakers at the 89th
Inter-Parliamentary Conference Symposium on Parliament Guardian of Human
Rights to be held in Budapest, Hungary and Tokyo, Japan. He left Manila on
board Air Frances aircraft bound to Paris, France. While waiting for his
connecting flight to Budapest he learned that petitioner had another aircraft
bound for Budapest with an earlier departure time than his scheduled flight. He
then arranged with airlines representative to change his booking. However,
upon arriving in Budapest, respondent was unable to locate hi luggage at the
claiming station. He sought the assistance of the airline whose representative
advised him that the airline will take charge of delivering the luggage to him.
Said luggage was never delivered.

Gillego filed a complaint for damages against the airline alleging negligence and
breach of obligation to transport and deliver his luggage. The trial court found
there was gross negligence on the part of the airline which was affirmed by the
CA on appeal.

Issue:
Whether airline is liable

Ruling:
Yes. Article 1735 of the Civil Code provides that in case of lost or damaged
goods, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required by Article 1733. Moral damages is also in order based on the evidence
that airline acted in bad faith in repeatedly ignoring claimants follow-up calls.
The moral, exemplary and attorneys fees awarded were however reduced from
1,000,000.00, 500,000.00, and 50,000.00 to 200,000.00, 50,000.00, and
30,000.00 as it was said to be excessive.

143
Northwest Airlines, Inc. vs. Heshan
G.R. No. 179117
February 3, 2010

Topic: Aviation Laws and Warsaw Convention

Facts:

Edward Heshan purchased 3 roundtrip tickets from petitioner Northwest Airlines

for him, his wife and his daughter for their trip from Manila to Missouri, U.S. to
attend an ice skating competition where his daughter was to participate. When
the family tried to check-in for their Memphis-Los Angeles flight, they were asked
to step aside and wait. On the plane, they discovered that there were no seats for
them. The spouses were asked to sit on two folding seats, and their daughter
was offered the only vacant seat in the plane. The Heshans complained but were
told that if they did not like to occupy the seats, they were free to disembark from
the plane. Then, disembark they did. The Heshans were later endorsed to and
carried by Trans World Airways to Los Angeles.

Respondents sent a letter to petitioner demanding indemnification for breach of

contract of carriage, but were refused. Respondents thus filed a complaint for
breach of contract with damages. The petitioner belied all averments by
respondents. RTC ruled in favor of respondents. CA sustained RTCs findings.
Petitioner argued inter alia that it did not violate the contract of carriage since
respondents were eventually transported from Memphis to Los Angeles, albeit
via another airline, and that respondents made no claim of having sustained
injury during the carriage. Respondents maintained that petitioner was guilty of
breach of contract citing that when an airline issues a ticket to a passenger,
confirmed for a particular flight on a certain date, a contract of carriage arises.
The passenger then has every right to expect that he be transported on that flight
and on that date. If he does not, then the carrier opens itself to a suit for a breach
of contract of carriage.

Issue:

Did petitioner breach the contract of carriage?

Ruling:

Yes. An examination of the evidence presented by petitioner shows that it

consisted only of depositions of its witnesses. It inexplicably failed to offer even a
single piece of documentary evidence such as the flight manifest and the planes
actual seating capacity and layout.

More. Petitioner failed to satisfactorily explain why it did not issue boarding
passes to respondents who were confirmed passengers, even after they had
checked-in their luggage three hours earlier. That respondents did not reserve
seats prior to checking-in did not excuse the non-issuance of boarding passes.
Petitioners assertion that respondents disembarked from the plane when their
request to be seated together was ignored does not impress.

144
CHINA AIRLINES VS DANIEL CHIOK
Gr. No. 152122
July 30, 2003

AVIATION LAWS AND WARSAW CONVENTION

Facts:
Daniel Chiok purchased from China Airlines, Ltd. an airline passenger
ticket for air transportation covering Manila-Taipei-Hongkong-Manila. Said ticket
was exclusively endorsable to Philippine Airlines, Ltd. Before he left for said trip,
the trips covered by the ticket were pre-scheduled and confirmed by Chiok.
When Chiok reached Hongkong, he went to the PAL office and sought to
reconfirm his flight back to Manila. The PAL office confirmed his return trip on
board Flight No. PR 311 and attached its own sticker.

On the next day, Chiok proceeded to Hongkong International Airport for

his return trip to Manila. However, upon reaching the PAL counter, Chiok saw a
poster stating that PAL Flight No. PR 311 was cancelled because of a typhoon in
Manila. He was then informed that all the confirmed ticket holders of PAL Flight
No. PR 311 were automatically booked for its next flight, which was to leave the
next day. He then informed PAL personnel that, being the founding director of the
Philippine Polysterene Paper Corporation, he had to reach Manila the following
day because of a business option which he had to execute on said date.

The following day Chiok went to the airport. Cathay Pacific stewardess
Lok Chan took and received Choiks plane ticket and luggage. However, Carmen
Chan, PALs terminal supervisor, informed Chiok that his name did not appear in
PALs computer list of passengers and therefore could not be permitted to board
PAL Flight No. PR 307. Thereafter, Chiok proceeded to PALs Hongkong office
and confronted PALs reservation officer, Carie Chao (hereafter referred to as
Chao), who previously confirmed his flight back to Manila. Chao told Chiok that
his name was on the list and pointed to the latter his computer number listed on
the PAL confirmation sticker attached to his plane ticket, which number was
R/MN62. Chiok was not able to return to Manila on time.

Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982

for damages, against PAL and CAL, as defendants with the Regional Trial Court
Manila. He alleged therein that despite several confirmations of his flight,
defendant PAL refused to accommodate him in Flight No. 307, for which reason
he lost the business option aforementioned. He also alleged that PALs
personnel, specifically Carmen, ridiculed and humiliated him in the presence of
so many people. Further, he alleged that defendants are solidarily liable for the
damages he suffered, since one is the agent of the other.

The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and
severally liable. Ultimately, it was only the Appeal of CAL that reached the
Supreme Court. It allege among others that since it was only the ticket issuer, it
should not be held liable unlike PAL.

145
Issue:
Whether or not CAL may be held jointly and severally liable for the acts of
PALs employees, considering the fact that CAL was only the ticket issuer.

Ruling:
YES. It is significant to note that the contract of air transportation was
between petitioner and respondent, with the former endorsing to PAL the Hong
Kong-to-Manila segment of the journey. Such contract of carriage has always
been treated in this jurisdiction as a single operation. This jurisprudential rule is
supported by the Warsaw Convention, to which the Philippines is a party, and by
the existing practices of the International Air Transport Association (IATA).

In American Airlines v. Court of Appeals, the court have noted that under
a general pool partnership agreement, the ticket-issuing airline is the principal in
a contract of carriage, while the endorsee-airline is the agent.
x x x Members of the IATA are under a general pool partnership
agreement wherein they act as agent of each other in the issuance of tickets to
contracted passengers to boost ticket sales worldwide and at the same time
provide passengers easy access to airlines which are otherwise inaccessible in
some parts of the world. Booking and reservation among airline members are
allowed even by telephone and it has become an accepted practice among them.
A member airline which enters into a contract of carriage consisting of a series of
trips to be performed by different carriers is authorized to receive the fare for the
whole trip and through the required process of interline settlement of accounts by
way of the IATA clearing house an airline is duly compensated for the segment of
the trip serviced. Thus, when the petitioner accepted the unused portion of the
conjunction tickets, entered it in the IATA clearing house and undertook to
transport the private respondent over the route covered by the unused portion of
the conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized
its commitment under the IATA pool arrangement to act as agent of the principal
contracting airline, Singapore Airlines, as to the segment of the trip the petitioner
agreed to undertake. As such, the petitioner thereby assumed the obligation to
take the place of the carrier originally designated in the original conjunction ticket.
The petitioners argument that it is not a designated carrier in the original
conjunction tickets and that it issued its own ticket is not decisive of its liability.
The new ticket was simply a replacement for the unused portion of the
conjunction ticket, both tickets being for the same amount of US$ 2,760 and
having the same points of departure and destination. By constituting itself as an
agent of the principal carrier the petitioners undertaking should be taken as part
of a single operation under the contract of carriage executed by the private
respondent and Singapore Airlines in Manila.

Likewise, as the principal in the contract of carriage, the petitioner in

British Airways v. Court of Appeals was held liable, even when the breach of
contract had occurred, not on its own flight, but on that of another airline. The
Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals, in
which we had held that the obligation of the ticket-issuing airline remained and
did not cease, regardless of the fact that another airline had undertaken to carry
the passengers to one of their destinations.

146
 In the instant case, following the jurisprudence cited above, PAL acted as
the carrying agent of CAL. In the same way that we ruled against British Airways
and Lufthansa in the aforementioned cases, we also rule that CAL cannot evade
liability to respondent, even though it may have been only a ticket issuer for the
Hong Kong-Manila sector.

147
NORTHWEST AIRLINES, INC. vs. COURT OF APPEALS
G.R. No. 120334
January 20, 1998

AVIATION LAWS AND WARSAW CONVENTION

FACTS:
Rolando Torres was allegedly on a special mission to purchase firearms
for the Philippine Senate, purchased a round trip ticket from the appellant for his
travel to Chicago and back to Manila. On his way back to Manila, he presented
his baggage containing the firearms as well as the receipts thereof. Upon arrival
in Manila, he was not able to claim said baggage and was informed that such
was recalled back to Chicago by defendant for US Customs verification. When
the baggage arrived, the firearms were already missing when he opened the
bags. This prompted Torres to file a complaint against Northwest Airlines Inc.

The trial court ordered the petitioner to pay Torres for moral damages and
the amount of the firearms involved. On appeal, CA sustained the decision
rendered by the trial court.

ISSUE:
Whether or not the liability of the appellant is limited only to that
prescribed in Section 22(2) of the Warsaw Convention.

RULING:
No. The Warsaw Convention does not operate as an exclusive
enumeration of the instances of an airline's liability, or as an absolute limit of the
extent of that liability. The Convention's provisions do not "regulate or exclude
liability for other breaches of contract by the carrier" or misconduct of its officers
and employees, or for some particular or exceptional type of damage.

The Court of Appeals was correct in sustaining the trial court's judgment
that TORRES was entitled to actual damages, since NORTHWEST had, in
effect, admitted the loss of the firearms when it insisted that its liability was
limited to $9.07 per pound or $20 per kilo. The appellate court then concluded
that NORTHWEST's guessing of which luggage contained the firearms
amounted to willful misconduct under Section 25(1) of the Warsaw Convention
which entitled TORRES to claim actual damages in excess of the limitation
provided for under Section 22(2) of said Convention.

148
Santos III vs. Northwest Orient Airlines
G.R. No. 101538, June 23, 1992

Facts:
Augusto Benedicto Santos III is a minor represented by his father and legal
guardian, Augusto Benedicto Santos, and a resident of the Philippines.
Northwest Orient Airlines (NOA) is a foreign corporation with principal office in
Minnesota, U.S.A. and licensed to do business and maintain a branch office in
the Philippines. Augusto Santos III purchased from NOA a round-trip ticket in
San Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo and
back. No date was specified for his return to San Francisco. On the scheduled
departure date from Tokyo, the petitioner checked in at the NOA counter in the
San Francisco airport for his scheduled departure to Manila. Despite a previous
confirmation and re-confirmation, he was informed that he had no reservation for
his flight from Tokyo to Manila. He therefore had to be wait-listed.

Augusto III sued NOA for damages in the Regional Trial Court of Makati. NOA
moved to dismiss the complaint on the ground of lack of jurisdiction. Citing Article
28(1) of the Warsaw Convention, reading as follows:
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in
the territory of one of the High Contracting Parties, either before the court of the
domicile of the carrier or of his principal place of business, or where he has a
place of business through which the contract has been made, or before the court
at the place of destination.

NOA contended that the Philippines was not its domicile nor was this its principal
place of business. Neither was the petitioner's ticket issued in this country nor
was his destination Manila but San Francisco in the United States. The lower
court granted the dismissal which was affirmed by the CA. Augusto III questions
the applicability of the Warsaw Convention in this case based on the issues
below.

Issues:
1. Whether or not Philippine courts have jurisdiction over the action because
Sec. 28(1) of Warsaw Convention on Air Travel re: where to file suit, is a
matter of venue, not of jurisdiction.
2. Whether or not the agreed stopping place determines the country where
the suit against international carrier is to be filed.

Ruling:
1. No. Since the flight involved in the case at bar is international, the same
being from the United States to the Philippines and back to the United
States, it is subject to the provisions of the Warsaw Convention, including
Article 28(1), which enumerates the four places where an action for
damages may be brought.

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not
be conferred by consent or waiver upon d court which otherwise would
have no jurisdiction over the subject-matter of an action; but the venue of
an action as fixed by statute may be changed by the consent of the
parties and an objection that the plaintiff brought his suit in the wrong

149
 county may be waived by the failure of the defendant to make a timely
objection. In either case, the court may render a valid judgment. Rules as
to jurisdiction can never be left to the consent or agreement of the parties,
whether or not a prohibition exists against their alteration.

A number of reasons tends to support the characterization of Article 28(1)

as a jurisdiction and not a venue provision. First, the wording of Article 32,
which indicates the places where the action for damages "must" be
brought, underscores the mandatory nature of Article 28(1). Second, this
characterization is consistent with one of the objectives of the
Convention, which is to "regulate in a uniform manner the conditions of
international transportation by air." Third, the Convention does not contain
any provision prescribing rules of jurisdiction other than Article 28(1),
which means that the phrase "rules as to jurisdiction" used in Article 32
must refer only to Article 28(1). In fact, the last sentence of Article 32
specifically deals with the exclusive enumeration in Article 28(1) as
"jurisdictions," which, as such, cannot be left to the will of the parties
regardless of the time when the damage occurred.

2. No. The place of destination, within the meaning of the Warsaw

Convention, is determined by the terms of the contract of carriage or,
specifically in this case, the ticket between the passenger and the carrier.
Examination of the petitioner's ticket shows that his ultimate destination is
San Francisco. Although the date of the return flight was left open, the
contract of carriage between the parties indicates that NOA was bound to
transport the petitioner to San Francisco from Manila. Manila should
therefore be considered merely an agreed stopping place and not the
destination.

Article 1(2) also draws a distinction between a "destination" and an

"agreed stopping place." It is the "destination" and not an "agreed
stopping place" that controls for purposes of ascertaining jurisdiction
under the Convention. The contract is a single undivided operation,
beginning with the place of departure and ending with the ultimate
destination. The use of the singular in this expression indicates the
understanding of the parties to the Convention that every contract of
carriage has one place of departure and one place of destination. An
intermediate place where the carriage may be broken is not regarded as
a "place of destination."

150
CATHAY PACIFIC AIRWAYS v. JUANITA REYES, WILFI EDO REYES,
MICHAEL ROY REYES, SIXTA LAPUZ, AND SAMPAGUITA TRAVEL CORP
G.R. No. 185891, June 26, 2013

TOPIC: Diligence of a good father of a family

FACTS
Wilfredo made a travel reservation with Sampaguita Travel for his familys trip to
Adelaide, Australia. Upon confirmation of their flight schedule, Wilfredo paid for
the airfare and was issued 4 Cathay Pacific roundtrip airplane tickets for Manila-
Hong Kong-Adelaide-Hong Kong-Manila.
One week before they were scheduled to fly back home, Wilfredo re-confirmed
his familys return flight with the Cathay Pacific office in Adelaide. They were
advised that the reservation was still okay as scheduled. On the day of their
scheduled departure from Adelaide, Wilfredo and his family arrived at the airport
on time. When the airport check-in opened, Wilfredo was informed by a staff from
Cathay Pacific that Wilfredos family did not have confirmed reservations, and
only Sixtas flight booking was confirmed.

Although, they were allowed to board the flight to Hong Kong, not all of them
were allowed to board the flight to Manila as it was fully booked. Only Wilfredos
mother-in-law, Sixta, was allowed to proceed to Manila from Hong Kong. The
following day, the Reyeses were finally allowed to board the next flight bound for
Manila. Upon arriving in the Philippines, Wilfredo went Sampaguita Travel to
report the incident. He was informed by Sampaguita Travel that it was actually
Cathay Pacific which cancelled their bookings.

ISSUE:
Whether Cathay Pacific and Sampaguita breached its contract of carriage with
the Wilfredos family?

HELD:
Cathay Pacific breached its contract of carriage with the Reyeses when it
disallowed them to board the plane in Hong Kong going to Manila on the date
reflected on their tickets. Thus, Cathay Pacific opened itself to claims for
compensatory, actual, moral and exemplary damages, attorneys fees and costs
of suit. In contrast, the contractual relation between Sampaguita Travel and
respondents is a contract for services. The object of the contract is arranging and
facilitating the latters booking and ticketing. It was even Sampaguita Travel
which issued the tickets. Since the contract between the parties is an ordinary
one for services, the standard of care required of respondent is that of a good
father of a family under Article 1173 of the Civil Code. This connotes reasonable
care consistent with that which an ordinarily prudent person would have
observed when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in
doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he
is guilty of negligence. There was indeed failure on the part of Sampaguita Travel
to exercise due diligence in performing its obligations under the contract of

151
services. It was established by Cathay Pacific, through the generation of the
PNRs, that Sampaguita Travel failed to input the correct ticket number for
Wilfredos ticket. Cathay Pacific even asserted that Sampaguita Travel made two
fictitious bookings for Juanita and Michael.The negligence of Sampaguita Travel
renders it also liable for damages.

152
 PUBLIC UTILITIES LAWS
Ownership of Public Utilities

153
WILSON P. GAMBOA V. FINANCE SECRETARY MARGARITO TEVES
G.R. No. 176579, June 28, 2011

FACTS:

This is a petition to nullify the sale of shares of stock of Philippine

Telecommunications Investment Corporation (PTIC) by the government of the
Republic of the Philippines, acting through the Inter-Agency Privatization Council
(IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific), a Hong Kong-based investment management
and holding company and a shareholder of the Philippine Long Distance
Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an
indirect sale of 12 million shares (or about 6.3 percent of the outstanding
common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First
Pacifics common shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the total common shareholdings of foreigners in
PLDT to about 81.47%. This, according to the petitioner, violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of
the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for

the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens;
nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public.
The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be
citizens of the Philippines.

ISSUE: Does the term capital in Section 11, Article XII of the Constitution refer
to the total common shares only, or to the total outstanding capital stock of
PLDT, a public utility?

HELD:
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting rights, the
term capital in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the
election of directors, then the term capital shall include such preferred
shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In
short, the term capital in Sec. 11, Art. XII of the Constitution refers only to
shares of stock that can vote in the election of directors.

154
 To construe broadly the term capital as the total outstanding capital
stock, including both common and non-voting preferred shares, grossly
contravenes the intent and letter of the Constitution that the State shall develop
a self-reliant and independent national economy effectively controlled by
Filipinos. A broad definition unjustifiably disregards who owns the all-important
voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares are explicitly denied of the right to vote
in the election of directors. PLDTs Articles of Incorporation expressly state that
the holders of Serial Preferred Stock shall not be entitled to vote at any meeting
of the stockholders for the election of directors or for any other purpose or
otherwise participate in any action taken by the corporation or its stockholders, or
to receive notice of any meeting of stockholders. On the other hand, holders of
common shares are granted the exclusive right to vote in the election of
directors. PLDTs Articles of Incorporation state that each holder of Common
Capital Stock shall have one vote in respect of each share of such stock held by
him on all matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of directors
and for all other purposes.

It must be stressed, and respondents do not dispute, that foreigners hold

a majority of the common shares of PLDT. In fact, based on PLDTs 2010
General Information Sheet (GIS), which is a document required to be submitted
annually to the Securities and Exchange Commission, foreigners hold
120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622
common shares. In other words, foreigners hold 64.27% of the total number of
PLDTs common shares, while Filipinos hold only 35.73%. Since holding a
majority of the common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership of public utilities expressly
mandated in Section 11, Article XII of the Constitution.

As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of
PLDT common shares is P5.00 per share, whereas the par value of preferred
shares is P10.00 per share. In other words, preferred shares have twice the par
value of common shares but cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares. Worse, preferred shares constitute 77.85% of the authorized capital
stock of PLDT while common shares constitute only 22.15%. This undeniably
shows that beneficial interest in PLDT is not with the non-voting preferred shares
but with the common shares, blatantly violating the constitutional requirement of
60 percent Filipino control and Filipino beneficial ownership in a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn
less than 60 percent of the dividends, of PLDT. This directly contravenes the
express command in Section 11, Article XII of the Constitution that [n]o
franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to x x x corporations x x x organized under
the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens x x x.

155
 To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the election of directors,
and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of the voting stock, and thus do not
exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos,
have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares have twice the par value of common
shares; and (6) preferred shares constitute 77.85% of the authorized capital
stock of PLDT and common shares only 22.15%. This kind of ownership and
control of a public utility is a mockery of the Constitution.

156
NARRA NICKEL MINING VS REDMONT CONSOLIDATED MINES CORP.
722 SCRA 382
April 21, 2014

FACTS:

Sometime in December 2006, respondent Redmont Consolidated Mines

Corp. (Redmont), adomestic corporation organized and existing under Philippine
laws, took interest in mining and exploringcertain areas of the province of
Palawan. After inquiring with the Department of Environment and
NaturalResources (DENR), it learned that the areas where it wanted to undertake
exploration and miningactivities where already covered by Mineral Production
Sharing Agreement (MPSA) applications ofpetitioners Narra, Tesoro and
McArthur.Petitioner McArthur Narra and Tesoro, filed an application for an MPSA
and Exploration Permit(EP) which was subsequently issued.On January 2, 2007,
Redmont filed before the Panel of Arbitrators (POA) of the DENR three
(3)separate petitions for the denial of petitioners applications for MPSA.
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and
Narra are ownedand controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadian corporation. Redmont reasoned thatsince MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners filing of the
MPSAs over the areas covered by applications since it knows that it can only
participate in miningactivities through corporations which are deemed Filipino
citizens.
Redmont argued that given that petitioners capital stocks were mostly
owned by MBMI, they were likewise disqualified from engaging in mining
activities through MPSAs, which are reserved only for Filipino citizens.

Petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA)7942 or the Philippine Mining Act of 1995. They stated that
their nationality as applicants is immaterialbecause they also applied for
Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-
IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations. Nevertheless, they claimed that the
issue on nationality should not be raised sinceMcArthur, Tesoro and Narra are in
fact Philippine Nationals as 60% of their capital is owned by citizens ofthe
Philippines.On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gainingMPSAs. The POA considered petitioners as foreign
corporations being "effectively controlled" by MBMI, a100% Canadian company
and declared their MPSAs null and void.Pending the resolution of the appeal filed
by petitioners with the MAB, Redmont filed aComplaint with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificatesfor
registration of petitioners on the ground that they are foreign-owned or controlled
corporationsengaged in mining in violation of Philippine laws.
CA found that there was doubt as to the nationality of petitioners when it realized
thatpetitioners had a common major investor, MBMI, a corporation composed of
100% Canadians. Pursuantto the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005,adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other lawspertaining
to the exploitation of natural resources, the CA used the "grandfather rule" to
determine thenationality of petitioners.

157
ISSUE: Are the petitioners foreign or Filipino thus qualified persons under the
Philippine Mining Act?

HELD:
Basically, there are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ
Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining to the
controlling interests in enterprises engaged in the exploitation of natural
resources owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of

which is owned by Filipino citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares
are registered in the name of a corporation or partnership at least 60% of the
capital stock or capital, respectively, of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos. But if less than 60%, or say,
50% of the capital stock or capital of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to
corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality," pertains to the
control test or the liberal rule. On the other hand, the second part of the DOJ
Opinion which provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as Philippine nationality,"
pertains to the stricter, more stringent grandfather rule.

Corporate layering" is admittedly allowed by the FIA; but if it is used to

circumvent the Constitution and pertinent laws, then it becomes illegal. Further,
the pronouncement of petitioners that the grandfather rule has already been
abandoned must be discredited for lack of basis.

Art. XII, Sec. 2 of the Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall
be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law.

158
Elementary in statutory construction is when there is conflict between the
Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.

The "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of
the natural resources of the Philippines. When in the mind of the Court there is
doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may apply the "grandfather
rule."

159
TATAD VS. GARCIA
243 SCRA 436 (1995)
Ownership of Public Utilities

FACTS:
In 1989, DOTC planned to construct a light railway transit line along EDSA, a
major thoroughfare in Metropolitan Manila to and alleviate the congestion and
growing transportation problem in the metropolis.

DOTC Secretary Oscar Orbos invited Elijahu Levin, representative of Eli Levin
Enterprises, Inc.,to send a technical team to discuss the project with DOTC after
a letter of intent was sent by Levin to him, proposing to construct the EDSA LRT
III on a Build-Operate-Transfer (BOT) basis.

Meanwhile, On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing
the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and For Other Purposes," was signed by
President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT)
Law, it took effect on October 9, 1990 which provides for two schemes for the
financing, construction and operation of government projects through private
initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
Private respondent EDSA LRT Corporation, Ltd. to whom the contract to
construct the EDSA LRT III was awarded by public respondent, is admittedly a
foreign corporation "duly incorporated and existing under the laws of Hongkong"
However, Senators Francisco Tatad, John Osmea, and Rodolfo Biazon
opposed the implementation of said agreement as they averred that EDSA LRT
Consortium is a foreign corporation as it was organized under Hongkong laws;
that once the EDSA LRT III is constructed, private respondent, as lessor, will turn
it over to DOTC, as lessee, for the latter to operate the system and pay rentals
for said use, that as such, it cannot own a public utility such as the EDSA railway
transit because this falls under the nationalized areas of activities. The petition
was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary.

ISSUE: Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own
EDSA LRT III; a public utility?

HELD:
The phrasing of the question is erroneous; it is loaded. What private respondent
owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals
and the power plant, not a public utility. While a franchise is needed to operate
these facilities to serve the public, they do not by themselves constitute a public
utility. What constitutes a public utility is not their ownership but their use to serve
the public.

The Constitution, in no uncertain terms, requires a franchise for the operation of

a public utility. However, it does not require a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate them to
serve the public.

160
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for
the operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive character or for a longer
period than fifty years . . . (Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and
the ownership of the facilities and equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to

one person is completely subjected to his will in everything not prohibited by law
or the concurrence with the rights of another.

The exercise of the rights encompassed in ownership is limited by law so that a

property cannot be operated and used to serve the public as a public utility
unless the operator has a franchise. The operation of a rail system as a public
utility includes the transportation of passengers from one point to another point,
their loading and unloading at designated places and the movement of the trains
at pre-scheduled times.

The right to operate a public utility may exist independently and separately from
the ownership of the facilities thereof. One can own said facilities without
operating them as a public utility, or conversely, one may operate a public utility
without owning the facilities used to serve the public. The devotion of property to
serve the public may be done by the owner or by the person in control thereof
who may not necessarily be the owner thereof.

This dichotomy between the operation of a public utility and the ownership of the
facilities used to serve the public can be very well appreciated when we consider
the transportation industry. Enfranchised airline and shipping companies may
lease their aircraft and vessels instead of owning them themselves.

Even the mere formation of a public utility corporation does not ipso
facto characterize the corporation as one operating a public utility. The moment
for determining the requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for that purpose.

Emphasis must be made that under the BOT scheme, the owner of the
infrastructure facility must comply with the citizenship requirement of the
Constitution on the operation of a public utility. No such a requirement is imposed
in the BT scheme.

161
 OTHER CONSTITUTIONAL LIMITATIONS

162
Tawang Multi-purpose Coop. vs. La Trinidad Water District
G.R. No. 1616471, March 22, 2011
Other Constitutional Limitations

FACTS:
Tawang Multi-Purpose Cooperative (TMPC) is a cooperative organized to
provide domestic water services in Barangay Tawang, La Trinidad, Benguet
while La Trinidad Water District (LTWD) is a local water utility created under
Presidential Decree (PD) No. 198, as amended. It is authorized to supply water
for domestic, industrial and commercial purposes within the municipality of La
Trinidad, Benguet.

TMPC filed with the National Water Resources Board (NWRB) an application for
a certificate of public convenience (CPC) to operate and maintain a waterworks
system in Barangay Tawang. LTWD opposed TMPCs application. LTWD
claimed that, under Section 47 of PD No. 198, as amended, its franchise is
exclusive. Section 47 states that:
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person
or agency for domestic, industrial or commercial water service within the district
or any portion thereof unless and except to the extent that the board of directors
of said district consents thereto by resolution duly adopted, such resolution,
however, shall be subject to review by the Administration.

NWRB, upon finding that TMPC is legally and financially qualified to operate and
maintain a waterworks system, approved TMPCs application for a CPC on the
ground that the said operation shall redound to the benefit of the
homeowners/residents of the subdivision, thereby, promoting public service in a
proper and suitable manner, the instant application for a Certificate of Public
Convenience. NWRB held that LTWDs franchise cannot be exclusive since
exclusive franchises are unconstitutional.. NWRB states that,"The authority
granted to LTWD by virtue of P.D. 198 is not Exclusive. While Barangay Tawang
is within their territorial jurisdiction, this does not mean that all others are
excluded in engaging in such service, especially, if the district is not capable of
supplying water within the area. NWRB posits that "Exclusive Franchise"
provision under P.D. 198 has misled most water districts to believe that it likewise
extends to be [sic] the waters within their territorial boundaries and such
ideological adherence collides head on with the constitutional provision that "ALL
WATERS AND NATURAL RESOURCES BELONG TO THE STATE". (Sec. 2,
Art. XII) and that "No franchise, certificate or authorization for the operation of
public [sic] shall be exclusive in character".

Thereafter, LTWD filed a motion for reconsideration while the NWRB denied the
motion. Aggrieved, LTWD appealed to the RTC where the lower court ruled
otherwise.

ISSUE:
Is Section 47 of PD No. 198 valid?

HELD:
The effect of Section 47 violates the Constitution, thus, it is void. The RTCs
ruling would make a dangerous precedent. It will allow Congress to do indirectly

163
what it cannot do directly. In order to circumvent the constitutional prohibition on
franchises that are exclusive in character, all Congress has to do is to create a
law allowing the BOD and the LWUA to create franchises that are exclusive in
character. What cannot be legally done directly cannot be done indirectly. This
rule is basic and, to a reasonable mind, does not need explanation. Indeed, if
acts that cannot be legally done directly can be done indirectly, then all laws
would be illusory.

Plain words do not require explanation. The 1935, 1973 and 1987 Constitutions
are clear franchises for the operation of a public utility cannot be exclusive in
character. The 1935, 1973 and 1987 Constitutions expressly and clearly state
that, "nor shall such franchise x x x be exclusive in character." There is no
exception.

Indeed, the President, Congress and the Court cannot create directly franchises
that are exclusive in character. What the President, Congress and the Court
cannot legally do directly they cannot do indirectly. Thus, the President,
Congress and the Court cannot create indirectly franchises that are exclusive in
character by allowing the Board of Directors (BOD) of a water district and the
Local Water Utilities Administration (LWUA) to create franchises that are
exclusive in character. In PD No. 198, as amended, former President Ferdinand
E. Marcos (President Marcos) created indirectly franchises that are exclusive in
character by allowing the BOD of LTWD and the LWUA to create directly
franchises that are exclusive in character.

In Manila Prince Hotel v. Government Service Insurance System,31 the Court

held that:
Under the doctrine of constitutional supremacy, if a law or contract violates any
norm of the constitution that law or contract whether promulgated by the
legislative or by the executive branch or entered into by private persons for
private purposes is null and void and without any force and effect. Thus, since
the Constitution is the fundamental, paramount and supreme law of the nation, it
is deemed written in every statute and contract."

164
ABS-CBN BROADCASTING CORPORATION VS. PHILIPPINE MULTI-MEDIA
SYSTEM
576 SCRA 262,
JANUARY 29, 2009
FACTS:
Philippine Multi-Media System, Inc. (PMSI), operator of Dream
Broadcsating System, delivers a digital direct-to-home (DTH) television satellite
to its subscribers all over the Philippines, was granted a legislative franchise
under Republic Act 8630 and was given a Provisional Authority by the National
Telecommunications Commission (NTC) to install, operate and maintain a
nationwide DTH satellite service. When it commenced operations, it offered as
part of its program line-up, together with other paid premium program channels,
ABS-CBN Channels 2 and 23, NBN, Channel 4, ABC, Channel 5, GMA, Channel
7, RPN, Channel 9, and IBC, Channel 13, pursuant to Memorandum Circular 4-
08-88 which mandated all cable television system operators, operating within the
Grade A and B CONTOURS to carry out the television signals of the
authorized television broadcast stations.

ABS-CBN Broadcasting Corporation (ABS-CBN), a licensed television

and radio broadcasting network, demanded PMSI to cease and desist from
rebroadcasting Channels 2 and 23. In its reply, PMSI contended that the
rebroadcasting was in accordance with the authority granted by NTC under its
obligations under NTC MC 4-08-88.

Negotiations were ensued between the parties in an effort to reach a

settlement; however, the same was terminated by ABS-CBN allegedly due to
PMSIs inability to ensure the prevention of illegal retransmission and further
rebroadcast of its signals, as well as the adverse effect of the rebroadcasts on
the business operations of its regional television stations.

ABS-CBN filed with the Intellectual Property Rights Office (IPO) a

complaint for Violation of Laws Involving Property Rights, with Prayer for the
Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction
alleging that PMSIs unauthorized rebroadcasting of Channels 2 and 23 infringed
on its broadcasting rights and copyright. The TRO was granted by the Bureau of
Legal Affairs (BLA) of IPO. PMSI, pursuant to the TRO, suspended the
retransmission of PMSI of Channels 2 and 23 and likewise filed a petition for
certiorari with the Court of Appeals. The Court of Appeals granted the petition of
PMSI and reversed the decision of the BLA. ABS-CBN filed its appeal however it
was dismissed by the Court of Appeals. Furthermore, ABS-CBNs motion for
reconsideration was denied.

ISSUE: Whether or not the issuance MC 4-08-88 by the NTC is a valid exercise
of the police power of the State.

HELD:
As correctly observed by the Court of Appeals, the must-carry rule as well
as the legislative franchises granted to both ABS-CBN and PMSI are in
consonance with state policies enshrined in the Constitution, specifically Sections
9,32 17,33 and 2434 of Article II on the Declaration of Principles and State
Policies.35

165
ABS-CBN was granted a legislative franchise under Republic Act No. 7966,
Section 1 of which authorizes it to construct, operate and maintain, for
commercial purposes and in the public interest, television and radio broadcasting
in and throughout the Philippines x x x. Section 4 thereof mandates that it shall
provide adequate public service time to enable the government, through the said
broadcasting stations, to reach the population on important public issues; provide
at all times sound and balanced programming; promote public participation such
as in community programming; assist in the functions of public information and
education x x x.

PMSI was likewise granted a legislative franchise under Republic Act No. 8630,
Section 4 of which similarly states that it shall provide adequate public service
time to enable the government, through the said broadcasting stations, to reach
the population on important public issues; provide at all times sound and
balanced programming; promote public participation such as in community
programming; assist in the functions of public information and education x x x.
Section 5, paragraph 2 of the same law provides that the radio spectrum is a
finite resource that is a part of the national patrimony and the use thereof is a
privilege conferred upon the grantee by the State and may be withdrawn
anytime, after due process.

The must carry rule is a valid exercise of the police power of the State. It
favors both broadcasting organizations and the public. It prevents cable
television companies from excluding broadcasting organization especially in
those places not reached by signal. Also, the rule prevents cable television
companies from depriving viewers in far-flung areas the enjoyment of programs
available to city viewers. In fact, this Office finds the rule more burdensome on
the part of the cable television companies. The latter carries the television signals
and shoulders the costs without any recourse of charging. On the other hand, the
signals that are carried by cable television companies are dispersed and
scattered by the television stations and anybody with a television set is free to
pick them up.

166
OROPORT CARGOHANDLING SERVICES VS. PHIVIDEC INDUSTRIAL
AUTHORITY
560 SCRA 197
July 28, 2008
FACTS:
Oroport is a cargo-handling contractor5 at the Cagayan de Oro
International Port (CDOIP) while Phividec Industrial Authority (PIA) is a
subsidiary of Philippine Veterans Investment Development Corporation, created
to uplift the socio-economic condition of war veterans, military retirees and their
children by allowing them to participate in its development undertakings as
employees, developers and business partners with the mission to establish,
develop and professionally administer industrial areas, ports and utilities.

Oroport bid for the management and operation of MCT, a P3.24 billion
government infrastructure project at Phividec Industrial Estate in Misamis
Oriental. Mindanao Container Terminal (MCT) was funded by a loan contracted
by the Philippine government with the Japan Bank for International Cooperation
(JBIC). It was later renamed Mindanao Container Terminal Sub-Port and placed
under the jurisdiction of the Bureau of Customs as a sub-port entry. As no bidder
won in the two public biddings, PIA took over MCT operations.

Oroport sued PIA and Phividec in the RTC accusing PIA of illegally operating
MCT without a license from PPA or a franchise from Congress. It contends that
PIAs operation of MCT is illegal as it has no license or franchise to operate as a
public utility. It also constitutes unfair competition because PIA offered lower tariff
rates than those recommended at the failed public biddings, prejudicing the loan
agreement with JBIC to the disadvantage of the taxpayers. PIA likewise engaged
a third-party in hiring stevedores, which is prohibited under PPA rules and
regulations. Oroport also argues that PIAs operation of MCT constitutes unlawful
deprivation of property due to potential investment losses in modernizing CDOIP
as required by its two-year probationary contract with PPA.

PIA counters that it does not need a license from PPA to be a port operator or
cargo-handler due to their Memoranda of Agreement (MOA) which states that all
cargo handling services on and off vessel shall be under the control, regulation
and supervision of the PIA as well as rates and charges in connection therewith
using as basis the PPA approved rates in Macabalan Wharf, Cagayan de Oro
City or in private ports as the case may be but in no case shall said charges be
higher than the rates prescribed by PPA. The MOA also says that All cargo
handling services, on and off vessel shall be under the control, regulation and
supervision of the PIA as well as the rates and charges in connection therewith
using as basis the rates prescribed by PPA.

ISSUE: Can PIA temporarily operate as a seaport cargo-handler upon

agreement with the PPA without a franchise or a license from Congress or PPA?

HELD:
PIA properly took over MCT operations sans a franchise or license as it
was necessary, temporary and beneficial to the public. We have ruled that
franchises from Congress are not required before each and every public utility
may operate because the law has granted certain administrative agencies the

167
power to grant licenses for or to authorize the operation of certain public utilities.
Article XII, Section 11 of the Constitution does not necessarily imply that only
Congress can grant such authorization. The determination of whether the
winning bidder is qualified to undertake the contracted service should be left to
the sound judgment of PPA or PIA as these agencies are in the best position to
evaluate the feasibility of the projections of the bidders and to decide which bid is
compatible with the projects development plans.

Neither the Court nor Congress has the time and the technical know-how
to look into this matter. Furthermore, Section 4(e) of Presidential Decree No. 538,
gives PIA the legal authority to construct, operate and maintain port facilities
including stevedoring and port terminal services even without PPAs authority.
The MOA granting PIA the exclusive control and supervision of all ports,
wharves, piers and services within the industrial area, recognizing its power to
collect port fees, dues and charges, makes PIAs authority over MCT operations
more secure.

Moreover, Oroport failed to convince us that it has a clear and actual right
to be enforced and protected. Oroport has no right to manage MCT since it has
no contractual relations with PIA, Phividec or PPA. It has no statutory grant of
authority. Even if Oroport won the public bidding and obtained an exclusive
contract for port operations at MCT, it has no vested right to operate MCT
because contract clauses are not inflexible barriers to public regulations.
Business permits may be terminated by authorities any time based on policy
guidelines and statutes because what is given is not a property right but a mere
privilege.

Certain public utilities must be given franchises for public interest and these
franchises do not violate the law against monopolies. PIAs policy decision to
handle the cargo operation itself enjoys presumption of regularity as it did not
violate any relevant law, rules, regulations, ordinance or issuances in so doing.

168
 RATE REGULATION

169
SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. VS. ENERGY
REGULATORY COMMISSION
632 SCRA 96
October 4, 2010

FACTS:
The Association of Mindanao Rural Electric Cooperatives, as
representative of SURNECO and of the other 33 rural electric cooperatives in
Mindanao, filed a petition before the then Energy Regulatory Board (ERB) for the
approval of the formula for automatic cost adjustment and adoption of the
National Power Corporation (NPC) restructured rate adjustment to comply with
the relevant provisions of Republic Act No. 7832, Sections 10 and 14 which
provide that ERB is authorized to determine at the end of the fifth year the
effectivity of said act and as electric cooperatives and as often as is necessary,
taking into account the viability of rural electric cooperatives and the interest of
consumers, whether the caps herein or theretofore established shall be reduced
further which shall, in no case, be lower than nine percent (9%) and accordingly
fix the date of the effectivity of the new caps.

The ERB granted SURNECO and other rural electric cooperatives

provisional authority to use and implement the Purchased Power Adjustment
(PPA) formula pursuant to the mandatory provisions of R.A. No. 7832 and its
IRR, with a directive to submit relevant and pertinent documents for the Boards
review, verification, and confirmation.

The PPA formula which was approved by the ERB was silent on whether
the calculation of the cost of electricity purchased and generated in the formula
should be "gross" or "net" of the discounts.
the Commission has resolved that:
1. In the confirmation of past PPAs, the power cost shall still be based on
"gross," and
2. In the confirmation of future PPAs, the power cost shall be based on
"net."

Thus, the electric cooperatives filed their respective motions for clarification
and/or reconsideration. Hence, the ERC issued an Order7 dated January 14,
2005, stating that the PPA was a cost-recovery mechanism, not a revenue-
generating scheme, so that the distribution utilities or the electric cooperatives
must recover from their customers only the actual cost of purchased power.
SURNECO posits that, per NEA Memorandum No. 1-A, the NEA had authorized
it to adopt a multiplier scheme as the method to recover system loss. It claims
that this cannot be abrogated, revoked, or superseded by any order, resolution,
or issuance by the ERC prescribing a certain formula to implement the caps of
recoverable rate of system loss under R.A. No. 7832 without violating the non-
impairment clause of the Constitution.

ISSUE: Can SURNECO insist on using the multiplier scheme even after the
imposition of the system loss caps under Section 10 of R.A. No. 7832?

170
HELD:
No. SURNECO cannot insist on using the multiplier scheme even after
the imposition of the system loss caps under Section 10 of R.A. No. 7832. The
law took effect on January 17, 1995. Perusing Section 10, and also Section
11, providing for the application of the caps as of the date of the effectivity of R.A.
No. 7832, readily shows that the imposition of the caps was self-executory and
did not require the issuance of any enabling set of rules or any action by the then
ERB, now ERC. Thus, the caps should have been applied as of January 17,
1995 when R.A. No. 7832 took effect.

Indeed, under NEA Memorandum No. 1-A, the use of the multiplier scheme
allows the recovery of system losses even beyond the caps mandated in R.A.
No. 7832, which is intended to gradually phase out pilferage losses as a
component of the recoverable system losses by the distributing utilities such as
SURNECO. However, it is totally repugnant to and incompatible with the system
loss caps established in R.A. No. 7832, and is repealed by Section 1617 of the
law. As between NEA Memorandum No. 1-A, a mere administrative issuance,
and R.A. No. 7832, a legislative enactment, the latter must prevail.

In directing SURNECO to refund its over-recoveries based on PPA policies,

which only ensured that the PPA mechanism remains a purely cost-recovery
mechanism and not a revenue-generating scheme for the electric cooperatives,
the ERC merely exercised its authority to regulate and approve the rates
imposed by the electric cooperatives on their consumers. The ERC simply
performed its mandate to protect the public interest imbued in those rates.

It is beyond cavil that the State, in the exercise of police power, can regulate the
rates imposed by a public utility such as SURNECO. As we held in Republic of
the Philippines v. Manila Electric Company, The regulation of rates to be
charged by public utilities is founded upon the police powers of the State and
statutes prescribing rules for the control and regulation of public utilities are a
valid exercise thereof. When private property is used for a public purpose and is
affected with public interest, it ceases to be juris privati only and becomes subject
to regulation. The regulation is to promote the common good. Submission to
regulation may be withdrawn by the owner by discontinuing use; but as long as
use of the property is continued, the same is subject to public regulation.

Even assuming, merely for arguments sake, that the ERC issuances violated the
NEA and ADB covenant, the contract had to yield to the greater authority of the
States exercise of police power. It has long been settled that police power
legislation, adopted by the State to promote the health, morals, peace, education,
good order, safety, and general welfare of the people prevail not only over future
contracts but even over those already in existence, for all private contracts must
yield to the superior and legitimate measures taken by the State to promote
public welfare.

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 FRANCHISE

172
Metropolitan Cebu Water District vs Adala
GR No. 168914, April 7, 2009

Topic: Franchise

FACTS
Sometime in 2002, the respondent filed an application with the NWRB for the
issuance of Certificate of Public Convenience (CPC) to operate and maintain
waterworks system in sitios in Cebu City. This application was opposed by
Metropolitan Cebu Water District alleging that its Board of Directors had not
consented to the issuance of the franchise. Such consent is, according to the
respondent, mandatory condition pursuant to PD 198. The NWRB and the RTC
dismissed the petitioners opposition.

ISSUE
Whether the franchise used in PD 198 pertains to the franchise granted by
Congress only (or does it only pertain to a Certificate of Public Conveyance
issued by NWRB for the maintenance of waterworks system or water supply
services.

RULING
The court ruled that the term franchise should be construed broadly to include
those granted by administrative agencies to which the power to grant franchises
was has been delegated by Congress. It should be understood that privileges
conferred by grant by local authorities as agents for the state constitute as much
a legislative franchise as though the grant had been made by an act of the
Legislature.
PD 198 gives the name franchise to an authorization that does not proceed
directly from the legislature. Thus, the term franchise should not be construed
strictly as to pertain only to grants coming from the Legislature.

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Divinagracia vs Consolidated Broadcasting System, Inc.
GR No. 162272
April 7, 2009

Topic: Franchise

FACTS
The respondents PBS and CBS are both involve in the operation of radio
broadcasting services in the Philippines. Both received legislative franchises by
virtue of RA 7477 and RA 7582 to construct, install, maintain and to operate radio
and television stations. The petitioner, as the owner of the 12% of the shares of
stock of PBS and CBS, filed a case against the respondents alleging that they
failed to make a public offering of the 30% their shares of stock as mandated by
RA 7477 and 7582. And that according to the petitioner such is tantamount to a
misuse of the franchise warranting the cancellation of PBS and CBS Provisional
Authorities or CPCs.
NTC dismissed the petitioners complaint. It ruled that although it has the power
to cancel a CPC for violations of the terms and conditions embodied therein, it
does not, however, has the authority to pass upon the issue of whether the
franchisee has violated any terms and conditions. The CA upheld NTCs decision

ISSUE
Whether NTC has the power to revoke or cancel certificate of public convenience
(CPC) it had issued on the ground the franchisee its terms and conditions.

RULING
NTC doesnt have the power to cancel already issued CPCs.
As established by EO 546, NTC has the power to issue CPCs to broadcast
stations. However, theres nothing in the said order expressly granting NTC the
power to also cancel issued CPC or to prevent broadcast stations with duly
issued franchise and CPC from operating radio and television stations. And to
give NTC the power to cancel CPC is to create a permanent atmosphere of less
free right to express on the part of broadcasting media. It will give a mere
administrative agency the veto power over implementation of the law and the
enforcement of especially vested legal rights.

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Initiative for Dialogue and Empowerment through Alternative legal Services, Inc.
vs Power Sector Assets and Liabilities Management Corp.
GR No. 182088
October 9, 2012

Topic: Franchise

FACTS
The respondent in this case was created by virtue of EPIRA which provided for a
framework for restructuring electric power industry and privatization of the assets
of NPC. EPIRA mandated PSALM to manage the sale, disposition and
privatization of AHEP. PSALM issued a notice of ward to K-Water as the highest
bidder in the bidding for privatization of AHEP which resulted to the issuance of
Water Certification which has an effect of transferring NPCs water permit to K-
Water. This prompted the petitioner to file a petition for TRO and writ of
preliminary injunction alleging, among others, that such transfer of water rights is
violative of the Water Code.

ISSUE
Whether the provision of the Water Code on the grant of water rights was
violated.

RULING
The Court ruled that theres no necessity for NPC to transfer its permit over the
water rights to K-Water, this is because only the power plant was sold and
privatized and the operation of the non-power components remained under the
jurisdiction and control of NPC which continue to be a government corporation.
Since the EPIRA did not ordain the transfer of water rights, it can be inferred that
the Congress intended NPC to continue exercising full supervision of the dam
and to be in full control of the extraction of water from the Angat River. This has
for its purpose the intention to preserve water resources under the full
supervision and control of the state. Allowing the transfer of NPCs water right
violates not only one the Water Code but also Section 2 Article 12 of the
Constitution which limits the exploration, development and utilization of natural
resources.

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 OTHER ASPECTS OF REGULATION

176
The MMDA vs Viron Transportation Co., Inc.
GR No. 170656
August 15, 2007

Topic: Other Aspects of regulation

FACTS
An EO was issued by President Arroyo sometime in 2003 establishing the
Greater Manila Mass Transportation System to decongest traffic in Metro Manila.
MMDA, the one tasked by the EO to implement the said project, suggested the
removal of bus terminals along Major Manila thoroughfares. This prompted the
respondent to file a case against MMDA alleging, among others, that the latter
does not have any authority to direct provincial bus terminals to abandon their
existing bus terminals.

The RTC first ruled that the authority of the MMDA under RA 7924 does not
include the power to order the closure of bus terminals. However, on a motion for
reconsideration, it reversed its previous ruling.

ISSUE
Whether MMDA has the power to order the removal of bus terminals to
decongest traffic.

RULING
To start with, President Arroyo clearly overstepped the limits of authority
conferred by law when it designated MMDA as the implementing agency for the
project. It consequently rendered the EO ultra vires.

The scope and function of MMDA are limited to the formulation, coordination,
regulation, preparation, management, monitoring, setting of policies, installation
of a system and administration. It should be understood that, although the
President has the power to cause the implementation of the project, it should do
so through - DOTC the primary implementing agency of the project.

Following this line of argument, MMDA cannot validly order the removal of bus
terminals as it lacks authority to do so.

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