TRANSPORTATION &

PUBLIC SERVICE LAW

Prof. Benjamin A. Cabrido Jr.

USJ-R College of Law
Chapter 1

GENERAL CONCEPTS IN
TRANSPORTATION LAW
Contract of Transportation
 There is contract of transportation where a person
obligates himself to transport persons or property
from one place to another for a consideration.
 The contract may therefore involve carriage of
passengers or carriage of goods.
 The person who obligates himself to transport the
goods or passengers may be a common carrier or a
private carrier.
Parties in a contract of carriage
 Passenger – one who travels in a public conveyance
by virtue of contract, express or implied, with the
carrier as to the payment of fare or that which is
accepted as an equivalent thereof (Nueca v. Manila
Railroad Co., G.R. 31731-R, Jan. 30, 1968)
 Common Carrier – one that holds itself out as ready
to engage in the transportation of goods for hire as a
public employment and not as a casual occupation.
(De Guzman v. CA, G.R. L-47822, Dec. 22, 1988)
Baliwag Transit v. CA,
G.R. 80447, Jan. 31, 1989
Facts:
 The parents of George, who is already of legal age filed

a case against Baliwag for breach of contract alleging

that because of the negligent manner by its driver,
George was thrown off the bus as a result of which the
latter sustained multiple serious physical injuries.
 His parents was seeking reimbursement of their medical

expenses and other incidental expenses incurred by

them due to hospitalization of George.
 While the case was pending, George signed a waiver of

claim in favor of Baliwag’s insurer, Fortune Insurance.

Ruling: Since the suit is one for breach of contract of carriage, the
release of claims executed by George, as the injured party,
discharging Fortune Insurance and Baliwag from any and all liability
is valid.
 Significantly, the contact of carriage was actually between George,
as the paying passenger, and Baliwag, as the common carrier. x – x
– x – x Since the contract may be violated only by the parties
thereto, as against each other, in an action upon that contract, the
real parties in interest, either as plaintiff or as defendant, must be
parties to said contract.
 In the absence of any contract of carriage between Baliwag and
George’s parents, the latter are not real parties in interest in an
action for breach of that contract.
 Parties in Carriage of Goods
 Shipper – is the person who delivers the goods to the
carrier for transportation. He is the person who pays the
consideration or on whose behalf payment is made.
 Consignee – is the person to whom the goods are to be
delivered. The consignee may be the shipper himself or
a third person who is not actually party to the contract.
 Carrier (Ibid)
Everett Steamship Corp. v. CA
G.R. 122494, Oct. 8, 1998
Facts:
 Hernandez Trading imported three crates of bus
spare parts from Japan. The crates were shipped on
board "ADELFAEVERETTE," a vessel owned by
petitioner's principal, Everett Orient Lines.
 Upon arrival at the port of Manila, it was discovered
that one of the crates was missing. The loss was
confirmed and admitted by Everett.
 However, Everett offered to pay only One Hundred
Thousand (Y100,000.00) Yen, the maximum amount
stipulated under Clause 18 of the covering bill of
lading which limits the liability of petitioner.
Hernandez rejected.
 The trial found in favor of Hernandez. On appeal,
Everett argued that consent of the consignee to the
terms and conditions of the bill of lading is necessary
to make such stipulations binding upon it .
Ruling:
 When Hernandez formally claimed reimbursement for

the missing goods from Everett and subsequently filed a

case against the it based on the very same bill of lading,
it accepted the provisions of the contract and thereby
made itself a party thereto, or at least has come to court
to enforce it.
 However, the liability of the carrier under the limited

liability clause stands, which is limited to One Hundred

Thousand (Y100,000.00) Yen.
Perfection of Contract involving
Carriage In General
 If contract to carry, i.e. an agreement to carry the
passenger at some future date, perfection takes
place upon mere consent since such contract is
consensual in nature.
 If contract of carriage, which is a real contract,
perfection takes place when the carrier is actually
used and the latter has assumed its obligation as a
carrier.
Specific Perfections of Contract of
Carriage: AIRCRAFT
 If contract to carry, there is perfection even if no
tickets have been issued provided there was meeting
of minds with respect to the subject matter and the
consideration.
 If contract of carriage, there is perfection if it was
established that the passenger had CHECKED IN at
the departure counter, passed through customs and
immigration, boarded the shuttle bus and proceeded
to the ramp of the aircraft.
Specific Perfections of Contract of
Carriage: BUSES, JEEPNEYS, STREET CARS
 Once the bus or jeepney stops, it is in effect making
a continuous offer to the passengers. Hence, it is the
duty of the driver to stop their conveyances for a
reasonable length of time in order to afford
passengers an opportunity to board and enter.
 If passenger is injured upon boarding, liability based
on contract of carriage already attaches to the
common carrier since the passenger was deemed to
be accepting the offer when he attempted to board.
The contract is perfected from that precise moment.
Specific Perfections of Contract of
Carriage: TRAINS
 Perfection takes place when a person, with bona fide
intention to use the facilities of the carrier and
possessing sufficient fare with which to pay for his
passage, has presented himself to the carrier for
transportation in the place and manner that he will
be transported.
 Where a person has already purchased a LRT token
and while waiting on the platform designated for
boarding fell thereon and hit by the train, he was
deemed a passenger.
British Airways v. CA,
G.R. 92288, Feb. 9, 1993
Facts:
 On two occasions, private respondent recruitment

agency was not able to send its workers to Saudi

Arabia despite the fact that its principal there had
already purchased pre-paid tickets because
petitioner’s computers broke down.
 Private respondent thereafter filed a case on breach

of contract of carriage. Petitioner argued that there

was no perfected contract.
Ruling:
 Petitioner's repeated failures to transport private

respondent's workers in its flight despite confirmed

booking of said workers clearly constitutes breach of
contract and bad faith on its part.
 There is no dispute as to the Petitioner’s consent to the
said contract "to carry" its contract workers from Manila
to Jeddah.
 The appellant's consent thereto, on the other hand,
was manifested by its acceptance of the PTA or
prepaid ticket advice that ROLACO Engineering has
prepaid the airfares of the Petitioner's contract
workers advising the appellant that it must transport
the contract workers on or before the end of March,
1981 and the other batch in June, 1981.
 Accordingly, there could be no more pretensions as
to the existence of an oral contract of carriage
imposing reciprocal obligations on both parties.
Common Carrier Defined
 Art. 1732. Common carriers are persons, corporation,
firms or associations engaged in the business of
carrying or transporting passengers or good or both
by land, water, or air, for compensation, offering
their services to the public.
 A common carrier is also defined as one that holds
itself out as ready to engage in the transportation of
goods for hire as a public employment and not as a
casual occupation, (De Guzman v. CA, G.R. L-47822,
Dec. 22, 1988)
Concept of Common Carrier
analogous to Public Service
 Public Service includes “every person that now or
hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with
general or limited clientele, whether permanent,
occasional or accidental.
 Done for general business purposes, any common
carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or
passenger, or both, with or without fixed route.
 Whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft.
 Engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage
system, wire or wireless communications systems,
wire or wireless broadcasting stations and other
similar public services.
Sorita v. Public Service Commission,
G.R. L-20965,  Oct. 29, 1966          
Held:
 In drawing the line between "steamboats,

motorships, and steamship lines" on one side and

“pontines, ferries, and water crafts" on the other,
Congress apparently means to accept the view that
"boat, craft and watercraft" are usually applied to
small vessels, while larger vessels are usually
referred to by the terms "steamer, steamship or
vessel"
Test in determining whether a party
is a common carrier of goods
 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
 He must undertake to carry goods of the kind to
which his business is confined.
 He must undertake to carry by the method by which
his business is conducted and over his established
roads.
 The transportation must be for hire. [First Philippine
Industrial Corp. v. CA, G.R. 125948, Dec. 29, 1998]
 Provided it has space, for all who opt to avail
themselves of its transportation service for a fee
[National Steel Corp. v. CA, G.R. No. 112287, Dec. 12, 1997, quoting
Mendoza v. PAL, 90 Phil. 836]
Common Carrier: Basic Rules
STILL A COMMON CARRIER:
 Even if hauling is only ancillary.

 Even if clientele is limited.

 Even if it has no fixed and publicly known route,

maintains no terminals and issues not tickets.

 Even if means transportation is not through motor

vehicle.
 Ancillary Activity Immaterial
 Art. 1732 makes no distinction between one whose
principal business activity is carrying of persons or
goods or both, and one who does such carrying only
as an ancillary, nor does it make distinctions between
one who offers the service to the ‘general public’ or a
narrow segment of the general population.
 Therefore, a party who ‘back-hauled’ goods for other
merchants from Manila to Pangasinan, even when
such activity was only periodical or occasional and
was not its principal line of business would be subject
to the responsibilities and obligations of a common
carrier. [See De Guzman v. CA, G.R. L-47822, Dec. 22, 1988]
Limited Clientele Not a Defense
Facts:
 Petitioner entered into a contract with SMC for the
transfer of paper and kraft board from the port area
to SMC’s warehouse.
Held:
 She is still a common carrier although she does not
indiscriminately hold her services out to the public
but offers the same to select parties with whom she
may contract in the conduct of her business. [Virgines
Calvo v. UCPB General Insurance Co., G.R. 148496, Mar. 19, 2002]
Facts:
 Respondent shipping company transported the 75,000
bags of cement to Petitioner in its barge. The bags of
cement perished after its barge sank while being towed
by a tug boat.
Held:
 Respondent is a common carrier because it was engaged
in the business of carrying goods for others for a fee. The
regularity of its activities in the area indicates more than
just a casual activity on its part. Neither can the concept
of a common carrier change merely because individual
contracts are executed or entered into with the patrons of
the carrier. [Phil. American General Insurance Co., et al. v. PKS Shipping
Co., G.R. 149038, Apr. 9, 2003]
No fixed route, No terminal, No
Ticket issued also not a Defense
Facts:
 Petitioner is involved in the business of carrying
goods through its barges. It has no fixed and publicly
known route, maintains no terminals, and issues no
tickets.
Held:
 Petitioner is still a common carrier because its
principal business is that of lighterage and drayage
and it offers its barges to the public for carrying or
transporting by water for compensation. [Asia Lighterage
and Shipping, Inc. v. CA, G.R. 147246, Aug. 19, 2003]
 Drayage service is usually provided by a national
trucking/shipping company or an International shipment
brokerage firm in addition to the transportation of the freight to and
from the exhibit site. Drayage service provides for:
- Completing inbound carrier's receiving documents;
- Unloading and delivery of the goods to your booth/stand
space from the receiving dock;
- Storing of empty cartons/crates and extra products at a
on/near-site warehouse;
- Pickup of the goods from your booth/stand space to the
receiving dock and loading back into the carrier; or
- Completing outbound carrier's shipping documents.
Means used in transporting not material
[First Philippine Industrial Corp. v. CA, G.R. 147246, Aug. 19,
2003]

Issue:
 Are pipeline operators common carriers as to subject

them to business taxes on common carriers?

Held:
 Yes. The Code makes no distinction as to the means

of transporting, as long as it is by land, water or air. It

does not provide that the transportation of the
passengers or goods should be by motor vehicle. In
fact, in the US, oil pipe line operators are considered
common carriers. Also under the Petroleum Act of
the Philippines (RA 387).
Effect when Common Carrier enters
into a charter party
 If only by contract of affreightment, whether voyage
or time charter, it remains a common carrier.
 If by bareboat or demise charter, a common carrier is
transformed into a private carrier.
Planters Products Inc. v. CA,
G.R. 101503, Sept. 15, 1993
 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.
Common Carrier v. Private Carrier
(National Steel Corp. v. CA, supra)
 The true nature of a common carrier is the carriage of
passengers or goods, provided it has space, for all who
opt to avail themselves of its transportation service for a
fee.
 As a general rule, private carriage is undertaken by
special agreement and carrier does not hold himself out
to carry goods for the general public.
 In private carriage, the rights and obligations of parties,
including liabilities for damage to cargo, are determined
primarily by stipulations in their contract of carriage or
charter party (demise or bareboat. In such case, the
burden of proof is on the other party to show that the
private carrier was responsible for the loss of, or injury to
the cargo.
FGU Insurance v. G.P. Sarmiento
Trucking, G.R. 141910, Aug. 6, 2002
Facts:
 GPS, as the exclusive hauler of Conception Industries,

undertook to deliver thirty (30) units of Condura

refrigerators from latter’s plant in Alabang to
Dagupan City. While the truck was traversing the
north diversion road along McArthur highway in
Barangay Anupol, Bamban, Tarlac, it collided with an
unidentified truck, causing it to fall into a deep canal,
resulting in damage to the cargoes. Petitioner FGU as
subrogee to Concepcion Industries filed a complaint
for damages and breach of contract of carriage against
GPS and its driver.
Issue No. 1:
 WHETHER RESPONDENT GPS MAY BE

CONSIDERED AS A COMMON CARRIER.

Held:
 GPS, being an exclusive contractor and hauler of

Concepcion Industries, Inc., rendering or offering its

services to no other individual or entity, cannot be
considered a common carrier. The above conclusion
nothwithstanding, GPS cannot escape from liability.
 In culpa contractual, upon which the action of petitioner
rests as being the subrogee of Concepcion Industries,
Inc., the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a
corresponding right of relief.
 A breach upon the contract confers upon the injured
party a valid cause for recovering that which may have
been lost or suffered.
 The remedy serves to preserve the interests of the
promisee that may include his:
 “Expectation interest," which is his interest in having the
benefit of his bargain by being put in as good a position
as he would have been in had the contract been
performed; or
 “Reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in
had the contract not been made; or
 “Restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the
other party
 The effect of every infraction is to create a new duty, that
is, to make recompense to the one who has been injured
by the failure of another to observe his contractual
obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence
(normally that of the diligence of a good father of a
family or, exceptionally by stipulation or by law such as
in the case of common carriers, that of extraordinary
diligence) or of the attendance of fortuitous event, to
excuse him from his ensuing liability. .
 In this case, the delivery of the goods in its custody to
the place of destination - gives rise to a presumption of
lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish
otherwise. GPS has failed to do so.
 Respondent driver, on the other hand, without concrete
proof of his negligence or fault, may not himself be
ordered to pay petitioner.
 The driver, not being a party to the contract of carriage
between petitioner’s principal and defendant, may not
be held liable under the agreement.
 A contract can only bind the parties who have entered
into it or their successors who have assumed their
personality or their juridical position.
 Consonantly with the axiom res inter alios acta aliis neque
nocet prodest, such contract can neither favor nor
prejudice a third person.
 Petitioner’s civil action against the driver can only be
based on culpa aquiliana, which, unlike culpa contractual,
would require the claimant for damages to prove
negligence or fault on the part of the defendant.
Issue No. 2:
 WHETHER THE DOCTRINE OF RES IPSA LOQUITUR
IS APPLICABLE IN THE INSTANT CASE.
Held:
 Res ipsa loquitur, a doctrine being invoked by petitioner,
holds a defendant liable where the thing which caused
the injury complained of is shown to be under the latter?
s management and the accident is such that, in the
ordinary course of things, cannot be expected to happen
if those who have its management or control use proper
care. It affords reasonable evidence, in the absence of
explanation by the defendant, that the accident arose
from want of care
 It is not a rule of substantive law and, as such, it does not
create an independent ground of liability. Instead, it is
regarded as a mode of proof, or a mere procedural
convenience since it furnishes a substitute for, and
relieves the plaintiff of, the burden of producing specific
proof of negligence.
 The maxim simply places on the defendant the burden
of going forward with the proof.
 Resort to the doctrine, however, may be allowed only
when (a) the event is of a kind which does not ordinarily
occur in the absence of negligence; (b) other responsible
causes, including the conduct of the plaintiff and third
persons, are sufficiently eliminated by the evidence; and
(c) the indicated negligence is within the scope of the
defendant's duty to the plaintiff.
 Thus, it is not applicable when an unexplained accident
may be attributable to one of several causes, for some of
which the defendant could not be responsible.
 Res ipsa loquitur generally finds relevance whether or not
a contractual relationship exists between the plaintiff
and the defendant, for the inference of negligence arises
from the circumstances and nature of the occurrence and
not from the nature of the relation of the parties.
 Nevertheless, the requirement that responsible causes
other than those due to defendant’s conduct must first
be eliminated, for the doctrine to apply, should be
understood as being confined only to cases of pure (non-
contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed
out, immediately attaches by a failure of the covenant or
its tenor.
 In the case of the truck driver, whose liability in a civil
action is predicated on culpa acquiliana, while he
admittedly can be said to have been in control and
management of the vehicle which figured in the
accident, it is not equally shown, however, that the
accident could have been exclusively due to his
negligence, a matter that can allow, forthwith, res ipsa
loquitur to work against him.
Common Carrier v. Towage
 In towage, one vessel is hire to bring another vessel
to another place. Thus, a tugboat may be hired by a
common carrier to bring the vessel to a port. In this
case, the operator of the tugboat cannot be
considered a common carrier.
 In maritime law, towage refers to a service rendered
to a vessel by towing for the mere purpose of
expediting her voyage without reference to any
circumstances of danger. It usually confined to
vessels that have received no injury or damage.
Common Carrier v. Arrastre
An Arrastre operator performs the following
functions:
 Receive, handle, care for, and deliver all merchandise
imported and exported, upon or passing over
Government-owned wharves and piers in the port;
 Record or check all merchandise which may be
delivered to said port at shipside;
 In general, furnish light, and water services and other
incidental services in order to undertake its arrastre
service
 Hence, the functions of an arrastre operator has nothing
to do with the trade and business of navigation, nor to
the use or operation of vessels.
 An arrastre operator is like a depositary or
warehouseman.
 Even if the arrastre service depends on, assists, or
furthers maritime transportation, it may be deemed
merely incidental and does not make its service maritime
Common Carrier v. Stevedoring
 The function of stevedores involve the loading and
unloading of coastwise vessels calling at the port.
Governing Laws on Common Carrier
 COASTWISE SHIPPING:
- New Civil Code (Arts. 1732-1766)
- Code of Commerce
 CARRIAGE FROM FOREIGN PORTS TO PHIL
PORTS:
- New Civil Code (primary)
- Code of Commerce (suppletory)
- Carriage of Goods by Sea Act [COGSA]
(suppletory)
 CARRIAGE FROM PHIL PORT TO FOREIGN PORTS:
- The laws of the country to which the goods are to be
transported.
 OVERLAND TRANSPORTATION:
- Civil Code (primary)
- Code of Commerce (suppletorily)
- R.A. 4136 [The Land Transportation and Traffic Code]
 AIR TRANSPORTATION:
- Civil Code (primary)
- Code of Commerce (suppletorily)
- For international carriage – Warsaw Convention
[Convention for the Unification of Certain Rules
Relating to the International Carriage by Air]
Nature of Business of Common
Carriers, KMU V. Garcia, GR 115381, Dec. 23, 1994
 Common carriers are public utilities within the
contemplation of the public service law.
 Public utilities are privately owned and operated
businesses whose services are essential to the general
public.
 They are enterprises which specially cater to the
needs of the public and conduce to their comfort and
convenience.
 When, one devotes his property to a use in which the
public has an interest, he, in effect grants to the public
an interest in that use, and must submit to the control
by the public for the common good, to the extent of
the interest he has thus created.
Salient Provisions in R.A. 4136 on
Registration of Vehicles
 Motor vehicle defined: Any vehicle propelled by any
power other than muscular power using the public
highways, but excepting road rollers, trolley cars,
street-sweepers, sprinklers, lawn mowers, bulldozers,
graders, fork-lifts, amphibian trucks, and cranes if not
used on public highways, vehicles which run only on
rails or tracks, and tractors, trailers and traction engines
of all kinds used exclusively for agricultural purposes.
 Trailers having any number of wheels, when propelled
or intended to be propelled by attachment to a motor
vehicle, shall be classified as separate motor vehicle
with no power rating.
 The distinction between "passenger truck" and
"passenger automobile" shall be that of common usage:
Provided, That a motor vehicle registered for more than
nine passengers shall be classified as "truck": And
Provided, further, That a "truck with seating
compartments at the back not used for hire shall be
registered under special "S" classifications. In case of
dispute, the Commissioner of Land Transportation shall
determine the classification to which any special type of
motor vehicle belongs.
 Articulated vehicle - means any motor vehicle with a
trailer having no front axle and so attached that part of
the trailer rests upon motor vehicle and a substantial
part of the weight of the trailer and of its load is borne by
the motor vehicle. Such a trailer shall be called as "semi-
trailer."
 Professional driver - means every and any driver hired
or paid for driving or operating a motor vehicle, whether
for private use or for hire to the public. Any person
driving his own motor vehicle for hire is a professional
driver.
 Owner -The actual legal owner of a motor vehicle, in
whose name such vehicle is duly registered with the
Land Transportation Commission.
 The "owner" of a government-owned motor vehicle is
the head of the office or the chief of the Bureau to which
the said motor vehicle belongs.
 Parking or parked - A motor vehicle is "parked" or
"parking" if it has been brought to a stop on the shoulder
or proper edge of a highway, and remains inactive in
that place or close thereto for an appreciable period of
time .
 A motor vehicle which properly stops merely to
discharge a passenger or to take in a waiting passenger,
or to load or unload a small quantity of freight with
reasonable dispatch shall not be considered as "parked",
if the motor vehicle again moves away without delay.
 Sec. 5(a) - No motor vehicle shall be used or operated on
or upon any public highway of the Philippines unless
the same is properly registered for the current year in
accordance with the provisions of this Act.
 Sec. 5(e) Encumbrances of motor vehicles. -
Mortgages, attachments, and other encumbrances of
motor vehicles, in order to be valid, must be recorded
in the Land Transportation Commission and must be
properly recorded on the face of all outstanding
copies of the certificates of registration of the vehicle
concerned.
 Section 16. Suspension of registration certificate. - If on
inspection, as provided in paragraph (6) of Section four
hereof, any motor vehicle is found to be unsightly,
unsafe, overloaded, improperly marked or equipped, or
otherwise unfit to be operated, or capable of causing
excessive damage to the highways, or not conforming to
minimum standards and specifications, the
Commissioner may refuse to register the said motor
vehicle, or if already registered, may require the number
plates thereof to be surrendered to him, and upon
seventy-two hours notice to the owner of the motor
vehicle, suspend such registration until the defects of the
vehicle are corrected and/or the minimum standards
and specifications fully complied with.
 Section 21. Operation of motor vehicles by tourists. - Bona
fide tourist and similar transients who are duly licensed
to operate motor vehicles in their respective countries
may be allowed to operate motor vehicles during but not
after ninety days of their sojourn in the Philippines.
 After ninety days, any tourist or transient desiring to
operate motor vehicles shall pay fees and obtain and
carry a license as hereinafter provided.
 If any accident involving such tourist or transient occurs,
which upon investigation by the Commissioner or his
deputies indicates that the said tourist or transient is
incompetent to operate motor vehicles, the
Commissioner shall immediately inform the said tourist
or transient in writing that he shall no longer be
permitted to operate a motor vehicle.
Meaning of Highways
 Every public thoroughfare, public boulevard,
driveway, avenue, park, alley and callejon,
but shall not include roadway upon grounds
owned by private persons, colleges,
universities, or other similar institutions
Speed Restrictions
 Section 35(a) Any person driving a motor vehicle on
a highway shall drive the same at a careful and
prudent speed, not greater nor less than is reasonable
and proper, having due regard for the traffic, the
width of the highway, and of any other condition
then and there existing; and
 No person shall drive any motor vehicle upon a
highway at such a speed as to endanger the life, limb
and property of any person, nor at a speed greater
than will permit him to bring the vehicle to a stop
within the assured clear distance ahead.
MAXIMUM ALLOWABLE Passengers
Motor trucks and buses
SPEEDS
Cars and Motorcycle
1. On open country roads, with
no "blinds corners" not closely 80 km. per hour 50 km. per hour
bordered by habitations

2. On "through streets" or
boulevards, clear of traffic, 40 km. per hour 30 km. per hour
with no " blind corners”,
when so designated.
3. On city and municipal
streets, with light traffic, 30 km. per hour 30 km. per hour
when not designated
“through streets”
4. Through crowded streets,
approaching intersections at 20 km. per hour 20 km. per hour
"blind corners," passing school
zones, passing other vehicles
which are stationery, or for
similar dangerous circumstance
Exceptions to Rate Speed
 A physician or his driver when the former responds
to emergency calls;
 The driver of a hospital ambulance on the way to and
from the place of accident or other emergency;
 Any driver bringing a wounded or sick person for
emergency treatment to a hospital, clinic, or any
other similar place;
 The driver of a motor vehicle belonging to the Armed
Forces while in use for official purposes in times of
riot, insurrection or invasion;
 The driver of a vehicle, when he or his passengers are
in pursuit of a criminal;
 A law-enforcement officer who is trying to overtake a
violator of traffic laws; and
 The driver officially operating a motor vehicle of any
fire department, provided that exemption shall not be
construed to allow useless or unnecessary fast
driving of drivers aforementioned.
 Section 36. Speed limits uniform throughout the Philippines.
- No provincial, city or municipal authority shall enact or
enforce any ordinance or resolution specifying
maximum allowable speeds other than those provided in
this Act.
 Correct Driving
 Pass to the right when meeting persons or vehicles
coming toward him.
 Pass left when overtaking persons or vehicles going the
same direction.
 Conduct to the right of the center of the intersection of
the highway when turning left.
 Applicable every person operating a motor vehicle or an
animal-drawn vehicle.
Exceptions:
 Different course of action is required in the interest of

the safety and the security of life, person or property; or

 Because of unreasonable difficulty of operation in its

compliance.
Overtaking a vehicle [Sec. 39]
 Pass at a safe distance to the left;
 Not again drive to the right side of the highway until
safety is clear of such overtaken vehicle.
Exceptions: Passing at right allowed
 On highways with two or more lanes; or

 When to be overtaken vehicle is turning left.

Duty of Driver of Vehicle to be
Overtaken [Sec. 40]
 To give way to the overtaking vehicle on suitable and
audible signal being given by the driver of the
overtaking vehicle; and
 Not to increase the speed of his vehicle until
completely passed by the overtaking vehicle.
Restrictions on overtaking and
passing [Sec. 41]
 Do not drive to the left side of the center line of a
highway in overtaking or passing another vehicle
proceeding in the same direction, unless such left
side is clearly visible, and is free of oncoming traffic
for a sufficient distance ahead to permit such
overtaking or passing to be made in safety.
Do not overtake:
 when approaching the crest of a grade;

 upon a curve in the highway;

 driver's view along the highway is obstructed within a

distance of five hundred feet ahead. Exception: When on

a highway having two or more lanes for movement of
traffic in one direction where the driver of a vehicle may
overtake or pass another vehicle: Provided,
 Exception to exception: On a highway within a business

or residential district, having two or more lanes for

movement of traffic in one direction, overtaking or
passing at right is allowed.
Do not overtake:
 at any railway grade crossing;

 at any intersection of highways unless such intersection

or crossing is controlled by traffic signal, or unless

permitted to do so by a watchman or a peace officer.
 Exception: On a highway having two or more lanes for

movement of traffic in one direction where the driver of

a vehicle may overtake or pass another vehicle on the
right.
 Nothing in this section shall be construed to prohibit a

driver overtaking or passing upon the right another

vehicle which is making or about to make a left turn.
Do not overtake, pass or attempt to pass:
 between any points indicated by the placing of official

temporary warning or caution signs indicating that men

are working on the highway;

in any "no-passing or overtaking zone."
Right of way [Sec. 42]
When two vehicles approach or enter an intersection
at approximately the same time:
 Driver of the vehicle on the left to yield the right of
way to the vehicle on the right;
 Driver of vehicle traveling at an unlawful speed
forfeits right of way.
 Driver of a vehicle approaching but not having entered
an intersection:
 To yield right of way to a vehicle within such
intersection or turning therein to the left across the line
of travel of such first-mentioned vehicle;
 Provided, driver of the vehicle turning left has given a
plainly visible signal of intention to turn.
 Driver of any vehicle upon a highway within a business
or residential district:
 To yield right of way to a pedestrian crossing such
highway within a crosswalk;
 Exception: at intersections where the movement of traffic
is being regulated by a peace officer or by traffic signal.
 Every pedestrian crossing a highway within a business
or residential district, at any point other than a crosswalk
shall yield the right of way to vehicles upon the
highway.
 When about to approach “through highway” or
raildroad crossing:
 Full stop before traversing;
 Provided, That when it is apparent that no hazard exists,
the vehicle may be slowed down to five miles per hour
instead of bringing it to a full stop.
 Exception to the right of way rule
[Sec. 43]
 Yield right of way to all vehicles approaching when
entering a highway from a private road or drive;
 Yield to police or fire department vehicles and
ambulances when such vehicles are operated on official
business and the drivers thereof sound audible signal of
their approach;
 Yield to all vehicles approaching from either
direction when entering a "through highway" or a
"stop intersection“.
 Provided, That nothing in this subsection shall be
construed as relieving the driver of any vehicle being
operated on a "through highway" from the duty of
driving with due regard for the safety of vehicles
entering such "through highway" nor as protecting
the said driver from the consequence of an arbitrary
exercise off such right of way.
NO PARKING
 (a) Within an intersection
 (b) On a crosswalk
 (c) Within six meters of the intersection of curb lines.
 (d) Within four meters of the driveway entrance to and
fire station.
 (e) Within four meters of fire hydrant
 (f) In front of a private driveway
 (g) On the roadway side of any vehicle stopped or
parked at the curb or edge of the highway
 (h) At any place where official signs have been erected
prohibiting parking.
Reckless driving [Sec. 48]
 No person shall operate a motor vehicle on any
highway recklessly or without reasonable caution
considering the width, traffic, grades, crossing,
curvatures, visibility and other conditions of the
highway and the conditions of the atmosphere and
weather, or so as to endanger the property or the
safety or rights of any person or so as to cause
excessive or unreasonable damage to the highway.
Right of way for police & other
emergency vehicles [Sec. 49]
 Upon the approach of any police or fire department
vehicle, or of an ambulance giving audible signal,
 The driver of every other vehicle shall immediately
drive the same to a position as near as possible and
parallel to the right-hand edge or curb of the
highway
 Clear of any intersection of highways, and
 Shall stop and remain in such position, unless
otherwise directed by a peace officer, until such
vehicle shall have passed.
Vehicle Tampering [Sec. 50]
 No unauthorized person shall sound the horn,
handle the levers or set in motion or in any way
tamper with a damage or deface any motor vehicle.
Prohibition on Vehicle Hitching
[Sec. 51]
 No person shall hang on to, ride on, the outside or
the rear end of any vehicle; and
 No person on a bicycle, roller skate or other similar
device, shall hold fast to or hitch on to any moving
vehicle; and
 No driver shall knowingly permit any person to hang
on to or ride, the outside or rear end of his vehicle or
allow any person on a bicycle, roller skate or other
similar device to hold fast or hitch to his vehicle.
Prohibition on Sidewalk Driving or
Parking [Sec. 52]
 No person shall drive or park a motor vehicle upon
or along any sidewalk, path or alley not intended for
vehicular traffic or parking.
Driving Under The Influence [Sec.53]
 No person shall drive a motor vehicle while under
the influence of liquor or narcotic drug.
Obstruction of Traffic [Sec. 54]
 No person shall drive his motor vehicle in such a
manner as to obstruct or impede the passage of any
vehicle;
 Nor, while discharging or taking on passengers or
loading or unloading freight, obstruct the free
passage of other vehicles on the highway.
Duty of Driver In Case of Accident
[Sec. 55]
 In the event that any accident should occur as a result
of the operation of a motor vehicle upon a highway,
the driver present, shall show his driver's license,
give his true name and address and also the true
name and address of the owner of the motor vehicle.
 No driver of a motor vehicle concerned in a vehicular
accident shall leave the scene of the accident without
aiding the victim, except under any of the following
circumstances:
1. If he is in imminent danger of being seriously
harmed by any person or persons by reason of the
accident;
2. If he reports the accident to the nearest officer of
the law; or
3. If he has to summon a physician or nurse to aid
the victim.
Traffic Violations
 For registering later than seven days after acquiring
title to an unregistered motor vehicle or after
conversion of a registered motor vehicle requiring
larger registration fee than that for which it was
originally registered, or for renewal of a delinquent
registration.
 For failure to sign driver's license or to carry same
while driving.
 Driving a vehicle with a delinquent or invalid driver's
license
 Driving a motor vehicle with delinquent, suspended or
invalid registration, or without registration or without
the proper license plate for the current year
 Driving a motor vehicle without first securing a driver's
license
 Driving a motor vehicle while under the influence of
liquor or narcotic drug.
 Violation of Section thirty-two, thirty-four (a), (b) and (b-
1), thirty-five and forty-six
 Violations of Sections forty-nine, fifty and fifty-two.
 For making, using or attempting to make or use a
driver's license, badge, certificate or registration, number
plate, tag or permit in imitation or similitude of those
issued under this Act, or intended to be used as or for a
legal license, badge, certificate, plate, tag or permit or
with intent to sell or otherwise dispose of the same to
another, or false or fraudulently represent as valid and
in force any driver's license, badge, certificate, plate, tag
or permit issued under this Act which is delinquent or
which has been suspended or revoked
 For using private passenger automobiles, private trucks,
private motorcycles, and motor wheel attachments for
hire, in violation of Section seven, subsections (a), (b),
and (c), of this Act
 For permitting, allowing, consenting to, or tolerating the
use of a privately-owned motor vehicle for hire in
violation of Section seven, subsections (a), (b), and (c), of
this Act,
 For violation of any provisions of this Act or regulations
promulgated pursuant hereto, not hereinbefore
specifically punished
 In the event an offender cannot pay any fine imposed
pursuant to the provisions of this Act, he shall be made
to undergo subsidiary imprisonment as provided for in
the Revised Penal Code.
 If, as the result of negligence or reckless or unreasonable
fast driving, any accident occurs resulting in death or
injury of any person, the motor vehicle operator at fault
shall, upon conviction, be punished under the provisions
of the Revised Penal Code.
Presumption of Negligence
 Art. 2185, Civil Code – It is presumed that a person
driving a motor vehicle is negligent if at the time of
the mishap, he was violating any traffic regulation,
unless the contrary.
Registered Owner Rule
 The person who is the registered owner of a vehicle is
liable for any damage caused by the negligent
operation of the vehicle although the same was
already sold or conveyed to another person at the
time of the accident.
 This is subject to the right of recourse by the
registered owner against the transferee or buyer.
 The registered owner rule is applicable whenever the
persons involved are engaged in what is known as
the ‘kabit system’.
CLASSIFICATIONS OF MOTOR
REGISTRABLE VEHICLES [Sec. 7]
a) Private passenger j) Trucks owned by
automobiles; contractors and customs
b) Private trucks; brokers and customs
c) Private motorcycles, agents;
scooters, or motor wheel k) Undertakes;
attachments l) Dealers;
d) Public utility m) Government automobiles
automobiles; n) Government trucks;
e) Public utility trucks; o) Government motorcycles;
f) Taxis and auto-calesas p) Motor vehicles of tourists
g) Garage automobiles [for 90 days];
h) Garage trucks q) Special
i) Hire trucks;
 Vehicles registered under classification under (a), (b) &
(c) cannot be used for hire under any circumstances and
cannot be used to solicit, accept, or be used to transport
passengers or freight for pay.
 Laborers necessary to handle freight in private trucks
may ride on it (but not to exceed 10 laborers)
 Dealer’s vehicle can be operated only for the purpose of
transporting the vehicle itself from the pier or factory to
the warehouse or sales room or for delivery to a
prospective purchaser or for test or demonstration
CONCLUSIVE PRESUMPTION OF
A VEHICLE IS FOR HIRE
 A vehicle habitually used to carry freight not
belonging to the registered owner thereof, or
passengers not related by consanguinity or affinity
within the fourth civil degree to such owner, shall be
conclusively presumed to be "for hire."
KABIT SYSTEM
 It is an arrangement whereby a person who has been
granted a certificate of public convenience allows
other persons who own motor vehicles to operate
them under his license, sometime for a fee or
percentage of earning.
 Such arrangement is void for being contrary to public
policy [Abelardo Lim, et al. v. CA, GR 125817, Jan. 16,
2002]
PARTIES IN KABIT SYSTEM COVERED
BY IN PARI DELICTO RULE
 Ex pact illicito non oritur action – No action arises out
of an illicit bargain.
 Having entered into an illegal contract, parties to the
kabit system cannot seek relief from the courts, and
each must bear the consequences of his acts.
Teja Marketing v. IAC, GR 65510,
Mar. 9, 1987
 Facts: Petitioner was constrained to file an action for
damages because private respondent allegedly failed
to pay the balance of the purchase price of its
motorcycle sold. The motorcycle which was used for
sidecar remained under the name of petitioner and
operated under its franchise under an arrangement
called ‘kabit system’.
 Held: Dismissal of case sustained. Both parties are in
pari delicto. The court will not aid either party to
enforce an illegal contract.
Chapter 2
OBLIGATIONS OF THE PARTIES
OBLIGATION OF CARRIER:
 Duty to Accept;
 Duty to Deliver Goods On Time;
 Duty to Deliver Goods at the Place and to the person
named in the BL; and
 Duty to Exercise Due Diligence
OBLIGATION OF SHIPPER OR
PASSENGER
 Duty to exercise due diligence.
 Duty to pay the amount of freight or passage on time.
 1. Carrier’s Duty to Accept
A common carrier granted CPC is duty bound to accept
passengers or cargo without any discrimination.
Exceptions:
 Dangerous objects or substances including dynamites

and other explosives;

 Unfit for transportation;

 Acceptance would result in overloading;

 Contrabands or illegal goods;
 Goods are injurious to health;
 Good will likely be exposed to untoward danger like
flood, capture by enemies and the like;
 Livestock with disease or exposed to disease;
 Strike; and
 Failure to tender goods on time
Rule on Hazardous and Dangerous
Substances
 A carrier may be granted authority to carry goods
that are by nature dangerous and hazardous. A
carrier specially designed to carry dangerous
chemicals and goods may be granted CPC for such
purpose.
 All other carriers may validly refuse to accept such
cargoes.
MARINA Memorandum Circular
No. 105, Apr. 6, 1995
Documentary Requirements for Special Permit to
Carry Dangerous/Hazardous Cargoes and Goods in
Packaged Form:
 Letter of Intent
 PPA Clearance on packaging, marking and labeling
of cargoes or goods in packaged forms
 Cargo Stowage Plan
Classification of Dangerous or
Hazardous Goods Under MC 105
 Class 1 – Explosives
 Class 2 – Gases: Compressed, liquefied or dissolved
under pressure
 Class 3 – Inflammable Liquids
 Class 4 – Inflammable Solids or Substances: a)
Inflammable Solid; b) Inflammable Solids, or Substances
liable to spontaneous combustion; and c) Inflammable
Solids, or Substances which in contact with waters emit
inflammable gases;
 Class 5 – a) Oxidizing Substances; b) Organic
Peroxide
 Class 6 - a) Poisonous (toxic) substances; b)
Infectious Substances
 Class 7 – Radioactive Substances
 Class 8 – Corrosives
 Class 9 – Miscellaneous Dangerous Substances
MARINA Memorandum Circular
No. 147
Rules on carriage of vehicles, animals, forest
products, fish and aquatic products, minerals and
mineral products & toxic and hazardous materials on
board vessels:
 Master to accept only if these are covered by
necessary clearance from appropriate agencies;
 Non-compliance will subject the shipowner and
master administrative penalties without prejudice to
criminal or civil suits
2. Carrier’s Duty to Deliver The
Goods
General Rule:
 Carrier is not an insurer against delay in

transportation of goods.
Exception:
 When there is agreement as to the time of delivery
When delay is deemed reasonable
 Ordinary Goods – 2 months [Maersk Line v. CA, May
17, 1993]
 Perishable Goods – 2 to 3 days [Dissenting: Tan
Chiong Sian v. Inchausti, GR 6092, Mar. 8, 1912]
Rules on Delay on Overland
Transportation (Code of Commerce)
Art. 358, Code of Commerce:
 If there is no period fixed for the delivery of the

goods the carrier shall be bound to forward them in

the first shipment of the same or similar goods which
he may make to the point of delivery; and should he
not do so, the damages caused by the delay should be
for his account.
 Delay When Period Is Fixed
 Art. 370. If a period has been fixed for the delivery of the
goods, it must be made within such time, and, for failure
to do so, the carrier shall pay the indemnity stipulated in
the bill of lading, neither the shipper nor the consignee
being entitled to anything else. If no indemnity has been
stipulated and the delay exceeds the time fixed in the BL,
the carrier shall be liable for the damages which the
delay may have caused.
Procedure in Abandonment by
Consignee In Case of Delay (Type 2)
 Art. 371. In case of delay through the fault of the
carrier referred to in the preceding articles, the
consignee may leave the goods transported in the
hands of the former, advising him thereof in writing
before their arrival at the point of destination.
 When this abandonment takes place, the carrier shall
pay the full value of the goods as if they had been
lost or mislaid.
 If the abandonment is not made, the indemnification
for the losses and damages by reason of the delay
cannot exceed the current price which the goods
transported would have had on the day and at the
place in which they should have been delivered; this
same rule is to be observed in all other cases in which
this indemnity may be due.
FIVE TYPES OF ABANDONMENT
UNDER MERCANTILE LAW
 WHEN DAMAGE IS SO GREAT [Art. 365, Code of
Commerce]
 WHEN GOODS ARRIVE BEYOND THE DATE
AGREED ON [Art. 371, Code of Commerce]
 ABANDONMENT BY SHIPOWNER WHEN
LIABILITY EXCEEDS VALUE OF VESSEL [Art. 578,
Code of Commerce]
 DAMAGE TO GOODS IN LIQUID FORM [Sec. 687,
Code of Commerce]
 CONSTRUCTIVE LOSS UNDER THE INSURANCE
CODE [Sec. 138, Insurance Code of the Phil.]
1st Type: WHEN DAMAGE IS SO
GREAT
 Where the shipper ships goods and goods arrive in
damaged condition and damage is so great that
shipper may not use goods for the purpose for which
they have been shipped, the shipper may exercise
right of abandonment.
 NOTICE TO THE CARRIER IS SUFFICIENT –
consent of carrier is not necessary and once perfected,
the ownership over damaged goods passes to the
carrier and carrier must pay the shipper market value
of goods at point of destination.
2nd Type: WHEN GOODS ARRIVE
BEYOND DATE AGREE ON
 Under this set-up, shipper and carrier agreed in
advance that cargo must arrive on a certain date.
 The date has passed but the cargo has not yet arrived
due to carrier’s fault.
 Shipper/consignee may exercise the right of
abandonment by NOTIFYING the carrier.
 Once carrier has been notified, ownership over the
goods undelivered passes to carrier.
 But carrier must pay shipper market value of the
goods at the point of destination.
 3rd Type: ABANDONMENT BY
SHIPOWNER WHEN LIABILITY
EXCEEDS VALUE OF VESSEL
 Reflects the hypothecary nature of maritime
transactions.
 Instances when vessel carries goods and goods are
damaged.
 Liability of the carrier over the damage goods exceeds
the value of the vessel.
 Shipowner of ship agent may exercise right of
abandonment by simply NOTIFYING TO THE
SHIPPER.
 Liability of the shipowner is now limited to the value of
the vessel.
4th Type: DAMAGE TO GOODS IN
LIQUID FORM
 Charterers and shippers may abandon the
merchandise damaged if cargo should consist of
liquids;
 The contents have leaked out;
 What remains in the container is but ¼ of its content;
 The cause was on account of inherent defect or
fortuitous event.
 5th Type: CONSTRUCTIVE LOSS
UNDER THE INSURANCE CODE
 Shipowner’s right of abandonment for constructive loss;
 Takes place when vessel suffers damage in excess of ¾ of
its insured value;
 Notice to Insurer from the insured is sufficient;
 Thereafter, ownership over the damaged vessel passes to
the insurer; and
 Insurer must pay insured as if it were an ACTUAL
LOSS.
Characteristics of Abandonment
 It is unilateral right;
 It is perfected by mere notice;
 Once perfected, ownership over damaged goods
passes to carrier; and
 Carrier must pay the shipper market value of goods
at the point of destination
Bar, Mercantile Law [1979]
Problem:
 A, in Manila, shipped on board a vessel of B, chairs to be

used in the moviehouse of consignee C in Cebu. No date

for delivery or indemnity for delay was stipulated. The
chairs, however, were not claimed promptly by C and
were shipped by mistake back to Manila, where it was
discovered and re-shipped to Cebu. By the time the chairs
arrived, the date of inauguration of the moviehouse
passed by and it had to be postponed. C brings an action
for damages against B claiming loss of profits during the
Christmas season when he expected the moviehouse to
be opened. Decide the case with reason
Suggested Answer:
 C may sue B for the loss of his profits provided that

ample proof thereof are presented in court. The carrier is

obligated to transport the goods without delay. The
carrier is liable if he is guilty of delay in the shipment of
cargo, causing damages to the consignee.
Mora in Civil Law distinguished
from Mora in Mercantile Law
 Under Art. 1169, Civil Code requires demand by the
creditor in order that delay may exist.
Exceptions:
 Obligation or law expressly so provides;

 Time is of the essence; and

 Demand would be useless.

 BUT under the Code of Commerce, demand, as a general
rule, is not necessary in commercial contracts in order
for the obligor to incur delay [Arts. 61, 62 & 63, Code of
Commerce].
 Exceptions: a) When fixed by contract, b) when
recognized or allowed by law.
 In commercial contracts, time is always of the essence.
Code of Commerce Provisions on
Mora [Arts. 61, 62,& 63]
 Art. 61. Day of grace, courtesy or others which under
any name whatsoever defer the fulfillment of
commercial obligations, shall not be recognized,
except those which the parties may have previously
fixed in contract or which are based on a definite
provision of law.
 Art. 62. Obligations which do not have a period
previously fixed by the parties or by the provisions of
this Code, shall be demandable ten days after having
been contracted if they give rise only to an ordinary
action, and on the next day if they involve immediate
execution.
 Art. 63. The effect of default in the performance of
commercial obligation shall commence:
1. In contracts with a day for performance fixed by
the will of the parties or by the law, on the day following
their maturity;
2. In those which do not have such day fixed, from
the day on which the creditor makes judicial demand on
the debtor or notifies him of protest of loss and damages
made against him before a judge, notary or other public
official authorized to admit the same.
SUMMARY: When Debtor incurs
Delay in Commercial Contracts
 If period of performance is fixed, debtor incurs delay
the day following the day fixed, without need of
demand;
 If no period fixed, ten (10) days from execution of
contract and on 11th day, debtor incurs delay without
need of demand;
 Potestative period (e.g. when the debtor desires) –
debtor in delay from date of demand.
Note: distinguish from a potestative condition, e.g. ‘if
the debtor desires’. Under the Civil Code and Code
of Commerce, such condition is void.
KINDS OF DELAY UNDER CIVIL
CODE
 Mora solvendi – Delay of an obligor to deliver or to
perform an obligation:
a. Mora solvendi ex re – delay when the obligation is to
give or to deliver;
b. Mora solvendi ex persona – delay when the
obligation is to do or to perform a personal service.
 Mora accipiendi – Delay of an obligee in accepting the
delivery of the thing due;
 Compensatio morae – Delay in reciprocal obligations
(Art. 1169, last par.). Neither party is in default unless
the other is ready to comply with his obligation.
UNDER CIVIL CODE: DEMAND
NECESSARY FOR DELAY
 In Compania General de Tabacos vs. Araza, 7 Phil.
455, held: ‘The contract does not provide for the payment
of any interest. There is no provision in it declaring
expressly that the failure to pay when due should put the
debtor in default. There was therefore no default which
would make him liable for interest until a demand was
made. There was no evidence of any demand prior to the
presentation of the complaint. The plaintiff is therefore
entitled to interest only from the commencement of the
action’.
DEEMED MERCHANTS UNDER
THE CODE OF COMMERCE
 Those who, having legal capacity to engage in
commerce, habitually devote themselves thereto [Art.
1]
 Legal presumption of habituality: ‘From the moment
a person who intends to engage in commerce
announces through circulars, newspapers, handbills,
posters exhibited to the public, or in any manner
whatsoever, an establishment which has for its object
some commercial operation’ [Art. 3]
COMMERCIAL CONTRACTS
GOVERNED BY CODE OF COMMERCE
 Art. 50. Commercial contracts, in everything relative
to their requisites, modifications, exceptions,
interpretations, and extinction and to the capacity of
their contracting parties, shall be governed in all
matters not expressly provided for in this Code or in
special laws, by the general rules of civil law.
 HIERARCHICAL APPLICABILITY OF LAWS TO
COMMERCIAL TRANSACTIONS:
1. Code of Commerce
2. Commercial customs (in the absence of #1); and
3. Civil Code (in the absence of 1 & 2)
PERFECTION OF COMMERCIAL
CONTRACTS BY CORRESPONDENCE
 Art. 54. Contracts entered into by correspondence
shall be perfected from the moment an ANSWER IS
MADE ACCEPTING THE OFFER OR THE
CONDITIONS by which the latter may be modified.
 Above is in contrast to Art. 1319, NCC where
negotiated contracts by correspondence are perfected
only FROM THE TIME THE OFFEROR HAS
ACTUAL KNOWLEDGE OF ACCEPTANCE
PERFECTION OF COMMERCIAL
CONTRACTS BY AGENT OR BROKER
 Art. 55. Contracts in which an agent or broker
intervenes shall be perfected WHEN THE
CONTRACTING PARTIES SHALL HAVE
ACCEPTED HIS OFFER.
 Compare Art. 1989, NCC: If the agent contracts in the
name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be
void if the party with whom the agent contracted is aware
of the limits of the powers granted by the principal. In this
case, however, the agent is liable if he undertook to secure
the principals ratification.
CONSEQUENCE OF DELAY
 Art. 1740, NCC: If the common carrier negligently
incurs in delay in transporting the goods, a natural
disaster shall not free such carrier from
responsibility.
 Art. 1747: If the common carrier, without just cause,
delays the transportation of the goods or changes the
stipulated or usual route, the contract limiting the
common carrier’s liability cannot be availed of in case
of the loss, destruction or deterioration of the goods
RIGHT OF PASSENGER IN CASE
OF DELAY
 Code of Commerce: Art. 698
 In case a voyage already begun has been interrupted;
 Passengers to pay the fare in proportion to the
distance covered;
 No right to recover for losses and damages if
interruption is due to fortuitous event or force
majeure;
 Except when interruption was caused by the Captain
exclusively.
 If interruption is due to disability of the vessel and
passenger agrees to await the repair;
 He is not required to pay any increased price of
passage;
 BUT HIS LIVING EXPENSES DURING THE STAY
FOR HIS OWN ACCOUNT. (But see MARINA MC
112)
MARINA MEMORANDUM
CIRCULAR NO. 112
 In case the vessel cannot continue or complete her
voyage FOR ANY CAUSE;
 Carrier is under obligation to transport the passenger
to his/her destination AT THE EXPENSE OF THE
CARRIER including FREE MEALS and LODGING
before said passenger is transported to his
destination.
 A passenger may opt to have his ticket refunded in full if
the cause of the unfinished voyage is due to the
negligence of the carrier; or
 To an amount that will suffice to defray transportation
cost at the shortest possible route towards his
destination if the cause is fortuitous event.
 If arrival is delayed, carrier shall provide for meals, free
of charge, during mealtime.
 If departure is delayed due to carrier’s negligence,
carrier is also under the obligation to provide meals, free
of charge, during meal time to TICKETED
PASSENGERS for the particular voyage.
 If departure is delayed due to fortuitous event, the
carrier is under no obligation to serve free meals to the
passengers.
 3. CARRIER’S DUY TO DELIVER
GOODS AT THE PLACE DESIGNATED
AND TO PERSON NAME IN BL
Art. 360 (Code of Commerce):
 The shipper may change the consignment of goods,

without necessarily changing the place of delivery;

 But must, at the time of ordering the change of consignee

in the BL signed by the carrier;

 Return the BL to the carrier in lieu of another BL

containing the novated contract.

 Expenses of the change of consignee at the expense of

the shipper.
Bar, Mercantile Law [1975]
Bar Question:
 If a shipper, without changing the place of delivery

changes the consignment of consignee of the goods

(after said goods had been delivered to the carrier),
under what condition will the carrier be required to
comply with the new order of the shipper?
Suggested Answer:
 Art. 360 of the Code of Commerce provides that if the

shipper should change the consignee of the goods

without changing their destination, the carrier shall
comply with the new order provided the shipper
RETURNS TO THE CARRIER the bill of lading and a
new one is issued shoving the novation of the contract.
However, all expenses for the change must be paid by
the shipper.
 4. CARRIER’ DUTY TO EXERCISE
EXTRAORDINARY DILIGENCE
 Art. 1733 (NCC). 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 and for the safety of the
passengers transported by them, according to all the
circumstances of each case.
 Such extraordinary diligence in the vigilance over the
goods is further expressed in Arts. 1734, 1735, and 1745,
Nos. 5, 6, and 7, while the extraordinary diligence for the
safety of the passengers is further set forth in Arts. 1755
and 1756.
 Art. 1755. 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 a due regard for all the circumstances.
 The foregoing provisions in the Civil Code modify Arts.
363, 364 & 365 of the Code of Commerce:
 Art. 363 on the requirement of the carrier to deliver the
goods shipped in the same condition where they were
found at the time they were received; and
 Art. 364 on when damage is merely diminution in the
value of the goods, carrier’s liability shall be reduced to
the payment of the amount constituting the difference in
value determined by experts.
 Art. 365 on instance when goods are rendered useless for
sale and consumption for the purposes they are
destined, consignee may not receive them and may
demand only their value at the current price of the day.
PRESUMPTION OF NEGLIGENCE
 In case of loss of effects or cargo; or
 In case of death or injury of passenger;
 Common carrier is presumed to be at fault;
 Unless, it can prove that it had observed
extraordinary diligence in the vigilance thereof.
BATANGAS TRANSPORT CO. v.
CAGUIMBAL, ET AL.,
G.R. L-22985, Jan. 24, 1968
 In an action based on a contract of carriage, 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;
 It is sufficient that plaintiff shows: a) there exist a
contract between the passenger or the shipper and
the common carrier; and b) the loss, deterioration,
injury or death took place during the subsistence of
the contract.
MRASOL v. THE ROBERT DOLLAR
COMPANY, G.R. L-29721, Mar. 27,
1929
Facts:
 Mirasol is consignee of two cases of Encyclopedia

Britannica books that he ordered from New York,

shipped in good order and condition on board MS
President Garfield, principal defendant company.
The books arrived in bad order and condition. There
was total loss of one case and partial loss on the
other, all in all amounting to P2,080.
Held:
 Defendant having received the two boxes in good

condition, its legal duty was to deliver them to the

plaintiff in the same condition in which it received them.
 As the boxes were damaged while in transit, the burden

of proof then shifted, and it devolved upon the

defendant to both allege and prove that the damage was
caused by reason of some fact which exempted it from
liability.
 As to how the boxes were damaged, was a matter
peculiarly and exclusively within the knowledge of the
defendant.
 To require plaintiff to prove as to when and how the
damage was caused would force him to call and rely
upon the employees of the defendant’s ship. That is not
the law.
 The evidence for the defendant shows that the damage
was largely caused by ‘sea water’, from which it
contends that it is exempt.
 Damage by ‘sea water’, standing alone and within itself,
is not evidence that they were damaged by force majeure
or for a cause beyond defendant’s control.
 The words ‘perils of the sea’ apply to all kinds of marine
casualties, such as shipwreck, foundering, stranding, etc.
 Where the peril is the proximate cause of the loss, the
shipowner is excused. But something fortuitous and out
of the ordinary must be involved in both words ‘peril’ or
‘accident’
 DURATION OF DUTY TO
EXERCISE EXTRAORDINARY
DILIGENCE [Carriage of Goods]
Art. 1736, NCC:
 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 the
person who has a right to receive them, without
prejudice to the provisions of Art. 1738.
Art. 1737 (NCC):
 The common carrier’s duty to observe extraordinary

diligence over the goods remains in full force and effect

even when they are temporarily unloaded or stored in
transit, unless the shipper or owner has made use of the
right of stoppage in transitu.
 Note: Right to stoppage in transitu is the right of the

unpaid seller who has parted with the possession of the

goods, when the buyer is or becomes insolvent, to stop
them and resume possession while they are in transit.
The unpaid seller will become entitled to the same rigths
to the goods, as if he had never parted with possession.
[Art. 1530, NCC]
Art. 1738 (NCC):
 The extraordinary liability of the common carrier

continues to be operative even during the time the goods

are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the
arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
ART. 1736 CONSTRUED
[Macam v. CA, G.R. 125524, Aug. 25, 199]
Facts:
 Ben-Mac Enterprises shipped on board MV Nen

Jiang, represented by local agent Wallem Shipping,

3,500 boxes of watermelons valued at $5,950 and
1,611 boxed of fresh mangoes valued at $14,273 with
Pakistan Bank (Hongkong) as consignee and Great
Prospect Co., Hongkong as Notify Party.
 In the BL, it was stipulated that ‘One of the Bills of

Lading must be surrendered duly endorsed in

exchange for the goods or delivery order’.
 As per letter of credit requirement, copies of the BL and
commercial invoices were submitted by Ben-Mac to
SolidBank. The latter then paid Ben-Mac the total value
of the shipment.
 Upon arrival in Hongkong, the shipment was delivered
directly to GPC, not to Pakistan Bank and without the
required BL having been surrendered.
 GPC failed to pay Pakistan Bank. Pakistan Bank refused
to pay Ben-Mac through Solidbank.
 Since SolidBank already pre-paid Ben-Mac the value of
the shipment, it demanded payment from Wallem but
was refused. Ben-Mac was forced to refund SolidBank.
Held:
 We emphasize that the extraordinary responsibility of
the common carriers lasts until actual or constructive
delivery of the cargoes to the consignee or TO THE
PERSON WHO HAS A RIGHT TO RECEIVE THEM.
 Pakistan Bank was indicated in the BL as consignee
whereas GPC was the notify party. However, in the
export invoices GPC was clearly named as
buyer/importer. Ben-Mac also referred to GPC as such
in his demand letter to Wallem.
 This premise draws us to conclude that the delivery to
GPC as buyer/importer which, conformably with Art.
1736 had, other than the consignee, the right to receive
them was proper.
 DURATION OF DUTRY TO EXERCISE
DILIGENCE [Carriage of Passengers]

 For Trains: Starts from the moment the person who

purchases the ticket (or token or card) from the carrier
presents himself at the proper place and in a proper
manner to be transported with bona fide intent to ride
the coach. Same for Ships & Aircrafts.
 For jeepneys/buses: Starts from the time the person
steps on the platform.
WHEN CONTRACT OF CARRIAGE
ENDS
 The relation of carrier does not cease at the moment
the passenger alights from the carrier’s vehicle but
continues until the passenger has had a reasonable
time or a reasonable opportunity to leave the carrier’s
premises.
La Mallorca v. CA, G.R. L-20761, July
27, 1966
Facts:
 Plaintiffs, as husband and wife boarded Pambusco
Bus No. 352 together with their (3) minor daughters
from San Fernando, Pampanga to Anao, Mexico,
Pampanga.
 All alighted at the designated place of unloading but
Mariano, the father had to return to the bus to get one
of his bayong left under his seat.
 Unknown to him, her daughter Raquel followed him.
She was ran over by the bus when it started to run
again.
Held:
 There can be no controversy that as far as the father is

concerned, when he returned to the bus for his bayong

which was not unloaded, the relation of passenger and
carrier does not necessarily cease where the latter, after
alighting from the car, aids the carrier’s conductor in
removing his baggage.
 The issue to be determined here is 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.
 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 bust started to run, so the even
the father had to ump 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 required under Art. 1755.
 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.
ABOITIZ SHIPPING v. CA, G.R.
84458, Nov. 6, 1989
Facts:
 Anacleto was a passenger of MV Antonia from San
Jose, Mindoro to Manila. Upon reaching Pier 4, North
Harbor, he disembarked from the ship by jumping
from the 3rd deck which is at level with the pier.
 After 1 hour when all the passengers have already
disembarked and the crane started unloading the
cargoes, Anacleto went back to the vessel after
realizing that he left some of his cargoes there.
 It was while he was pointing to the crew the place
where his cargoes were loaded that the crane hit him.
He later died. His heir sued Aboitiz for breach of
contract of carriage.
Held:
 In consonance with common shipping procedure as to the
minimum time of 1 hr. 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.
 Yet, even if he had already disembarked an hour earlier,
his presence in petitioner’s premises was not without
cause. The victim had to claim his baggage which was
possible only one (1) hour after the vessel arrived since it
was admittedly standard procedure in the case of
petitioner’s vessels that the unloading operations shall
start only after that time.
 Consequently, the victim Anacleto is still deemed
passenger at the time of his tragic death.
DEFENSES OF COMMON
CARRIERS [Art. 1734, NCC]
1. Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
2. Act of 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; and
5. Order or act of competent public authority.
Note: The enumeration is exclusive; no other defense
may be raised by the CC.
DEFENSE NO. 1: FORTUITOUS
EVENT
Requisites:
 Independent of human will;

 Impossible to foresee or if it can be foreseen,

impossible to avoid;
 Must be such as to render it impossible for the

obligor to fulfill the obligation in a normal manner;

and
 Obligor must be free from any participation in or the

aggravation of the injury [Lasam v. Smith, No. 19495,

Feb. 2, 1924]
For fortuitous event to be a valid defense:
 It must be the PROXIMATE AND ONLY CAUSE OF

THE LOSS;
 Carrier must be free from any participation in causing

the damage or injury;

 It must exercise due diligence to prevent or minimize the

loss BEFORE, DURING AND AFTER the fortuitous

event. [Art. 1739, NCC]
 TAN CHIONG SIAN v. INCHAUSTI,
G.R. No. 6092, March 8, 1921

Justice Moreland speaking:

 An act of God cannot be urged for the protection of a

person who has been guilty of gross negligence in not

trying to avert its results.
 One who has accepted responsibility for pay can not

weakly fold his hands and say that he was prevented

from meeting that responsibility by an act of God, when
the exercise of the ordinary care and prudence would
have averted the results flowing from that act.
 One who has placed the property of another, intrusted to
his care, in an unseaworthy craft, upon dangerous
waters, cannot absolve himself by crying, ‘an act of God’,
when every effect which a typhoon produced upon that
property could have been avoided by the exercise of
common care and prudence.
 When the negligence of the carrier concurs with an act of
God producing a loss, the carrier is not expempted from
liability by showing that the immediate cause of the
damage was the act of God, or, as it has been expressed,
“when the loss is caused by the act of God, if the
negligence of the carrier mingles with it as an active and
cooperative cause, he is still liable”.
 FIRE NOT A NATURAL DISASTER OR
CALAMITY [Cokaliong v. UCPB Gen.
Insurance, G.R. 146018, June 25, 2003]

Facts:
 M/V Tandag sank after a crack from her auxiliary

engine’s fuel tank caused the spurt of fuel towards the

heating exhaust manifold ignited a fire in the engine
room
Held:
 Fire is not considered a natural disaster or calamity. This

must be so as it arises almost invariably from some act of

man or by human means.
 It does not fall within the category of an act of God
unless caused by lighting or by other natural disaster or
calamity.
HIJACKING NOT AN EXEMPTING
CAUSE
 A Common Carrier can be held liable for failing to
prevent a hijacking by frisking passengers and
inspecting their baggages, especially when it had
received prior notice of such threat. (Fortune Express
v. CA, 305 SCRA 14)
 BATANGAS TRANS. v.
CAGUIMBAL, 22 SCRA 171 (1967)
 Problem: A BLTB Bus going north stopped on the
highway because a passenger wanted to alight.
Another bus was going south fast and recklessly,
trying to pass a carretela. In trying to overtake the
carretela, the driver of the approaching bus made a
miscalculation and hit the bus of BLTB. The
passenger who was then alighting was thrown out
and killed. The heirs of the victim sought recovery.
BLTB raised the defense of fortuitous event.
 Answer: BLTB is still liable. In civil law, where a
fortuitous event concurs with negligence, liability is
not extinguished. The BLTB bus was then in a ‘stop’
position but since it did not stop on the shoulder of
the road at the time the passenger was alighting, the
same can be considered negligence that concurred
with fortuitous event and did not operate to
extinguish the liability.
FIRECRACKERS EXPLODING FROM
PASSENGER BAGGAGE: CARRIER
EXCUSED (Nocum v. LTD, 30 SCRA 69)
Facts:
 One of the bus passengers had firecrackers inside his
bag. They exploded after another passenger smoked
cigarettes causing injuries to another passenger. The
injured passenger sought to recover from the carrier.
Held:
 Carrier not liable. The carrier cannot be expected to
examine and search each and every piece of baggage
of passengers, otherwise the bus may not all together
be able to leave.
 This is only true so long as the cause of the accident
was not apparent and the carrier or its employees are
not guilty of negligence.
RULE ON MECHANICAL DEFECTS
[Necesito v. Paras, 104 Phil. 75]
Facts:
 A Phil. Rabbit Bus was traveling fast. During the trip
the driver sensed that the wheels did not respond to the
movement of the steering wheel.
 The bus hit a rut (pothole) and it turned turtle, killing a
passenger.
 The mechanic of the bus company discovered that the
worn-out gear of the steering wheel had a crack, which
could not be seen by the naked eye from the outside.
 The bus company proved that the defect was
attributable to General Motors, manufacturer of the bus
and that the defect could not have been discovered by
expert mechanics.
Held:
 As a rule, a passenger is entitled to recover damages

from a carrier for injury resulting from a defect in an

appliance purchased from a manufacturer PROVIDED
IT APPEARS THAT THE DEFECT WOULD HAVE
BEEN DISCOVERED BY THE CARRIER IF IT HAD
EXERCISED THE DEGREE OF CARE WITH REGARD
TO INSPECTION AND APPLICATION OF THE
NECESSARY TESTS.
 When the defect is LATENT, i.e. cannot be discovered by

the application of any known tests, then it qualifies as a

fortuitous event to exempt the common carrier from
liability.
YOBIDO v. CA, G.R. 113003, Oct. 17,
1997
Held:
 The explosion of a new tire cannot by itself be

considered a fortuitous event to exempt the common

carrier from liability in the absence of showing on the
part of the carrier that other human factors that could
have intervened to cause the blowout of the new tire
did not in fact occur.
 Moreover, a common carrier may not be absolved

from liability in case of force majeure or fortuitous event

alone. It must still prove that it was not negligent in
causing the death or injury resulting from the
accident.
PESTANO v. SUMAUYANG, 346
SCRA 870 (2000)
Held:
 The fact that the driver was able to use a bus

with a faulty speedometer shows that the

employer was remiss in the supervision of its
employees and in the proper care of its
vehicles. Under Arts. 2180 and 2176 of the
Civil Code, owners and managers are
responsible for damages caused by their
employees.
SPS. LANDINGAN v.
PANTRANCO, 33 SCRA 284
 Facts: A married couple with two children were
passengers in a bus going to Baguio. While
negotiating Kennon Road, the motor suddenly
stopped and the bus backed down. The driver
expertly guided the bus to rest on the mountainside
of the road. But because of the noise, the two children
became frightened and they jumped out of the bus
and were killed.
 Held: The bus when it stopped, was not in perfect
running condition. It is the carrier’s duty to see to it
that the bus is always in perfect condition. Here, the
defect was not latent.
TRANS-ASIA v. CA, 254 SCRA 260
(1996)
Held:
 Before commencing the contracted voyage, the

carrier undertook some repairs on one of the vessel’s

two 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.
 Moreover, even the lone functioning engine was not

in perfect condition as sometime after it had run its

course, it conked out. Plainly, the vessel was
unseaworthy even before the voyage began.
 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 common carrier to maintain in seaworthy
condition its vessel is clear breach of its duty prescribed
under Art. 1755 of the Civil Code, which binds the
carrier to carry the passengers safely as far as human
care and foresight could provide, using the utmost
diligence of a very cautious person, with due regard for
all the circumstances.
OTHER INVALID CAUSES
 Explosion – Damage to cargo from explosion of
another cargo is not ordinarily attributable to peril of
the sea or accidents of navigation particularly where
it occurs after the vessel has ended its voyage and is
finally moored to unload;
 Worms & rats – Whenever the ship is damaged by
worms resulting in damage to cargo, the same cannot
be cited as an excuse. The same is true with respect to
damage of cargo by rats whether the cargo was
directly damaged by the rats or by water let in
through holes gnawed by rats in the ship or her
fixtures.
 Water Damage: Damage by sea water is not a valid
excuse where the water gains entrance through a port
which had been left open or insufficiently fastened on
sailing.
 Barratry: The shipowner cannot escape liability to third
persons if the cause of damage is barratry. It is an act
committed by the master or crew of the ship for some
unlawful or fraudulent purpose, contrary to their duty to
the owner. Intentional fraud or breach of trust or willful
violation of law is necessary to constitute barratry.
Barratry includes theft by the purser of a specie shipped
on board and fraudulently running the ship ashore.
OTHER CASES/BAR PROBLEMS
 Problem: P shipped a box of cigarettes to a dealer in
Naga City through Bicol Bus. When the bus reached
Lucena City, it developed engine trouble. The driver
brought the bus to a repair shop in Lucena where he was
informed by the mechanic that an extensive repair was
necessary which would at least take two days. While the
bus was in the repair shop, Typhoon Coring lashed at
Quezon Province. The cargoes inside the bus, including
Mauricio’s cigarettes, got wet and were totally spoiled.
Mauricio sued BBC for the damage to his cargoes. (Bar
1987)
 Answer: The bus company is liable. While a typhoon
is a natural disaster, the same cannot be considered
the only cause of the loss. The engine trouble is
foreseeable and could have been detected if only the
bus company exercised reasonable case. Moreover,
carrier’s employee should have secured the cargoes
while the bus was being repaired for two days.
 Problem: P boarded a Victory Liner bus bound for
Olongapo. He chose a seat at the front near the bus
driver. P told the bus driver that he had valuable items
in his bag which was placed near his feet. Since he had
not slept for 24 hours, he requested the driver to keep an
eye on the bag should he doze off during the trip. Upon
arrival at his destination, the bag was nowhere found.
 Answer: P may not hold the carrier liable. The driver
could not have set his eyes on the luggage as his
attention was on the road during the trip.
 Problem: M, a paying passenger was hit above her left
eye by a stone hurled at the bus by an unidentified
bystander as he bus was speeding through the National
Highway. The bus owner’s personnel lost no time in
bringing M to the provincial hospital where she was
confined and treated. M wants to sue the bus company
for damages and seeks your advise. (Bar 1994)
 Answer: M cannot legally hold the bus company if the
stone throwing was entirely unforeseeable and the
carrier exercised utmost diligence. However, I will also
inform her that the burden is on the carrier to prove such
exercise of due diligence. If she decides to file a case, all
that she will prove is that she was a passenger and she
was injured while on board the bus
RAYNERA v. HICENTA, 306 SCRA
102 (1999)
Held:
 Drivers of vehicles who bump the rear of another

vehicle must be presumed to be the cause of the

accident, unless contradicted by other evidence, since
the rear driver is deemed to have the last clear chance
of avoiding the accident, and therefore deemed
negligent.
Bar Problem 1992
Facts:
 Marino was a passenger on a train. Another
passenger, Juancho, had taken a gallon of gasoline
placed in a plastic bag into the same coach where
Mariano was riding. The gasoline ignited and
exploded causing injury to Marino who filed a civil
suit for damages against the railway company
claiming that Juancho should have been subjected to
inspection by its conductor.
 The railway company disclaimed liability resulting
from the explosion contending that it was unaware of
the contents of the plastic bag and invoking the right
of Juancho to privacy. A) Should the railway
company be held liable for damages? B) If it were an
airline company involved, would your answer be the
same? Explain your answer briefly.
Held:
 A) No. The railway company is not liable for damages.
This is subject to the qualification that the company
should prove that it, through the exercise of extraordinary
diligence, cannot detect the presence of gasoline. It should
be noted that in overland transportation, the common
carrier is not bound nor empowered to make an
examination on the contents of packages or bags
particularly those handcarried by passengers.
 B) No, my answer would not be the same. If an airline
company was involved, it is duty bound to inspect each
and every cargo this brought into the aircraft (R.A. 6235).
Exercise of extraordinary diligence would therefore result
in the discovery of the gasoline.
DEFENSE NO. 2: PUBLIC ENEMY
 Presupposes the existence of an actual state of war, and
refers to the government of a foreign nation at war with
country to which the carrier belongs.
 Thieves, rioters, robbers, and insurrectionists, thought at
war with social order, are not in a legal sense classed as
public enemies.
 Reason for the defense: The exception concerning the
acts of public enemies is understandable because the
government itself is called upon to protect its subjects
from loss or from such hazard and private citizens have
no power to furnish the security and protection required.
 Public enemy is also an exception under COGSA.
DEFENSE NOS. 3 & 4: ACT OR
OMISSION OF OWNER & IMPROPER
PACKING
 COGSA also provides for similar defense, i.e. carrier
shall not be liable for (1) wastage in bulk or weight or
any other loss or damage arising from inherent
defect, quality or vice of goods, (2) insufficiency of
packing, (3) insufficiency or inadequacy of the marks,
or (4) latent defect not discoverable by due diligence.
 However, common carrier are still required to
exercise due diligence to forestall or lessen the loss
notwithstanding the existence of improper packing.
SOUTHERN LINES v. CA, G.R. No.
L-16629, Jan. 31, 1962
 Facts: More than a thousand sacks of rice were
shipped through the vessel of petitioner Southern
Lines. There was shortage when the sacks of rice
were delivered to the consignee although it was
alleged that the shortage in the shipment was due to
shrinkage, leakage or spillage of the rice on account
of the bad condition of the sacks at the time it
received them.
 Held: Carrier still liable because it was aware of the
condition of the sacks when it received the goods.
VIRGENES CALVO v. UPCB GEN.
INSURANCE, G.R. 148496, Mar. 19, 2002
 Held: Art. 1734 cannot apply where the carrier
accepted the goods despite such defects.
 For this provision to apply, the rule is that if the
improper packing or, in this case, the defect in the
container is known to the carrier or his employees or
apparent upon ordinary observation, but it
nevertheless accepts the same without protest or
exception notwithstanding such condition, the carrier
is not relieved of liability for the resulting damage.
 BELGINA OVERSEAS CHARTERING &
SHIPPING v. PHIL. FIRST INSURANCE
CO., G.R. 143133, June 5, 2002
 Facts: Carrier tried to escape liability by citing the
notation ‘metal envelopes rust stained and slightly
dented’ printed in the BL as evidence that the character
of the goods or defect in the packing or the containers
was the proximate cause of the damage.
Held:
 It cannot be reasonably concluded that the damage to the
four coils was due to the condition noted on the BL.
 The aforecited exception refers to cases when goods are lost
or damaged while in transit as a result of the natural decay
of perishable goods or the fermentation or evaporation of
substances liable therefor, the necessary and natural wear
of goods in transport, defects in packages in which they are
shipped, or the natural propensities of animals. None of
these is present.
 Even if the fact of improper packing was known to the
carrier or its crew or was apparent upon ordinary
observation, it is not relieved of liability for loss or injury
resulting therefrom, once it accepts the goods
notwithstanding such condition.
DEFENSE NO. 5: ORDER OF
PUBLIC AUTHORITY
 Requisite: Such public authority must had power to
issue the order.
GANZON v. CA & TUMAMBING, G.R.
L-48757, May 30, 1988
 Facts: Tumambing contracted the service of Ganzon
to haul 305 tons of scrap iron from Mariveles, Bataan
to Manila on board LCT Batman. While loading
about half of the total cargo, the elected Mayor
arrived and demanded P5,000 from Tumambing. The
latter refused hence was shot and later hospitalized.
 After sometime, the loading resumed. But, the Acting
Mayor accompanied by 3 policemen order the
captain to dump some of the scrap iron at sea and the
rest were brought to by the former, which issued a
receipt in behalf of the municipality.
Held:
 The intervention of the municipal officials was not 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 fulfillment of the obligation is

not considered force majeure.

DEFENSES IN CARRIAGE OF
PASSENGERS
 Art. 1759: Common carriers are liable for the death of
or injuries to passengers through the negligence or
willful acts of the former’s employees, although such
employees may have acted beyond the scope of their
authority or in violation of the orders of the common
carriers.
 The liability of the common carriers does not cease
upon proof that they exercised all the diligence of a
good father of a family in the selection and
supervision of their employees.
 Art. 1763: A common carrier is responsible for the
injuries suffered by a passenger on account of the willful
acts or negligence of other passengers or of strangers, if
the common carrier’s employees through the exercise of
the diligence of a good father of a family could have
prevented or stopped the act or omission
CARRIER LIABLE FOR ACTS OF
ITS EMPLOYEES
 Unlike in quasi-delict, a common carrier cannot escape
liability by claiming the he exercised due diligence in
the selection and supervision of the employee.
 It is not a defense that the employee acted beyond the
scope of his authority because the riding public is not
expected to inquire from time to time before they
board the carrier whether or not the driver or any other
employee is authorized to drive the vehicle or that said
driver is acting within the scope of his authority and
observing the existing rules and regulations required
of him.
 Willful acts of the employees include theft.
YU CON v. IPIL, GR No. L-10195,
Dec. 29, 1916
Held:
 It is well and good that the shipowner be not held

criminally liable for such crimes or quasi-crimes; but

he cannot be excused from liability for the damage
and harm which, in consequence of those acts, may
be suffered by the third parties who contracted with
the captain, in his double capacity of agent and
subordinate of the shipowner himself.
 In maritime commerce, the shippers and passengers in
making contracts with the captain do so through the
confidence they have in the shipowner who appointed
him; they presume that the owner made a most careful
investigation before appointing him, and above all, they
themselves are unable to make such an investigation,
and even though they should do so, they could not
obtain complete security, inasmuch as the shipowner
can, whenever he sees fit, appoint another captain
instead.
 The shipowner is in the same case with respect to the
members of the crew, for, though he does not appoint
directly, he expressly or tacitly, he contributes to their
appointment.
 On the other hand, if the shipowner derives profits from
the results of the choice of the captain and the crew,
when the choice turns out successful, it is also just that
he should suffer the consequences of an unsuccessful
appointment, by application of the rule of natural law
contained in the Partidaz, viz., that he who enjoys the
benefits derived from a thing must likewise suffer the
losses that ensue therefrom.
3 REASONS UNDERLYING RULE
[Art. 1759, NCC]
 The special undertaking of the carrier requires that it
furnish its passenger that full measure of protection
afforded by the exercise of the high degree of care
prescribed by the law, inter alia, from violence and
insults at the hands of strangers and other
passengers, but all, from the acts of the carrier’s own
servants charged with the passenger’s safety;
 Said liability of the carrier for the servant’s violation of
duty to passengers, is the result of the former’s confiding
in the servant’s hands the performance of his contract to
safely transport the passenger, delegating thereiwth the
duty of protecting the passenger with the utmost care
prescribed by law; and
 As between the carrier and the passenger, the former
must bear the risk of wrongful acts or negligence of the
carrier’s employees against passengers, since it, and not
the passengers, has power to select and remove them.
(Maranan v. Perez, infra.)
PAL v. CA, 275 SCRA 621 (1997)
Held:
 Even assuming arguendo that airline passengers

have no vested right to hotel accommodation

allowances in case a flight is cancelled due to force
majeure, nevertheless the airline company would be
liable for damages when its employees blatantly
refused to accord the so-called amenities equally to
all its stranded passengers, and there was no
compelling or justifying reason advanced for such
discriminatory and prejudicial conduct.
BACHELOR EXPRESS v. CA, G.R.
85691, July 31, 1990
Held:
 The act of passenger stabbing another passenger in

the bus is considered as force majeure.

 However, to be absolved from liability in the case of

force majeure, the common carrier must still prove that

it was not negligent in causing the injuries resulting
from such accident. Otherwise, it would still be held
liable.
BARITUA v. MERCADE (350 SCRA
86)
Held:
 A common carrier, by the nature of its business and

for reasons of public policy, is bound to carry

passengers safely as far as human care and foresight
can provide. It is supposed to do so by using the
utmost diligence of very cautious persons, with due
regard for all the circumstances.
 In case of death or injuries to passengers, it is

presumed to have been at fault or to have acted

negligently, unless it proves that it observed
extraordinary diligence as prescribed in Arts. 1733 and
1755 of the Civil Code.
FORTUNE EXPRESS v. CA,
305 SCRA 14
Held:
 A common carrier can be held liable for failing to

prevent a hijacking by frisking passengers and

inspecting their baggage, especially when it had
received prior notice of such threat.
Note: Compare with Nocum v. LTD, infra.
NOCUM v. LTD, G.R. L-23733, Oct.
31, 1969
 Facts: One of the bus passengers had firecrackers
inside his baggage, which ignited when another
passenger smoked cigarettes, causing injuries to
another passenger. The injured passenger sought to
recover damages from the carrier.
 Held: Carrier is not liable. The reason is that the carrier
cannot be expected to examine and search each and
every piece of baggage of passengers, otherwise the
bus may not altogether be able to leave.
 Note: This in only true so long as the cause of the
accident was not apparent and the carrier or its
employees are not guilty of negligence.
 FABRE v. CA, 259 SCRA 426 (1996)
[on due diligence in selection and
supervision of employees]

Held:
 For a bus company, due diligence in selection of

employees is not satisfied by finding that the applicant

possessed a professional driver’s license. The employer
should also examine the applicant for his qualifications,
experience and record of service.
 Due diligence in supervision, on the other hand, requires

the formulation of rules and regulations for the guidance

of employees and issuance of proper instructions as well
as actual implementation and monitoring of consistent
compliance with the rules.
CARRIER ALSO LIABLE FOR ACTS OF
STRANGERS AND OTHER
PASSENGERS
 But subject to defense of EXERCISE BY THE
CARRIER OF DUE DILIGENCE TO PREVENT OR
STOP THE ACT OR OMISSION.
 Defense is not available if the carrier’s driver allowed
another person who is not an employee or a regular
driver to take over the task of driving the vehicle.
MARANAN v. PEREZ, 20 SCRA 413
 Facts: A taxi driver tried to hold-up his passenger, who
resisted and was killed. His heirs sued based on culpa
contractual against the taxi company, which denied
liability on the ground that the driver acted beyond the
scope of his authority.
 Held: It may be true that the taxi driver was acting
beyond the scope of his authority, but Art. 1759 of the
Civil Code expressly provides that the owner is liable for
negligence of the employees even if such acts are beyond
the scope of his authority.
 Note: This case repealed the doctrine in De Gillaco v.
Manila Railroad, 97 Phil. 884 which absolved the carrier
for liability caused by its security guard who killed one
of its passengers while already off-duty.
 MANILA RAILROAD v.
BALLESTEROS, 6 SCRA 641

 Facts: A bust of the Manila Railroad reached one of

the towns along its route. The bus driver stopped the
bus and went down to answer a call of nature. While
the driver was outside the bus, one of the passengers
went into the driver’s seat and drove off the bus. It
met an accident causing injuries to other passengers.
 Held: Carrier is liable. Its driver is guilty of
negligence in leaving the key on the ignition. Had he
taken the key with himself, the passenger could not
have driven off the bus. The carrier is liable for the
injuries of other passengers when the carrier’s
employees could have prevented the injuries through
the exercise of the diligence of a good father of a
family.
RULES ON PASSENGER
BAGGAGE
 Art. 1754: The provision of Articles 1733 to 1753 shall
apply to the passenger’s baggage which is not in his
personal custody or in that of his employee. As to other
baggage, the rules in Articles 1998 and 2000 to 2003
concerning the responsibility of hotel-keepers shall be
applicable.
 Art. 1998: The deposit of effects made by the travelers in
hotels or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for them as
depositaries, PROVIDED THAT NOTICE WAS GIVEN
TO THEM, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.
 Art. 2000: The responsibility referred to in the two
preceding articles shall include the loss of, or injury to
the personal property of the guests caused by the
servants or employees of the keepers of hotels or inns as
well as strangers; but not that which may proceed from
any force majeure. The fact that travelers are constrained
to rely on the vigilance of the keeper of the hotels or inns
shall be considered in determining the degree of care
required of him.
 Art. 2001: The act of a thief or robber, who has entered
the hotel is not deemed force majeure, unless it is done
with the use of arms or through an irresistible force.
 Art. 2002: The hotel-keeper is not liable for compensation
if the loss is due to the acts of the guests, his family,
servants or visitors, or if the loss arises from the
character of the things brought into the hotel.
 Art. 2003: The hotel-keeper cannot free himself from
responsibility by the posting notices to the effect that he
is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest
whereby the responsibility of the former as set forth in
Articles 1998 to 2001 is suppressed or diminished shall
be void.
SARKIES TOURS PHIL. v. CA, 280
SCRA 58
Held:
 Where a common carrier accepts its passenger’s

baggage for transportation and even had it placed in

the vehicle by its own employee, its failure to collect
the freight charge is the common carrier’s own
lookout, and the common carrier is responsible for
the consequent loss of the baggage.
PAL v. IAC, 216 SCRA 334
 Held:
 Although the baggage of a passenger was eventually
delivered to him, that did not constitute a case of
mere delay in delivery since the baggage was not
delivered at all to the passenger for the purpose of
the trip in contravention of a common carrier’s
undertaking to transport the goods from the place of
embarkation to the ultimate point of destination.
 The non-delivery of luggage during the entire length
of passenger’s stay abroad is a breach of carrier’s
obligation.
OBLIGATION OF SHIPPER &
PASSENGER
 The shipper and passenger have the corresponding
obligation to exercise due diligence in avoiding
damage to the goods or injury to himself.
 However, contributory negligence on the part of the
passenger is not a defense that will excuse the carrier
from liability. It will only mitigate such liability.
 BUT IF HIS CONTRIBUTORY NEGLIGENCE IS THE
SOLE AND PROXIMATE CAUSE, CARRIER IS
ABSOLVED.
WHAT IS PROXIMATE CAUSE
 Proximate cause is that which, in the natural and
continuous sequence, unbroken by an efficient
intervening cause, produces injury and without
which the result would not have occurred. [Sabena
Belgian World Airlines v. CA, 255 SCRA 38]
 Art. 1741: If the shipper or owner merely contributed to
the loss, destruction or deterioration of the goods, the
proximate cause thereof being the negligence of the
common carrier, the latter shall be liable in damages,
which however, shall be equitably reduced.
 Art. 1761: The passenger must observe the diligence of a
good father of a family to avoid injury to himself.
 Art. 1762: The contributory negligence of the passenger
does not bar recovery of damages for his death or
injuries, if the proximate cause thereof is the negligence
of the common carrier, but the amount of damages shall
be equitably reduced.
ISAAC v. AMMEN TRANSPORT,
101Phil. 1046 (On contributory
negligence)
 Facts: The road on which the bus was passing was wide
enough for 2 buses only. A passenger placed his elbow
outside the window railing of the bus. An oncoming bus
hit the passenger’s elbow, injuring it in such a manner
that it had to be amputated.
 Held: Carrier is not liable because the proximate cause of
the injury was the passenger’s own contributory
negligence. This is a complete defense to the common
carrier, and absolves it from liability.
 Note: While contributory negligence will only serve to
diminish the liability of the carrier under Art. 1761, NCC,
the same will not apply if the proximate cause of his
injury is his contributory negligence and not that of
carrier’s negligence.
CERVANTES v. CA, GR 125138, Mar.
2, 1999
 Facts: PAL issued a round trip ticket to Petitioner
which expressly provides for an expiry date of 1-year
from issuance. A separate written agreement
provides that the 1-year period may be extended
provided that the petitioner sends a letter to the
airline’s counsel asking for extension. Petitioner
failed to do the terms in the agreement.
 Held: Petitioner cannot sue PAL for breach when he
was not allowed to board. Although he was booked
for the flight through PAL’s agent, the latter was not
authorized to change the agreement.
DOCTRINE ON AVOIDABLE
CONSEQUENCES
 The party suffering loss or injury must exercise the
diligence of a good father of a family to minimize the
damages resulting from the act or omission in
question. (Art. 2203, NCC)
DOCTRINE OF LAST CLEAR CHANCE
INAPPLICABLE TO PASSENGER
CLAIM
 The principle of last clear chance applies in a suit
between the owners and drivers of colliding vehicles.
 It does not arise where a passenger demands
responsibility from the carrier to enforce its
contractual obligations.
 It would be inequitable to exempt the negligent
driver of the jeepney and its owner on the ground
that the other driver was likewise guilty of
negligence.
DOCTINE ON ASSUMPTION OF RISK
 That passengers must take such risks incident to the
mode of travel he takes since carriers are not insurers
of the lives of their passengers.
 In air travel, adverse weather conditions or extreme
climactic changers are some of the perils involved,
the consequence of which the passenger must assume
or expect. (Japan Airlines v. CA, GR No. 118664, Aug.
7, 1998).
 But there is no assumption of risk in case the
passenger voluntarily boarded a carrier that was
overloaded.
YOBIDO v. CA, 281 SCRA 1 (1997)
Held:
 As a rule, when a passenger boards a common carrier, he

takes the risks incidental to the mode of travel he has taken,

since after all, a carrier is not an insurer of the safety of its
passengers and is not bound absolutely and at all e vents to
carry them safely and without injury.
 However, when a passenger is injured or dies while

traveling, the law under Art. 1755 of the Civil Code

presumes that the common carrier is negligent, and
therefore the burden of proof is upon such common carrier
to prove that it has exercised the extraordinary diligence
required under the law to avoid damage or injury to the
passenger.
CALALAS v. CA, G.R. 122039, May
31, 2000
 Facts: A student took a passenger jeepney operated
by petitioner. As the jeepney was filled to capacity of
about 24 passengers, the student was given by the
conductor an extension seat. The jeepney stopped on
its way to let a passenger off and the student gave
way to the outgoing passenger. Just as she was doing
so, a truck bumped the rear end portion of the
jeepney. She suffered injuries as a result.
Held:
 Construing the taking of an extension seat as an implied

assumption of risk is akin to arguing that the injuries to

the many victims of the tragedies in our seas should not
be compensated merely because those passengers
assumed a greater risk of drowning by boarding an
overloaded ferry.
COMPANA MARITIMA v. CA &
CONCEPCION, G.R. L-31379, Aug. 29, 1988

Facts:
 Respondent Concepcion loaded his construction

equipment aboard MV Cebu to Cagayan de Oro City.

 Upon arrival, one of his cargoes, a payloader fell on

the pier while being unloaded and damaged. He

claimed for replacement of the unit. Petitioner denied
the claim contending that Respondent furnished it
with inaccurate weight of his equipment. The excess
weight caused the crane cables to snap.
 Held:
 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, said act constitute a contributory
circumstance to the damage which mitigates the liability
of petitioner.
 We find equitable the conclusion of the CA reducing the
recoverable amount of damages by 20% or 1/5 of the
value of the payloader.
CANGCO v. MANILA RAILROAD CO., G.R.
12191, Oct. 14, 1918

Facts:
 Cangco was clerk of Manila Railroad with a monthly

wage of P25. In going to his workplace daily, he rode

on the trains to from his town of San Mateo, Rizal.
 One day while returning home and while the train

was slowing down alighted from his coach but one of

feet came in contact with a sack of watermelon
causing him to fell violently on the platform. He
sustained serious injuries.
 Held:
 The test by which to determine whether the passenger
has been guilty of negligence in attempting to alight
from a moving railway train, is that of ordinary
reasonable care.
 It is to be considered whether an ordinarily prudent
person, of the age, sex and condition of the passenger,
would have acted as the passenger acted under the
circumstances disclosed by the evidence.
 This care has been defined to be, not the care which may
or should be used by the prudent man generally, but the
care which a man of ordinary prudence would use under
similar circumstance, to avoid injury.
 Or, if we prefer to adopt the mode of exposition used by
this court in Picart v. Smith (37 Phil. 809), we may say
that the test is this: Was there anything in the
circumstances surrounding the plaintiff at the time he
alighted from the train which would have admonished a
person of average prudence that to get off the train
under the conditions then existing was dangerous?
 If so, the plaintiff should have desisted from alighting;
and his failure so to desist was contributory negligence.
 Our conclusion is that the conduct of the plaintiff in
undertaking to alight while the train was yet slightly
under way was not characterized by imprudence and
that therefore he was not guilty of contributory
negligence.
 Plaintiff was earning P25 a month. His expectancy of life,
according to the standard mortality tables, is
approximately 33-years.
 We are of the opinion that a fair compensation for the

damage suffered by him for his permanent disability is

the sum of P2,500, and that he is also entitled to recover
of defendant the additional sum of P790.25 for medical
attention, etc.
Note: Net Earning Capacity = Life Expectancy [2/3 x 80
less the age of the plaintiff] x Gross Annual Income
less Living Expenses [computed @ 50% of Gross
Annual Income]
 DEL PRADO v. MANILA ELECTRIC
CO., G.R. 29462, Mar. 7, 1929
Facts:
 Manila Electric operated a street in Manila for

conveyance of passengers. While still moving, plaintiff

ran across the street to catch the car, his approach
being made from the left. The car was of the kind
having entrance and exit at either end, and the
movement of plaintiff was so timed that he arrived at
the front entrance of the car at the moment when the
car was passing.
 Upon approaching the car, plaintiff raised his hand as

an indication to the motorman of his desire to board. In

response, the latter eased up a little, without stopping.
 Upon this the plaintiff seized, with his left hand, the
front perpendicular handpost, at the same time placing
his left foot upon the platform.
 However, before the plaintiff’s position had become
secure, and even before his raised right foot had reached
the platform, the motorman applied power which
caused plaintiff’s foot to slip. He fell to the ground and
his right foot crushed by the moving car.
Held:
 Although the motorman was not bound to stop to let the
plaintiff on, it was his duty to do no act that would have
the effect of increasing the plaintiff’s peril while he was
attempting to board the car. The premature acceleration
of the car was a breach of this duty.
 As to contributory negligence of plaintiff, it should be
treated as a mitigating circumstance.
 It is obvious that the plaintiff’s negligence in attempting
to board the moving car was not the proximate cause of
the injury. The direct and proximate cause was the act of
appellant’s motorman in putting on the power
prematurely.
DUTY TO PAY FREIGHT
 Rates charged by vessels for hire is now deregulated
(R.A. 9295).
 However, on overland transportation, deregulated
rates are applied only to aircon buses.
 Person to pay: The shipper or the consignee if carrier
and shipper stipulates in the BL.
 Time to pay: NCC is silent but Art. 374 provides for
24-hr period to pay the freight.
CARRIER’S LIEN
 If consignee fails to pay the freight within the period
prescribed, the carrier may exercise it lien in
accordance with Art. 375 of the Code of Commerce.
 Art. 375: The goods transported shall be especially
bound to answer for the cost of transportation and for
the expenses and fees incurred for them during their
conveyance and until the moment of delivery.
 This special right shall PRESCRIBED EIGHT (8) DAYS
AFTER THE DELIVERY HAS BEEN MADE, and once
prescribed, the carrier shall have no other action that
that corresponding to him as an ordinary creditor.
DEMMURRAGE
 In its strict sense, it is the compensation provided for
in the contract of affreightment for the detention of
the vessel beyond the time agreed on for loading and
unloading. It is essentially a claim for damages for
failure to accept delivery.
 In its broad sense, every improper detention of a
vessel may be considered demurrage.
 Liability for demurrage, viewed in its strict sense, exists
only when expressly stipulated in the contract.
 In its broader sense, damages in the nature of demurrage
are recoverable for a breach of the implied obligation to
load or unload the cargo with reasonable dispatch, but
only by the party to whom the duty is owed and only
against one who is a party to the shipping contract.
Notice of arrival of the vessel or conveyance, or their
placement for purposes of unloading is CONDITION
PRECEDENT to the right to collect demurrage charges.
Chapter 3
EXTRAORDINARY DILIGENCE
RATIONALE IN THE REQUIREMENT
OF UTMOST DILIGENCE
 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 circumstances.
 This extraordinary diligence required of common carriers is
calculated to protect the passengers from the tragic mishaps
that frequently occur in connection with rapid modern
transportation.
 This high standard of care is imperatively demanded by the
preciousness of human life and by the consideration that
every person must in every way be safeguarded against all
injury. [Report of the Code Commission, pp. 35-36]
HOW DUTY IS COMPLIED WITH
 Source of common carrier’s legal liability is contract
of carriage binding itself to carry the passengers
safely as far as human care and foresight can provide,
using the utmost diligence of a very cautious person,
with due regard for all the circumstances.
 It is not enough to exercise ordinary diligence; what
is required is extraordinary diligence.
 There is, however no fixed definition on what
extraordinary diligence means. In most cases,
exercise of extraordinary diligence are given meaning
by way of illustrative examples.
EXTRAORDINARY DILIGENGE
APPLICALBE TO THIRD PERSONS
 Primarily, the duty is owed by the common carrier to
its passengers and cargoes.
 But, the duty also extends to:
- the members of the crew or complement;
- the pedestrians; and
- even to the owners and passengers of other vehicles.
KAPALARAN BUS LINES v.
CORONADO, GR 85331, Aug. 25, 1989
 Judicial notice is made on the gross negligence and the
appalling disregard of the physical safety and property
of other so commonly exhibited today by the drivers of
passenger buses and similar vehicles on our highways.
 In requiring the highest possible degree of diligence
from common carriers and crating a presumption of
negligence against them, the law compels them to curb
the recklessness of their drivers.
 While the immediate beneficiaries of the standard of
extraordinary diligence are, of course the passengers
and owners of cargo carried by a common carrier, they
are not the only persons that the law seeks to benefit.
 For if common carriers carefully observed the statutory
standard of extraordinary diligence in respect of their
own passengers,
 They cannot help BUT SIMULTANEOUSLY BENEFIT
PEDESTRIANS AND THE OWNERS AND
PASSENGERS OF OTHER VEHICLES who are equally
entitled to the safe and convenient use of our roads and
highways.
 The law seeks to stop and prevent the slaughter and
maiming of people (whether passenger or not) and the
destruction of property (whether freight or not) on our
highways by buses, the very size and power of which
seem often to inflame the minds of their drivers.
 EFFECT ON STIPULATION LOWER
THAN THE REQUIRED DEGREE
On Goods:
 Art. 1744: A stipulation between the common carrier and
the shipper or owner limiting the liability of the former
for the loss, destruction, or deterioration of the goods to
a degree less than extraordinary diligence shall be valid,
provided it be:
1. In writing, signed by the shipper or owner;
2. Supported by a valuable consideration other than
the service rendered by the common carrier; and
3. Reasonable, just and not contrary to public policy.
On passengers in general:
 Art. 1757: The responsibility of a common carrier for the
safety of passengers as required in Articles 1733 and
1755 cannot be dispensed with or lessened by
stipulation, by the posting of notices, by statements on
tickets, or otherwise.
On gratuitous passengers:
 Art. 1758: When a passenger is carried gratuitously, a
stipulation LIMITING THE COMMON CARRIER’S
LIABILITY for negligence is valid, BUT NOT FOR
WILLFUL ACTS OR GROSS NEGLIGENCE.
The reduction of fare does not justify any limitation
of the common carrier’s liability.
LARA v. VALENCIA,
GR 9907, June 30, 1958
Facts:
 The deceased Lara was inspector of the BFD at Davao
City. Defendant Valencia was engaged in the business of
exporting logs from his timber concession in Cotabato.
Lara went to Valencia’s area upon instruction of his chief
to classify the logs of Defendant.
 After six days of work, Lara, who was then eager to
return home asked Valencia if he could take him in his
pick-up truck to which defendant agreed.
 Lara was with the five other passengers who were with
Lara at the back of the pick-up. Lara was seated on a bag.
 While the pick-up was cruising along Km 96, Lara
accidentally fell from the pick-up and died.
 After six days of work, Lara, who was then eager to
return home asked Valencia if he could take him in
his pick-up truck to which defendant agreed.
 Lara was with the five other passengers who were
with Lara at the back of the pick-up. Lara was seated
on a bag.
 While the pick-up was cruising along Km 96, Lara
accidentally fell from the pick-up and died.
Held:
 Deceased were merely accommodation passengers who

paid nothing for the service and so they can be

considered invited guests within the meaning of the law.
 The rule is established by the weight of authority that

the owner or operator of an automobile owes the duty to

an invited guest to exercise reasonable care in its
operation, and not unreasonably to expose him to
danger and injury by increasing the hazard of travel.
 Note: Lara is not controlling upon common carriers since

Valencia was a private carrier who accommodated Lara.

EXTRAORDINARY DILIGENCE IN
CARRIAGE BY SEA
WARRANTY OF VESSEL’S
SEAWORTHINESS
 First step in complying with the required
extraordinary degree of vigilance.
 Seaworthiness of vessel is impliedly warranted under
the Insurance Code and the Carriage of the Goods by
the Sea Act (COGSA).
 Shippers when transacting with common carriers are
not expected to inquire into the vessel’s
seaworthiness, genuineness of its license and
compliance with all maritime laws. Also true with
passengers.
 The burden of proof on seaworthiness is with the
carrier.
SEAWORTHINESS DEFINED
 Generally, seaworthiness is that strength, durability
and engineering skill made a part of s ship’s
construction and continued maintenance, together
with a competent and sufficient crew, which would
withstand the vicissitudes and dangers of the of the
elements which might reasonably be expected or
encountered during her voyage without loss or
damage to her particular cargo. [Delsan Transport
Lines v. CA, GR 127897, Nov. 15, 2001]
STATUTORY PROVISIONS ON
SEAWORTHINESS
 Section 116, Code of Commerce: A warranty of
seaworthiness extends not only to the condition of
the structure of the ship itself, but requires that it be
properly laden, and provided with a competent
master, a sufficient number of competent officers and
seamen, and the requisite appurtenances and
equipment, such as ballasts, cables and anchors,
cordage and sails, food, water, fuel and lights, and
other necessary or proper stores and implements for
the voyage.
 Sec. 119, Insurance Code: A ship is seaworthy for the
purpose of an insurance upon the ship may,
nevertheless, by reason of being unfitted to receive the
cargo, be unseaworthy for the purpose of insurance
upon the cargo.
 Sec. 3[1] COGSA: The carrier shall be bound before
and at the beginning of the voyage to exercise due
diligence to –
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling
chambers, and all other parts of the ship in which
goods are carried, fit and safe for their reception,
carriage and preservation.
 Sec. 3[2] COGSA: The carrier shall properly and
carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.
SUMMATION OF THE REQUIREMENT
ON SEAWORTHINESS
 A vessel must have such degree of fitness which an
owner who is exercising extraordinary diligence
would require his vessel to have at the
commencement of the voyage, having regard to all
the probable circumstances of it.
 Seaworthiness includes fitness of the vessel itself to
withstand the vicissitudes of the voyage, fitness of
the vessel to store the cargoes and accommodate
passengers to be conveyed and adequately equipped
with and properly manned with sufficient and
competent officers and crew.
FITNESS OF VESSEL: HOW
PROVED
 It was drydocked and inspected by the PGC before it
proceeded to its destination.
 PGC cleared it as searworthy, fitted, equipped and

met all the requirement for trading.

Note: A ship will not normally sink if the sea is
moderate and if it is seaworthy or if the carrier and
its employees were not negligent. [Loadstar Shipping
v. CA, G.R. 131621, Sept. 28, 1999]
CARGOWORTHY
 Ship must not only be seaworthy. IT MUST ALSO BE
CARGO WORTHY.
 To be cargo-worthy, the ship must be an efficient
storehouse for her cargo.
 Cargo-worthiness means that the vessel must be
sufficiently strong and equipped to carry the
particular kind of cargo which she has contracted to
carry and her cargo must be so loaded that it is safe
for her to proceed on her voyage. [Lord Chorley and
O.C. Siles, Shipping Law, 6th Ed., p. 120]
ADEQUATELY EQUPPED AND
PROPERLY MANNED
 Competency of Masters or Captains is required.
 The rule is violated if a carrier embarked on a voyage
with unlicensed captain or patron.
 It cannot claim to have exercised extraordinary
diligence by placing a person whose navigational
skill are questionable, at the helm of the ship.
 Qualifications of Masters, Captains and Crew of
ships are governed by the Philippine Merchant Rules
and Regulations (PMRR).
 Art. 609, Code of Commerce: Captains, masters or patrons
of vessels must be Filipinos, have legal capacity to contract
in accordance with this code, and proven skill, capacity,
and qualifications necessary to command and direct the
vessel, as established by marine or navigation laws,
ordinances, or regulations, and must not be disqualified
according to the same for the discharge of the duties of the
position
If the owner of a vessel desires to be the captain thereof,
without having the legal qualifications therefor, he shall
limit himself to the financial administration of the vessel,
and shall instrust the navigation to a person possessing the
qualifications required by said ordinances and regulations.
OVERLOADING
 Duty to exercise due diligence also includes the duty
to take passengers or cargoes that are within the
carrying capacity of the vessel.
 A carrier fails in this requirement where it allowed
on 1,004 passengers when it total passenger capacity
is only 864 [Negros Navigation v. CA, G.R. 110398, Nov.
7, 1997]
REQUIREMENT OF PROPER
STORAGE
 It is not enough that vessel must be suited for the
cargo it contracted. It must also be properly stored.
 Hence, where it was found out that the cause of
explosion was due to the improper storage of an
acetylene cylinder which caught fire which was
placed in the accommodation area near the engine
room instead at the storage, the common carrier was
held to be negligent. [Phil. Home Assurance Corp. v.
CA, G.R. 106999, June 20, 1996]
LIMITED LIABILITY RULE
 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.
 ‘No vessel, no liability’ rule
NEGLIGENCE OF CAPTAIN &
CREW
 If the negligence of the captain or crew can be traced
to the fact that they are incompetent and that the ship
owner was negligent in their selection, the Limited
Liability Rule will not apply.
 If simple negligence only by the captain or crew, who
are otherwise competent to discharge their duties, at
the time of the accident, the rule applies.
RULES ON PASSENGER SAFETY
AND COURTESY DUE HIM
 Failure to comply with MARINA rules and
regulations constitutes negligence on the part of the
captain and crew and of the shipowner.
 MARINA Memorandum Circular 112 provides that
‘passengers have the right to be treated by the carrier
and its employees with kindness, respect, courtesy
and due consideration. The are entitled to be
protected against personal misconduct, injurious
language, indignities and abuses from the carrier and
its employees.
MEMORANDUM CIRCULAR NO. 114

Provisions on:
 Emergency exits

 Handling of Handcarried Luggage

 Lifevests or Lifejackets

 Watertight doors, potholes, ramps and manholes

 Wearing of proper prescribed uniform by Ship’s

officers and crew.

 Other safety measures
DEVIATION
 Art. 359, CoC: If there is an agreement between the
shipper and the carrier as to the road over which the
conveyance is to be made, the carrier may not change the
route, unless it be by reason of force majeure; and should
he do so without this cause, he shall be liable for all the
losses which he goods he transports may suffer from any
of other cause, beside paying the sum which may have
been stipulated for such case.
 When on account of said cause of force majeure, the
carrier had to take another route which produced an
increase in transportation charges, he shall be
reimbursed for such increase upon formal proof thereof.
TRANSSHIPMENT
 The act of taking cargo out of one ship and loading it in
another; or
 The transfer of goods from the vessel stipulated in the
contract of affreightment to another vessel before the
place of destination named in the contract has been
reached; or
 The transfer for further transportation from one ship or
conveyance to another.
Notes: Improper deviation and Transshipment without
consent of the shipper is violation of the required
standard of care. Improper deviation may be a valid
ground to deny a marine insurance claim; while
transshipment of freight without legal excuse is a
violation of the contract of carriage.
EXTRAORDINARY DILIGENCE IN
CARRIAGE BY AIR
 AIRWORTHINESS
 Airworthiness means that an aircraft, it engines,
propellers, and other components and accessories, are of
proper design and construction, and are safe for air
navigation purposes, such design and construction being
consistent with accepted engineering practice and in
accordance with aerodynamic laws and aircraft science.
(R.A. 779)
 IT MUST BE PROVIDED WITH COMPETENT AND
WELL TRAINED CREW.
- Assigning a pilot inflicted with a tumor for a long time
fails in the requirement.
 IT MUST FOLLOW THE DESIGNATED ROUTE.
- A plane did not take the designated route resulting to
the tragic crash. The tragic crash could have been
avoided had it taken said designated route. (Abeto v.
PAL, 115 SCRA 489)
 IT MUST INSPECT ALL CARGO AND/OR BAGGAGE
FOR LOADING. (R.A. 6235)
Saludo v. CA, G.R. 95536, Mar. 23,
1992
Held:
 Where a common carrier has reasonable ground to

suspect that the offered goods are of a dangerous or

illegal character, the carrier has the right to know the
character of such goods and to insist on an
inspection, if reasonable and practical under the
circumstances, as a condition of receiving and
transporting such goods.
Northwest Airlines v. Laya, G.R.
146020, May 29 2002
Held:
 Thorough inspection of the briefcase of Plaintiff as

deemed justified pursuant to the directive of the FAA

of the US brought about by the tragic event that
unfolded on Sept. 11, 2001.
 The fact that Plaintiff was greatly inconvenienced by

the fact that his attache case was subjected to further

inspection does not warrant imposition of liability
because he was not singled out and discriminated by
the employees of the carrier.
 Protection of passengers must take precedence over
convenience. Nevertheless, the implementation of the
security measures must be ATTENDED BY BASIC
COURTESIES.
 Hence, the carrier was made liable not for implementing
the security measure BUT FOR TREATING THE
PLAINTIFF IN A RUDE, BRUSQUE, ARROGANT AND
DOMINEERING manner that caused his humiliation.
PAL v. CA & ZAPATOS, GR 82619,
Sept. 15, 1993
Facts:
 On Aug. 2 1976, Zapatos, together with 20 other

passengers, boarded PAL flight 477 from Cebu-

Ozamis. The flight route was Cebu-Ozamis-Cotabato.
 While on flight, the pilot received a radio message

that the Ozamis airport was closed due to heavy

rains and inclement weather and that the plane
should instead proceed to Cotabato.
 Upon arrival at Cotabato, PAL agent informed the
passengers of their option to return to Cebu on-board
Flight 560 on the same day and take the next available
flight to Ozamis City on Aug. 5, 1975. Zapatos chose the
option offered but was not accommodated on the return
flight to Cebu because he was checked in as passenger
no. 9 on Flight 477. He insisted to be given priority over
confirmed passengers but the station agent refused.
 He tried to stop the departure of Flight 560 as his
personal belongings, including a package containing a
camera was still on board.
 Held:
 The position taken by PAL in this case clearly illustrates
its failure to grasp the exacting standard required by
law. PAL’s diversion of its flight due to inclement
weather was a fortuitous event.
 Nonetheless, such occurrence did not terminate it
contract with its passengers. Being in the business of air
carriage and the sole one to operate in the country, PAL
is deemed equipped to deal with situations as in the case
at bar.
 What we said in one case once again must be stressed,
i.e. the relation of carrier and passenger continues until
the latter has been landed at the port of destination and
has left the carrier’s premises.
 Hence, PAL necessarily would still have to exercise
extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until
they have reached their final destination.
ABETO v. PAL, GR L-28692, July 30,
1982
 Facts: Judge Abeto boarded PAL flight from Iloilo to
Manila on Nov. 23, 1960. The plane did not reach
Manila. After 3 days, it was ascertained that it
crashed at Mt. Baco, Mindoro. All passengers
perished.
 Held: It is clear that the pilot did not follow the
designated route for his flight between Romblon and
Manila. The weather was clear and he was supposed
to cross airway “Amber I” over Romblon. Instead, he
made a straight flight to Manila in violation of any
traffic rules.
 Baliwag Transit Inc. v. CA (256 SCRA
746)
Held:
 A common carrier breaches its contract of carriage when
it failed to deliver its passengers to their destination safe
and sound. A common carrier is bound to carry its
passengers safely as far as human care and foresight can
provide, using the utmost diligence of a very cautious
person, with due regard for all the circumstances.
 In contract of carriage, it is presumed that the
common carrier was at fault or was negligent when a
passenger dies or is injured.
 Unless presumption is rebutted, the court need not
even 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 as
prescribed in Arts. 1733 and 1755 of the Civil Code.
Chapter 4

BILL OF LADING
CONCEPT OF BL
 A bill of lading, like a passage ticket, is not necessary
for the perfection of a contract of carriage.
 Art. 354, Code of Commerce: In the absence of a bill of
lading, disputes shall be determined by the legal
proofs which the parties may present in support of
their respective claims, according to the general
provisions established in this Code for commercial
transaction.
 Note: If involving common carrier, disputes without
BL is governed by the Civil Code. In respect to
electronic commerce, it is governed by R.A. 8792 of the
Electronic Commerce Act.
BILL OF LADING DEFINED
 A written acknowledgment, signed by the master of a
vessel or other authorized agent of the carrier, that he
has received the described goods from the shipper, to
be transported on the expressed terms to the
described place of destination, and to be delivered
there to the designated consignee or parties. [70 Am
Jur 2d 924]
KINDS OF BILLS OF LADING
 Negotiable or Non-negotiable Bill of Lading
 Clean Bill of Lading or Foul Bill of Lading
 On-board Bill or Received-For-Shipment Bill of
Lading
 Spent Bill of Lading
 Through Bill of Lading
 Custody Bill of Lading
 Port Bill of Lading
Negotiable or Non-negotiable Bill of
Lading
 When delivered to the Order or to bear, negotiable.
 Otherwise, non-negotiable.
Clean Bill of Lading or Foul Bill of
Lading
 When it does not contain any notation indicating any
defect in the goods – Clean BL
 Otherwise, it is Foul BL
 On-board Bill or Received-For-
Shipment Bill of Lading
 On-board BL is one in which it is stated that the
goods have been received on board the vessel which
is to carry the goods
 Received for shipment BL is one which it is stated
that the goods have been received for shipment with
or without specifying the vessel by which the goods
are to be shipped.
Custody Bill of Lading
 One which states that the goods are already received
by the carrier but the vessel indicated therein has not
yet arrived at port.
Port Bill of Lading
 One which state that the vessel indicated in the BL
that will transport the goods is already in the port.
NATURE OF BILL OF LADING
 It operates both as:
1. A receipt for the goods shipped; and
2. A contract to transport and deliver the goods as
stipulated therein. Being a contract, it is the law
between the parties who are bound by its terms and
conditions sol longs as they are not contrary to law,
morals, good customs, public order and public
policy.
 It is also a document of title.
DOCUMENT OF TITLE
 Includes any bill of lading, dock warrant, ‘quedan’, or
warehouse receipt or order for the delivery of goods,
or any other document used in the ordinary course of
business in the sale or transfer of goods, as proof of
the possession or control of the goods, or authorizing
or purporting to authorize the possessor of the
document to transfer or receive either by
endorsement or by delivery, goods represented by
such document. [Art. 1636, NCC]
EFFICACY OF BL
 Upon delivery to and acceptance by the shipper.
 It is presumed that the stipulations of the BL were
known to the shipper, in the absence of fraud,
concealment or improper conduct, and he generally
bound by his acceptance whether he reads the bill or
not.
 A shipper who receives a BL without objection after
an opportunity to inspect it, and permits the carrier
to act on it by proceeding with the shipment is
presumed to have accepted it as correct and assented
to its terms.
 A BL accepted without dissent raises the
presumption that all the terms therein were brought
to the knowledge of the shipper and agreed to by
him, and in the absence of fraud or mistake, he is
estopped from thereafter denying that he assented to
such terms.
BL AS CONTRACT OF ADHESION
 BLs, like tickets constitute a class of contracts of
adhesion.
 Construed liberally in favor of the passenger or
shipper.
 But, they are not ENTIRELY prohibited.
 One who adheres to the contract is in reality free to
reject it entirely.
 If he adheres, he gives his consent.
 Receipt of the BL or ticket is tantamount to adherence
to the stipulation embodied therein
 Qua Chee Gan v. Law Union and
Rock Insurance Co., 25 SCRA 70
[1968]
 Held: The courts cannot ignore that nowadays,
monopolies, cartels and concentration of capital
endowed with overwhelm economic power, manage to
impose upon parties dealing with them cunningly
prepared ‘agreements’ that the weaker party may not
change one with his participation in the ‘agreement’
being reduced to the alternative ‘to take it or leave it’,
labelled since Raymond Sleilles ‘contracts of adherence’
(contracts d’ adhesion) in contrast (of which policies of
insurance and international bill of lading are prime
examples) obviously cap for greater strictness and
vigilance on the part of the court with view to protecting
the weaker party from abuses and imposition, and
prevent their becoming traps of the unwary.
RULE ON PROTECTION OF THE
DISADVANTAGED
 Art. 24, NCC: In all contractual property or other
relations, when one of the parties is at the
disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age
and other handicap, the courts must be vigilant for
his protection.
Servando, et al. v. Phil. Steam Navigation
Co., G.R. No. L-36481-2 October 23, 1982
Held:
 While it may be true that petitioner had not signed
the plane ticket (Exh. '12'), 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.
Magellan Manufacturing Marketing Corp.
v. CA, G.R. 95529, Aug. 22, 1991
 Issue 1: On the argument that there could have been
no agreement in the transshipment even if the BL
contained such since the same is prohibited in the
Letter of Credit, and that, therefore, it had no
intention to allow transshipment of the subject cargo,
it was:
Held:
 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.
 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.
 Issue No. 2: Can a consignee refuse a bill of lading on the
ground that there was overshipment of goods than the
quantity covered by the letter of credit?
 Held: In a letter of credit, there are three distinct and
independent contracts: (1) the contract of sale between
the buyer and the seller; (2) the contract of the buyer
with the issuing bank; and (3) the letter of credit proper
in which the bank promises to pay the seller pursuant to
the terms and conditions stated therein.
 It is clearly settled in law that the three contracts which
make up the letter of credit arrangement are to be
maintained in a state of perpetual separation.
 A transaction involving the purchase of goods may also
require, apart from a letter of credit, a contract of
transportation specially when the seller and the buyer
are not in the same locale or country, and the goods
purchased have to be transported to the latter.
 Hence, the contract of carriage, as stipulated in the bill of
lading must be treated independently of the contract of
sale between the seller and the buyer, and the contract
for the issuance of a letter of credit between the buyer
and the issuing bank.
 Any discrepancy between the amount of goods
described in the commercial invoice in the contract of
sale and the amount allowed in the letter of credit will
not affect the validity and enforce-ability of the contract
of carriage as embodied in the bill of lading.
 As a bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the
letter of credit, neither can the carrier be expected to go
beyond the representations of the shipper in the bill of
lading and to verify their accuracy vis-à-vis the
commercial invoice and the letter of credit.
 Having no actual knowledge of the kind, quantity, or
condition of the contents of the container, the carrier
issues the corresponding bill of lading based on the
declaration of the shipper, and the bill of lading simply
states the contents of the container either as advised by
the shipper or prefaced by the phrase “said to contain”.
 The matter of quantity, description and conditions of the
cargo inside the container is the sole responsibility of the
shipper.
PAROLE EVIDENCE RULE
 Sec. 9, Rule 130, Rules of Court: When the terms of an
agreement have been reduced to writing, it is
considered as containing all the terms agreed upon
and there can be, between the parties and their
successors in interest, no evidence of such terms
other than the contents of the written agreement.
 BL is covered by the parole evidence rule.
EXCEPTIONS TO PAROLE
EVIDENCE RULE
 However, a party may present evidence to modify,
explain or add to the terms of the written agreement if he
puts in issue in his pleading:
a) An intrinsic ambiguity, mistake or imperfection in the
written agreement;
b) The failure of the written agreement to express the true
intent and agreement of the parties thereto;
c) The validity of the written agreement; or
d) The existence of other terms agreed to by the parties or
their successors in interest after the execution of the
written agreement.
The term “agreement” includes wills.
SUBSTANTIVE PROVISIONS ON
BILL OF LADING
 Art. 353, Code of Commerce: The legal evidence of
the contract between the shipper and the carrier shall
be the bills of lading, by the contents of which the
disputes which may arise regarding their execution
and performance shall be decided, no exceptions
being admissible other the those of falsity and
material error in the drafting.
 After the contract has been complied with, the bill of
lading which the carrier has issued shall be returned to
him, and by virtue of the exchange of this title with the
thing transported, the respective obligations and actions
shall be considered cancelled, unless in the same act the
claim which the parties may wish to reserve be reduced
to writing, with the exception of that provided for in
Article 366
 In case the consignee, upon receiving the goods, cannot
return the bill of lading subscribed by the carrier,
because of its loss or of any other cause, he must give the
latter a receipt for the goods delivered, this receipt
producing the same effects as the return of the bill of
lading.
 Art. 709, Code of Commerce: A bill of lading drawn up
in accordance with the provisions of this title shall be
proof as between all those interested in the cargo and
between the latter and the insurers, proof to the contrary
being reserved for the latter.
 Art. 710, Code of Commerce: If the bills of lading are
contradictory, and no change or erasure can be observed
in any of them, those possessed by the shipper or
consignee signed by the captain shall be proof against
the captain or ship agent in favor of the consignee or
shipper; and those possessed by the captain or ship
agent signed by the shipper shall be proof against the
shipper or consignee in favor of the captain or ship
agent.
 Sec. 3[4] & [5], COGSA, C.A. No. 65:
 [4] Such a bill of lading shall be prima facie evidence of
the receipt by the carrier of the goods as therein
described in accordance with paragraphs 3(a), (b), and
(c), of this section.
 [5] The shipper shall be deemed to have guaranteed to
the carrier the accuracy at the time of the shipment of the
marks, number, quantity, and weight, as furnished by
him; and the shipper shall indemnify the carrier against
all loss, damages, and expenses arising or resulting from
inaccuracies in such particulars. The right of the carrier
to such indemnity shall in no way limit his responsibility
and liability under the contract of carriage to any person
other than the shipper.
MATTERS TO BE ENTERED IN A
BL OR AIRWAY BILL
For BL (Art. 706, Code of Commerce):
 Name, registry and tonnage of the vessel

 Name of captain and his domicile [not anymore

applicable as of present]
 Port of loading and unloading

 Name of shipper

 Name of consignee

 Quantity, quality, number of packages and marks of

the merchandise; and
 Freight and primage
For Airwaybill (Art. 3[1], Warsaw Convention on Air
Transport:
 Place and date of issue

 Place of departure and destination;

 Agreed stopping places, provided the carrier may

reserve the right to alter the stopping places in case of

necessity, and that if he exercises that right, the
alteration shall not have the effect of depriving the
transportation of its international character;
 Name and address of the carrier or carriers; and

 Statement that the transportation is subject to the rules

relating to liability in this convention.

KINDS OF STIPULATIONS IN A
BILL OF LADING
 First kind: One exempting the carrier from any and
all liability for loss or damage occasioned by its own
negligence – VOID;
 Second kind: One providing for an unqualified
limitation of such liability to an agreed valuation –
VOID; and
 Third kind: One limiting the liability of the carrier to
an agreed valuation unless the shipper declares a
higher value and pays a higher rate of freight –
VALID.
[H.E. Heacock Co. v. Macondray & Co., G.R. 16598l, Oct.
3, 1991]
LIABILITY OF CARRIER UNDER
COGSA
 If goods are to be shipped from a foreign port to the a
Philippine, COGSA is applicable suppletority to the
Civil Code.
 Liability of the carrier is US$500 per package, in the
absence of a shipper’s declaration of a higher value in
the BL.
 The above condition is deemed part of the BL even if
not expressly stated.
MEANING OF PACKAGE
 If goods are shipped in cartons – Each carton is
considered a package even if they are stored in
container vans.
 If what ordinarily considered as packages are
shipped in a container supplied by the carrier and the
number of such unit is disclosed in the BL – Each of
those units (not the container) constitutes the package
referred to in COGSA.
Belgian Overseas Chartering v. Phil. First
Insurance Co., G.R. 143133, June 5, 2002
 Facts: Steel sheets numbering 242 coils were shipped
on board a vessel of Petitioner in Germany to Manila.
The coils were shipped inside the container vans
provided by the carrier. The LC covering the
shipment state the per metric ton price of the coils.
Upon arrival, it was found out that 4 coils were
damaged.
 Held: Each coil is considered one package. The
liability of the carrier should not be based on the
price declared in the Letter of Credit.
WARSAW CONVENTION ON AIR
TRANSPORT
 Liability to passenger – 250,000 francs (passenger &
carrier may agree to a higher limit of liability
 Liability to baggage and cargo – 250 francs per kg
(unless the passenger or consignor has made, at the
time when the package was handed over to the
carrier, a special declaration of interest in delivery at
destination and has paid a sup- plementary sum not
exceeding the declared sum, unless he proves that
sum is greater than the actual value to the consignor
at delivery.
 In case of loss, damage or delay of part of registered
baggage or cargo, or of any object contained in the
waybill – The weight shall be taken into consideration in
determining the amount and carrier’s liability is limited
to the TOTAL WEIGHT OF THE PACKAGE/S
 However, when the loss, damage or delay of a part of
the registered baggage or cargo, or of an object contained
therein, affects the value of other packages covered by
the same baggage check of the same airway bill, the
TOTAL WIEHT OF SUCH PACKAGE/S shall also be
taken into consideration in determining the limit of
liability.
 Liability to hand carried items – 5,000 francs per
passenger
 The above limitations are without prejudice to the local
court’s award in accordance to its own law, in addition,
the whole or part of the court cost and other expenses of
litigation incurred by plaintiff.
 Not applicable if the amount of damages awarded,
excluding court costs and other expenses of litigation,
does not exceed the sum which the carrier has offered in
writing to plaintiff within 6 months from the date of
occurrence causing the damage or before
commencement of the action, if that is later.
 If damage is caused by willful misconduct or by such
default on the part of the carrier: Carrier cannot invoke
the provisions in Warsaw Convention on limited
liability.
HAGUE PROTOCOL AMENDMENT TO
WARSA CONVENTION ON AIR TRANSPORT
 Removed the provision that exculpates the airline
completely if it took all necessary steps to avoid the
damage.
 The protocol declares that the stated limits of liability
are not applicable ‘if it is proved that the damage
resulted from an act or omission of the carrier, its
servants or agents, done with intent to cause damage
or recklessly and with knowledge that damage
would probably result.
Note: Montreal Agreement of 1966 allows a passenger
to recover unlimited damages upon proof of willful
misconduct.
LIABILITY UNDER COGSA
 If no value is state – Maximum: US$500.
 If value is stated – Rule on Qualified Liability.

Qualified Liability Rule:

 A carrier may fix a maximum liability in the event

the shipper does not declare any value or a valude up

to a certain amount. Should shipper declare a higher
value, and willing to pay higher freightage, the
carrier shall accordingly be liable for greater damage.
CASES INVOLVING BILLS OF
LADING
Maersk Line v. CA, 222 SCRA 108
Held:
 Bill of lading, although contracts of adhesion, are not

prohibited and the terms thereof binding, since the

other party is free to reject it, and yet has accepted the
terms thereof. But the terms of the bill of lading
which create an absurd situation as having the effect
of practically leaving the date of arrival of the
shipment to the sole determination and will of the
carrier cannot be enforced.
Telengtan Bros. v. CA, 236 SCRA 617
Held:
 A bill of lading is both a receipt and a contract. As a

contract, its terms and conditions are conclusive on

the parties, including the consignee, as to the route,
destination, freight rates or charges, and stipulates
the rights and obligations assumed by the parties.
Saludo, Jr. v. CA, 207 SCRA 498
Held:
 A bill of lading is a written acknowledgment of the

receipt of the goods and an agreement to transport

and deliver them at a specific place to a person
named or on his order.
 Acceptance thereof without dissent raises the

presumption that all the terms therein were brought

to the knowledge of the shipper and agreed to by him
and estops him thereafter from denying the same.
United States Lines v. Commissioner
of Customs, 151 SCRA 189
 Held:
 The containerization system was devised to facilitate
the expeditious and economical loading, carriage and
unloading of cargoes.
 Under that system, the shipper loads his cargoes in a
specially designed container, seals the container and
delivers it to the carrier for transportation.
 The carrier does not participate in the counting of the
merchandise for loading into the container, the actual
loading thereof nor the sealing of the container.
Everett Steamship v. CA, 287 SCRA
496
Held:
 A stipulation printed in BL limiting common carrier’s

liability for loss or destruction of a cargo to a certain

sum, unless shipper or owner declare a greater value is
sanctioned by law, particularly Arts. 1749 and 1750 of
the Civil Code, provided such stipulation must be
reasonable and just under the circumstances and has
been freely and fairly agreed upon.
 The printing of such limiting stipulation in a small

print on the BL does not make the BL invalid nor can it

be argued that the stipulation has not been fairly and
freely agreed upon as to be binding on the carrier.
 At most, the situation only calls for a greater vigilance on
the part of courts when dealing with such contracts of
adhesion in that said contracts must be carefully
scrutinized in order to shield the unwary (or weaker
party) from deceptive schemes contained in ready-made
covenants.
 In this case, since the shipper is engaged in trading
business, it cannot be said to be ignorant of the business
transactions it entered into involving the shipment of its
goods to its customers.
 The shipper could have known, or should know the
stipulations in the BL and there it should have declared a
higher valuation of the goods shipped.
Valenzuela Hardwood v. CA, 274
SCRA 642
Held:
 A stipulation in a charter party that the owners shall not

be responsible for loss, split, short-landing, breakages

and any kind of damage to the cargo, is NOT VOID as
being contrary to public policy, when it is clear from the
arrangement that the carrier merely acted as private
carrier under the terms of the charter party.
 In a contract of private carriage, the parties may validly

stipulate the responsibility for the cargo rests solely on

the charterer, exempting the shipowner from liability for
loss of or damage to the cargo caused even by the
negligence of the ship captain.
PAL v. CA, 255 SCRA 48 on the
period provided in Way bill
Held:
 Where the failure to file the formal claim within the

prescriptive period contemplated in the air waybill

was largely due to the fault of carrier’s
representatives, the condition was deemed fulfilled
considering the collective action of the carrier’s
personnel in tossing around the claim and leaving it
unresolved for an indefinite period of time, which
was tantamount to ‘voluntarily preventing its
fulfillment’, and therefore the filing of the baggage
freight claim constituted substantial compliance with
the requirement of the filing of a formal claim
Chapter 5
PRESCRIPTIVE PERIODS IN CLAIMS
FILING OF CLAIM IN INTER-ISLAND
COMMERCE (Art. 366, Code of
Commerce)

If goods arrived in damaged condition:

 Apparent – Must file a claim immediately (oral or

written)
 Not apparent – Must file a claim within 24 hours

from deliver
FILING OF ACTION IN
INTERISLAND TRADE
Period to file action if claim is filed but CARRIER
REFUSES TO PAY:
 6 years – if no BL
 10 years – if there is BL
 Note: Filing of the claim under Art. 366, CoC is
CONDITION PRECEDENT for recovery. If no claim
is filed, there will be no recovery, even if an action
therefor is meritorious since the claim is part of the
cause of action
FILING OF CLAIMS IN OVERSEAS
TRADE
 If damage is APPARENT – CLAIM SHOULD BE
FILED IMMEDIATELY.
 If damage is NOT APPARENT – CLAIM SHOULD
BE FILED WITHIN 3 DAYS.
FILING OF ACTION IN OVERSEAS
TRADE

 1 year from the time vessel departs from port without

making delivery; or
 1 year from the date the damaged cargo is delivered
to arrastre.
Note: the 1 year period applies also to collision cases.
 If mis-delivered: 10 years; If claim is based on delay:
10 years.
Note: Filing of claim is NOT A CONDITION
PRECEDENT in the filing of action.
Rizal Surety v. Macondray, 22 SCRA
902
 Facts: A vessel arrived in Manila on Oct. 25. It left
Manila on Oct. 31. The BL showed that the cargo was
aboard the vessel, but it was never delivered. The
shipper brought an action against the carrier for non-
delivery.
 Held: Since there was no tally sheet AND NO
DELIVERY, the 1- year prescriptive period for filing
the action should be counted from the LAST DAY
ON WHICH THE CARRIER HAD AN
OPPORTUNITY TO MAKE THE DELIVERY, i.e. Oct.
31 when the vessel departed from port.
Union Carbide v. Manila Railrod, 77
SCRA 359
Held:
 In the case when the vessel docked at the pier, where

the cargo has been unloaded and delivered to the

arrastre, the 1-year period begins to run from the
date of delivery to the arrastre operator.
Ang v. American SS Agencies, 19
SCRA 631
 Held:
 Where there was delivery to the wrong person, the
prescriptive period is (10) years because there is a
violation of contract, and COGSA does not apply to
misdelivery.
US Insurance v. Cia. Maritima, 21
SCRA 998
Facts:
 Cargo was loaded in New York for Davao City. Since

most of the cargo was for Manila, the carrier

unloaded all the cargo, including that for Davao City,
in Manila and did not make a trip to Davao. Instead,
the goods for Davao were transshipped on an inter-
island vessel. The cargo arrived in a damaged
condition.
 Held:
 The 1-year period provided in COGSA shall still apply
since the contract of carriage is from New Yor to Davao.
The inter-island vessel from Manila to Davao is
considered merely a connecting vessel and the
transshipment did not constitute a separate contract of
carriage.
Filipino Merchants Ins. Co. v.
Alejandro, 145 SCRA 42
Held:
 The insurer of the goods is also bound by the 1-year

prescriptive period under the Carriage of Goods by

Sea Act.
Dole Philippines v. Maritime Co., 148
SCRA 118
Held:
 The written extrajudicial demand by creditor DOES

NOT TOLL the running of the 1-year prescriptive

period under COGSA since an action must be filed
within the period.
 Mitsui O.S.K. Lines v. CA, 287 SCRA
366
Facts:
 Carrier undertook loading. However, while in Taiwan,

goods were not transshipped immediately, with the

result that goods arrived in France late during the ‘off-
season’. Consignee paid only half of the value of the
goods and balance was charged against loss sustained
due to late arrival. Shipper now seeks to recover unpaid
balance from the carrier which opposes the same since
the loss or damage to goods shipped under Sec. 3(6) of
the Carriage of the Goods by Sea Act has been barred by
the lapse of 1-year period.
Held:
 Indeed, what is in issue here is not the liability of carrier of
its handling of goods as provided under Sec. 3(6) of
COGSA, but its liability under its contract of carriage with
shipper as covered by the laws of more general application.
 Since the concept of ‘loss or damage’ involves he
deterioration of goods DUE TO DELAY in their
transportation, the claims of shipper DO NOT
CONSTITUTE LOSS OR DAMAGE within the meaning of
COGSA which requires the suit to be brought within 1-year
from the time the cause of action accrued.
 The 1-year prescriptive period under COGSA is
inapplicable. What is applicable is Art. 1144 of the Civil
Code providing for a 10-year prescriptive period.
 Mayer Steel Pipe Corp. v. CA, 274
SCRA 432

Facts:
 The shipper has insured the merchandise against all

risks with South Sea Surety. During the voyage, the

merchandise were damaged. Insurer opposed claim on
the ground, inter alia, that it was filed more than one (1)
year from discovery of the damage to the merchandise
and therefore barred by the provisions under COGSA.
Held:
 The provision applies only to carrier’s liability which is
extinguished if no suit is brought within one year.
 The liability of the insurer is not extinguished because
the insurer’s liability is based not on the contract of
carriage but on the contract of insurance.
 COGSA governs relationship between carrier and
shipper, the consignee and/or the insurer on the other
hand and defines the obligations of the carrier under the
contract of carriage.
 It does not, however, affect the relationship between
shipper and insurer which is governed by Insurance
Code.
MEANING OF DAMAGES
 The pecuniary compensation, recompense, or
satisfaction for an injury sustained; or
 The pecuniary consequences which the law imposes
for the breach of some duty or violation of some
rights.
DAMAGES RECOVERABLE
 Actual Damages (dano emergente)
 Unrealized Profits (lucro cesante)
 Moral Damages
 Nominal Damage
 Temperate or Moderate Damages
 Liquated Damages
 Exemplary or Corrective Damages
 Other damages
ACTUAL & COMPENSATORY
DAMAGES
 Art. 2205, NCC: Damages may be recovered:
(1) For loss or impairment of earning capacity in
cases of temporary or permanent personal injury;
(2) For injury to the plaintiff’s business standing or
commercial credit.
 Amount of damages in case of death: P100,000 per
passenger for overland; P200,000 for marine
transportation.
LOSS OF EARNING CAPACITY
UNDER ART. 2206
Formula:
 Net Earning Capacity = Life Expectancy [2/3 x 80 –

age at death] x Gross Annual Income less Necessary

Living Expenses [fixed at 50% of the gross income in
the absence of proof]
MORAL DAMAGES (Art. 2219, Civil
Code)
Include
 Physical suffering,

 Mental anguish,

 Fright,

 Serious anxiety,

 Besmirched reputation,

 Wounded feelings,

 Moral shock,

 Social humiliation, and

 Similar injury
PRINCIPLES INVOLVING AWARD
OF MORAL DAMAGES
 As a general rule, no moral damages may be awarded
where the breach of contract is NOT MALICIOUS.
 Moral damages may be awarded if the contractual
negligence is considered gross negligence.
 Though incapable for pecuniary estimation, moral
damages may be recovered if they are the proximate
result of the defendant’s wrongful act or omission.
 The award of moral damages is designed to
compensate the claimant for actual injury and is not
meant to enrigh the complainant at the expense of the
defendant.
CASES WHEN MORAL DAMAGES
MAY BE AWARDED (Arts. 2219 & 2220,
NCC)
 Criminal offense resulting in physical injuries;
 Quasi-delicts causing physical injuries
 Seduction, abduction, rape, or other lascivious acts
 Adultery or concubinage
 Illegal or arbitrary detention or arrest
 Illegal search
 Libel, slander or any other form of defamation
 Malicious prosecution
 Acts mentioned in Art. 309 [disrespect to the dead, or
wrongful interference with a funeral]
 Acts and actions referred to in Articles 21, 26, 27, 28, 29,
30, 32, 34 and 35 [on human relations]
 In culpa contractual, moral damages may be awarded:
 Where the mishap resulted in the death of the passenger.
(Art. 1764 in relation to Art. 2206)
 When the carrier was guilty of fraud or bad faith, even if
death did not result. (Art. 2220; Sabena Belgian World
Airlines v. CA, 171 SCRA 620)
 Note: If the cause of action is culpa aquiliana where the
passenger suffered physical injuries, there is no more
need to prove that the carrier acted fraudulent or in bad
faith (Art. 2210[2], Civil Code)
Lopez v. Pan Am, 16 SCRA 431
(1966)
Facts:
 VP Lopez with his wife, daughter and son-in-law had

tickets for 1st class bound for SF. When they arrived
in Tokyo, the plane’s crew found out that the 1st class
tickets had been overold, and Lopez and his family
were compelled to take the economy seats.
 When the plane arrived at SF, Filipino official and the

Filipino community with a band waited for Lopez to

appear from the 1st class section. It caused him
humiliation.
 Held:
 Pan-Am should have informed Lopez of the possible
downgrading to prevent his humiliation
 The court award Lopez P300,000 in moral damages and
P150,000 in attorney’s fees.
 The substantial amount of damages was awarded in
view of the importance of the person of the passenger
Zulueta v. Pan-Am (1972)
 Facts: Zulueta was a passenger on a Pan-Am flight
with his wife and children from SF to Manila. On
stopover at Wake Island, the passengers were told
that the plane would leave in 30 minutes. After 30
mins. Zulueta failed to show up, the crew had to look
for him. When he was found, the plane captain called
him ‘a brown monkey. Bitter exchanged followed.
The captain then order the crew to unload Zulueta’s
baggage and he was left behind.
 Held: Zulueta is entitled to moral damages of
P500,000 and Attorney’s fees of P50,000
Ong Yui v. CA, 91 SCRA 223
 Held:
 In repealing the Shewaran Doctrine, the SC ruled that
the qualified liabilityappearing on the ticket is
binding even if the passenger did not sign it.
ARRASTRE
 In its generic term, it refers to a contract for the
unloading of goods from a vessel.
 In maritime law, arrastre applies only to overseas
trade.
 When a person brings in cargo from abroad, he
cannot unload and deliver the cargo by himself. This
is done through the arrastre operator, which will be
obligated to deliver the cargo to the importer.
Firemen’s Fund v. Cia. General de
Tabacos, 34 SCRA 392 (1970)
Held:
 The Arrastre operator, for the privilege of those

undertaking signs a Management Contract with the

Philippine Government. But among the stipulations
in the MC are provisions that adversely affect the
importer.
 The management contract contains stipulations pour

autrui and there is stamped across the Delivery

Permit that the importer received the goods subject to
the management contract, then he shall be bound by
the same.
PARTIES IN ARRASTRE
CONTRACT
 The Government (RP)
 The Arrastre Operator being awarded the privilege of
operating an arrastre service
 Third party beneficiary, who is the shipper or person
being serviced by the arrastre.
 4 STIPULATIONS IN THE REVISED
MANAGEMENT CONTRACT AFFECTING
THE IMPORTER OR SHIPPER
 Formal claim against arrastre:
- Within 30 days from date of final entry with the Bureau
of Customs supported by invoices and other shipping
documents. (A condition precedent)
 Action on claim by arrastre: 60 days from receipt. (A
condition precedent)
 If claim is refused: Action to be filed within 1 years.
 If claim is not acted upon: The 1 year period begins to
run from the date of the expiry of the 60-day period.
 Qualified liability of arrastre: P2,000 per package unless
higher value is declared.
 NATURE OF LIABILITY OF ARRASTRE & CARRIER:
Solidary
Metro Port Services v. IAC, 213
SCRA 103 (1992)
 Held: A provision limiting the liability of arrastre
operator through the imposition of a requirement that a
formal claim must be made within 30 days from filing of
entry is complied with when the consignee filed a
provisional claim within the 30-day period.
 As of that date, the arrastre operator was given
reasonable opportunity to check the validity of the claim
while the facts were still fresh in the minds of the person
who took part in the transaction and while pertinent
documents were still available.
 It did not matter that the provisional claim was for the
whole amount of the invoice. It is sufficient as long as the
name of the carrying vessel, its date of arrival and BL are
attached.
Firemen’s Fund v. Tabacalers, 34
SCRA 392
Held:
 The adverse stipulations of the Revised Management

Contract will affect the importer only if the delivery

permit is stamped: ‘subject to RMC’.
 Where there is none, the importer cannot be bound.
DEGREE OF DILIGENCE
REQUIRED IN ARRASTRE
 In the performance of its obligations, an arrastre
operator should observe the same degree of diligence
as that required of a common carrier and a
warehouseman, i.e. EXTRAORDINARY DILIGENCE.
 Being 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. [Summa Insurance v. CA,
253 SCRA 175]
BURDEN OF PROOF IN ARRASTRE
CLAIMS
 In a claim for loss filed by a consignee, the burden of
proof to show compliance with the obligation to
deliver the goods to the appropriate party devolves
upon the arrastre operator.
 The reason is because the safekeeping of the goods
rest within its knowledge. Hence, it must prove that
the losses were not due to its negligence or that of its
employee. [ICTSI v. Prudential Guarantee & Assurance
Co., Inc., 320 SCRA 244]
‘SHIPPER’S LOAD & COUNT’
SHIPMENT
 When consigned goods are shipped under ‘shipper’s
load and count’, the shipper is solely responsible for
the container’s load as the carrier would then be
oblivious of the contents of the shipment.
 Protection against pilferage of the shipment are then
the consignee’s lookout.
 The arrastre operator is, 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
qualification as may have validly been imposed in the
contract between the parties.
 The arrastre operator is not required to verify
the contents of the container received and to
compare them with those declared by the
shipper because the cargo was at the shipper’s
load and count, and is expected to deliver to the
consignee only the container received from the
carrier.
COMMERCIAL TERMS WHEN
CARRIER INTERVENES
 FOB (Free on Board) – Delivery to the vessel is
delivery to the buyer. Carrier becomes the AGENT
OF THE BUYER.
 FAS (Free Alongside Ship) – The seller pays all
charges and bears the risk until the goods are placed
alongside overseas vessel and within the reach of its
loading tackle. The same presumption as FOB.
 CIF (Cost, Insurance & Freight) – The quotation price
quotation on CIF presumes that the seller shall pay the
cost of rating and packaging, insurance and the
freightage. Carrier is deemed the agent of the seller and
ownership is retained by him throughout the trip. It
passes to the buyer only upon reaching the port of
destination and the cargo is discharged and delivered to
the buyer. Insurable interest is with the SELLER. Taxes
are not yet due since the sale is not yet deemed perfected
until the cargo reaches the port of destination.
PART II
MARITIME LAW
Chapter 6
GENERAL CONCEPTS
MARITIME LAW
 The system of laws which particularly relates to the
affairs and business of the sea, to ships, their crews and
navigation, and to marine conveyance of persons and
property.
Includes:
 Book II, Code of Commerce (Maritime Commerce

 Act No. 2616 (The Salvage Law)

 C.A. No. 65 (Carriage of Goods by Sea Act)

 P.D. 1521 (Ship Mortgage Decree of 1978)

 R.A. 9295 (The Domestic Shipping Act of 2004)

 Other special laws relating to maritime commerce

ORIGINS OF SHIPPING
 Man’s first use of the sea started 3,000 years ago –
Fishing developed into highly organized activity.
 At that time, ships were used to carry large and
heavy piece of cargo which neither man nor beast of
burden can carry.
 In one account, the Queen of Ancient Egypt move her
stone obelisks weighing 700 tons through the entire
length of Egypt on the Nile River.
 Egyptians were credited in revolutionizing shipping
when they invented the SAIL.
 But it is the ROMANS who conceived the basic principle
of marine transport on economic dimension of shipping
when they found out that carting a large quantity of
grain to the empire’s frontier 75 miles away would cost
more than to ship it by sea.
CODE OF HAMURRABI
 In 2000 BC, Babylonian Ruler Hamurrabi codified the
following maritime laws on:
- Marine Collisions
- Bottomry
- Reimbursement for Leased Watercraft
DEVELOPMENT OF UNIVERSAL
MARITIME LAW
 Phoenician’s Sea Law
 Code of Rhodes, which regulated Greek Commerce
for a very long time
 Roman Maritime Law
RHODIAN - ROMAN MARITIME
LAW
 1st Section (MARE) – Deals with the sea and concerns of
public law of the sea. Mare liberium did not exist yet.
 2nd Section (NAVIS) – Deals with the ship and enunciates
the classification of watercrafts into freighter or passenger
vessels and seagoing or inland crafts.
 3rd Section (MERX) – Deals with cargo and the admiralty
principles as known today.
 4th Section (OBLIGACIONES) - Deals with the
responsibilities of ship owners and masters.
 5th Section (ACTIONS) – Deals with dispute settlement
arising from shipping transactions.
EVOLUTION OF MODERN LAW
ON MERCHANT SHIPPING
 1896: Comite Maritime Internationale (CMI) organized
for the purposed of unification of merchant marine
rules.
 Conference Diplomatique De Droit Maritime (Brussels) -
16 International Conventions and protocols
approved, i.e. collision at sea, salvage, bill of lading,
carriage of goods by sea, etc.
UN AGENCIES IN MARITME LAW
 International Maritime Organization (IMO) –
established the Technical Regulation of Shipping.
 United Nations Conference on Trade and
Development (UNCTAD) – established the Economic
Regulations of Shipping.
 International Labor Organization (ILO) – established
the International Merchant Labor Regulations
Standards.
 UN Conferences – Established UNCLOS (1982),
Geneva Conventions on the Law of the Sea
(1958/1960)
REAL AND HYPOTHECARY
NATURE MARITIME LAW
 That which distinguishes the maritime from the civil
law and even from the mercantile law in general is
the REAL AND HYPOTHECARY nature of the
former, and the many securities of a real nature that
maritime customs from time immemorial, the laws,
the codes, and the later jurisprudence, have provided
for the protection of the various and conflicting
interest which are ventured and risked in maritime
expeditions. [Phil. Shipping Co. v. Vergara, G.R. No.
16000, June 1, 1906]
MEANING OF REAL AND
HYPOTHECARY NATURE
 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.
 NO VESSEL, NO LIABILITY RULE.
SUMMARY OF THE NATURE OF
MARINE TRANSACTIONS
 REAL – A vessel is essentially a personal property
because it is movable. But the Supreme Court
characterized maritime transactions as having a real
nature insofar as these transactions are similar to
transactions over real property with respect to
effectivity against third persons which are effected
through registration. Registration of vessels now
lodged at MARINA.
 HYPOTHECARY – The liability of the owner of the
vessels is limited to the vessel itself. If he vessel sinks,
generally the liability of the owner is extinguished,
although he may have other properties
EVIDENCE OF REAL NATURE OF
MARITIME LAW
 Limitation of the liability of the agents to the actual
value of the vessel and the freight money; and
 Right to retain the cargo and the embargo and
detention of vessel even in cases where the ordinary
civil law would not allow more than a personal
action against the debtor or person liable. [Luzon
Stevodoring v. CA, 156 SCRA 169]
Aboitiz Shipping v. General Accident
Fire Ins., 217 SCRA 359
 Held:
 The rights of vessel owner or agent under the
Limited Liability Rule are akin to those of the rights
of shareholders to limited liability under our
Corporation Law.
 In both insolvency of a corporation and the sinking of
a vessel, the claimants or creditors are limited in their
recovery to the remaining value of accessible assets.
Monarch Insurance v. CA,
333 SCRA 71
 The Limited Liability Rule in Maritime Law has not
been rendered obsolete by the advances in modern
technology which have considerably lessen the risks
involved in maritime trade, and the courts continue
to apply the said rule in appropriate cases.
ICTSI v. PRUDENTIAL
GUARANTEE, 320 SCRA 244
 Held:
 As both nature of the function and the place of their
performance, an arrastre operator’s service are
clearly not maritime in character.
 The legal relationship between an arrastre operator
and a consignee is akin to that between a
warehouseman and a depositor.
PROVISIONS ON LIMITED
LIABILITY RULE
 Art. 587, CoC: The ship agent shall also be civilly liable
for the indemnities in favor of third persons which may
arise from the conduct of the captain in the care of the
goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all her
equipment and the freight it may have earned during the
voyage.
 Art. 590: The co-owners of the vessel shall be civilly
liable in the proportion of their contribution to the
common fund for the results of the acts of the captain,
referred to in Art. 587.
Each co-owner may exempt himself from this liability by
the abandonment, before a notary, of that part of the
vessel belonging to him
 Art. 643 (Ibid): If the vessel and her cargo should
be totally lost, by reason of capture or wreck, all
rights shall be extinguished, both as regards the
crew to demand any wages whatsoever, and as
regards the ship agent to recover the advances
made.
 If a portion of the vessel or of the cargo, or both,
should be saved, the crew engaged on wages,
including the captain shall retain their rights on
the salvage, so far as they go, on the remainder
of the vessel as well as on the amount of
freightage of the cargo saved;
 But sailors who are engaged on shares shall not have any
right whatsoever on the salvage of the hull, but only on
the portion of the freightage saved. If they should have
worked to recover the remainder of the shipwrecked
vessel they shall be given from the amount of the salvage
an award in proportion of the efforts made and to the
risks encountered in order to accomplish the salvage.
 Art. 837 (Ibid): The civil liability incurred by the
shipowners in the cases prescribed in this section, shall
be understood as limited to the value of the vessel with
all her appurtenances and freight.
 Notes: Art. 837 applies to collision cases only.
EXCEPTIONS
 Where the injury or death to a passenger is due either
to the fault of the ship owner or to the
CONCURRING NEGLIGENCE OF THE SHIP
OWNER AND THE CAPTAIN.
 Where the vessel is insured.
 In workmen’s compensation claims.
 Where vessel is partially lost.
 Liability on repairs made prior to the loss of the
vessel.
 Foreclosure of mortgage on the ship
SHIPOWNER’S FAULT

 The well-entrenched rule in our jurisprudence is that

a ship owner may be held liable for injuries to
passengers notwithstanding the exclusively real and
hypothecary nature of Maritime Law, if fault can be
attributed to the ship owner. [Negros Navigation v.
CA, 281 SCRA 534]
CONCURRENT NEGLIGENCE OF
SHIPOWNER & CAPTAIN
 Although the ship agent is liable for the negligent act
of the captain in the care of goods loaded on the
vessel, this liability can be limited through
abandonment of the vessel, its equipment and
freightage as provided in Art. 387.
 Nonetheless, there are exceptional circumstances
wherein the ship agent could still be held answerable
despite the abandonment as where loss or injury was
due to fault OF SHIPOWNER AND CAPTAIN.
Manila Steamship v. Abdulhman,
100 Phil. 32
Facts:
 Abdulhaman bought a submarine chaser of WWII

vintage, which he converted into a passenger ship. The

chaser, being at fault collided with a new steel vessel of
Manila Steamship and it sank. Manila Steamship sued to
recover damanges as Adbulhaman had other properties.
 The latter put up the defense that his liability was

extinguished by the loss of the chaser.

 It was proven that the chaser, being of a certain tonnage,

should have been commanded by one having

qualifications of captain and not a mere patron.
Held:
 Abdulhaman is still liable. The hypothecary nature will

not apply when the ship owner is personally at fault due

to:
- Lack of proper equipment; or
- Lack of proper technical training of the officers and
crew.
PARTIAL LOSS
 In the event the vessel is not entirely lost, the
hypothecary nature of the maritime transaction
under Art. 837 of the Code of Commerce will not
apply, unless the shipowner or agent abandons the
vessel. [Luzon Stevedoring v. CA, 156 SCRA 169]
REPAIRS ON VESSEL
 The limited liability rule in maritime law does not
apply in case where the liability was for repairs on
the vessel that was completed before her loss.
[Government of P.I. v. Insular Maritime Co.. 45 Phil. 805]
LOSS COVERED BY INSURANCE
 Where vessel is at fault sinks but is insure, the
insurance takes the place of such vessel.
 The liability subsists but only to the extent of the
insurance proceeds.
 The excess is still subject to the hypothecary rule.
[Pedro Vazquez v. CA, 138 SCRA 553]
Abueg v. San Diego, 77 Phil. 32
Facts:
 A vessel of San Diego, a shipping operator, sank and

one crew member died. When the heirs of the

deceased sought compensation under the Workmen’s
Compensation Law, San Diego put up the defense of
the hypothecary nature of maritime transactions to
avoid liability.
Held:
 San Diego is still liable. Workmen’s compensation is an

exception to the hypothecary nature of maritime

transactions in view of two reason, to wit:
(1) The Code of Commerce was promulgated in 1880
while the Workmen’s Compensation Law was enacted in
1925. In case of conflict, the latter prevails.
(2) Provisions on hypothecary nature of maritime
transactions contained in the Code of Commerce are
general provisions while that in Workmen’s
Compensation Law are specific. In case of conflict,
specific provisions of law prevail.
Loadstar Shipping v. CA,
315 SCRA 339
Held:
 Failure of common carrier to maintain in seaworthy

condition its vessel involved in a contract of carriage

is a clear breach of its duty prescribed in Art. 1755 of
the Civil Code.
 The doctrine of limited liability will not apply.
ABANDONMENT OF VESSEL
 Abandonment of the vessel, its appurtenances and
freightage is an indispensable requirement before the
shipowner can enjoy the benefits of the limited
liability principle.
 In case of collision, abandonment of the vessel is
necessary in order to limit the liability of the
shipowner or the agent to the value of the vessel, its
appurtenances and freightage earned in the voyage.
 Only instance abandonment is dispensed with is
when the vessel was entirely lost. [Phil. Shipping Co.
v. Garcia, 6 Phil. 281
Protest
 A written statement by the master of a vessel or any
authorized officer, attested by a proper officer or a
notary, to the effect that damages has been suffered
by the ship.
 Protest is required under the Code of Commerce in
the following cases:
1. Arrival under stress
2. Shipwrecked
3. Gone through a hurricane or the captain believes
that the cargo has suffered damage or average
4. Maritime collisions
PCG MC 06-90 (When Marine
Protest is required)
 Actual physical damage to property exceeding one
thousand pesos;
 Material damage affecting seaworthiness or efficiency
of a vessel;
 Stranding, grounding or sinking of the vessel or fire on
board;
 Loss of life;
 Injuring causing any persons to remain incapacitated
for a period in excess of seventy (70) hours, except
injury to harbor workers not resulting from vessel
equipment casualty;
 Any deviation from her course or delay beyond the
control of the master.
 Any serious breach of charter party terms if
committed by any party  other than the ship’s crew as
refusal to load, unduly delaying of loading, loading
improper cargo, refusal to pay discharge fees, refusal
to accept bill of lading in form signed by the master.
 Failure of consignee to take deliver of cargoes or fails
to discharge cargo thereof or pay freight in
accordance with charter party bill of llading terms.
 Arrival of vessel under stress; and
 To provide additional information relevant to the
incident or circumstances, which may give rise or may
have given rise to suspicion on the negligence or
incompetence of the master or crew
Admiralty Jurisdiction
 RTC or MTc, depending on the amount of the
demand or claim.
 Amount determines jurisdiction of the court.
 The proceeding is in rem.
Chapter 7

Vessels
Ship or vessel
 Ship or Vessel - means any kind, class or type of craft
or artificial contrivance capable of floating in water,
designed to be used, or capable of being used, as a
means of floating in water transport in the domestic
trade for the carriage of passengers or cargo, or both,
utilizing its own motive power or that of another.
[R.A. 9295]
Tucker v. Alexandroff [183 U.S. 424,
438, 22 S.Ct. 195, 201, 46 L.Ed. 264]

 “A ship is born when she is launched, and lives so

long as her identity is preserved. Prior to her
launching she is a mere congeries of wood and
iron ....
 In the baptism of launching she receives her name,
and from the moment her keel touches the water she
is transformed ....
 She acquires a personality of her own.”
Prescriptive Period on Vessels
 Acquisitive prescription: Good faith – 4 years; bad
faith – 8 years. Prescription doesn’t run in favor the
captain since he holds the position that of a trustee.
[Art. 573]
 Right of pre-emption and legal redemption available
to co-owners to be exercised within 30-days from
sale of the vessel. [Art. 575]
Rules on Co-ownership of Vessel
 Co-ownership of vessel gives rise to a partnership
ipso jure. No agreement is needed before a
partnership is created. {Note: This is one instance of
a partnership coming into existence by mere
operation of law. Another instance when there is
commingling of similar good of fungible nature.}
 Majority may perform acts of administration but acts
of ownership require the concurrence of all the co-
owners.
 Majority is determined in accordance to the
following: 1 vote given to the co-owner who
contributed the least capital, 2 votes to the one who
gave double, et sequitur.
Importance of the Definition
 The word ‘vessel’ (Spanish: buque or nave) was not
intended to include all ships, craft or floating
structures of every kind without limitation, and the
provisions of that section should not be held to
include minor craft engaged only in river and bay
traffic.
 The word ‘nave’, which is used inter-changeably with
‘buque’ means a “SHIP, A VESSEL WITH DECKS AND
SAILS. A deck is not a feature of the smallest types
of watercraft.
 Such type of watercraft is not contemplated in Art.
835 requiring protest in case of collision. [Lopez
v.Dureolo, 52 Phil. 229]
 It is therefore clear that a passenger on a boat like
the Jison, in the case before us, is not required to
make protest as a condition precedent to his right of
action for the injury suffered by him in the collision
described in the complaint. Art. 835 does not apply.
 Nevertheless, under Article 836, it is provided that
want of protest cannot prejudice a person not in a
condition to make known his wisher.
 An individual who has suffered a compound fracture
of the femur and received other physical injuries
sufficient to keep him in a hospital for many months,
cannot be supposed to have been in a condition to
make protest within 24-hours of such occurrence.
Peculiar nature of vessels (Philippine
Refining Co. v. Jarque, G.R. 41506, Mar.
25, 1935)
 Vessels are considered personal property under civil
law. Similarly under the common law, vessels are
personal property although referred to as a peculiar
kind of personal property.
 Since the term personal property includes vessels,
they are subject to mortgage agreeably to the
provisions of the Chattel Mortgage Law (Act No.
1508, Sec. 2).
 The only difference between a chattel mortgage of a
vessel and of other personalty is that it is not now
necessary for a chattel mortgage of a vessel to be
noted in the register of deeds, but it is essential that a
record of documents affecting title to a vessel be
entered in the record of the Collector of Customs
(now with MARINA by virtue of M.C. 90) at the port of
entry (now at the port of registry, in case of coastwise
vessel).
 Otherwise, a mortgage on a vessel is generally like
other chattel mortgages as to its requisites and
validity.
Mortgage of Ship (P.D. 1521)
 Sec. 3. Mortgage of Vessel of Domestic Ownership;
records –
(a) No mortgage is valid in respect to such vessel
against any person other than the mortgagor, his
heir or assign, and a person with actual notice
thereof unless recorded with the PCG (now MARINA)
 Sec. 4. Preferred Mortgages: Mortgage is preferred
based on the date of recording if:
- It is recorded with PCG (MARINA)
- An affidavit in good faith is filed together with the
record of mortgage.
- No waiver of preferred status.
Suit in Admiralty
(Sec. 10. P.D. 1521)
 Preferred mortgage constitutes as a lien upon the
vessel. In case of default, the mortgage lien may be
enforced by SUIT IN REMAINING ADMIRALTY, wherein
the vessel itself may be made a party defendant and be
arrested in accordance with Sec. 11.
 Original jurisdiction: CFI (now depending on the
amount of the claim)
 Requirement of notice by publication and actual notice
to:
- the master or other ranking officer, or caretaker of the
vessel; and
- Any person who has recorded a notice of claim of an
un-discharged lien upon the vessel.
Arrest of Vessels
[Sec. 11, P.D. 1521]
 Upon filing of petition for judicial foreclosure of a
Preferred Ship Mortgage or immediately thereafter,
 Applicant may apply ex-parte for an order for the
arrest of the mortgaged vessel.
 Judge to immediately issue arrest order, if it is made
to appear by affidavit of the applicant, or of some
other person who personally know the facts that a
default in the mortgage has occurred and that
applicant files a bond executed to the adverse party
in an amount to be fixed by the judge, not exceeding
the applicant’s claim, conditioned that the latter will
pay all the costs which may be adjudged to the
adverse part and all damages sustained.
 Procedure in discharge of arrest
(Sec. 12, P.D. 1521)
 File counter-bond in an amount double of the claim;
or
 Apply for order on the ground of improper or
irregular issuance of order.
Extrajudicial Foreclosure of Vessel
(Sec. 14, P.D. 1521)
 Applicable provisions in Chattel Mortgage Law
govern.
 For purpose of taking possession of the vessel, the
foreclosing creditor to secure from RTC Judge of the
province where the vessel may be our or where the
creditor or debtor resides, an order for the arrest or
seizure of the vessel.
 Upon issuance of the order, the sheriff to
immediately take possession of the vessel for the
purpose of foreclosure and sale.
Foreign Ship Mortgage
(Sec. 15, P.D. 1521)
 Preferred mortgage in foreign ship includes those
duly recorded by virtue of Sec. 4 (supra) and:
 Preferred mortgage lien in foreign ship is subordinate
to maritime liens for repairs, supplies towage, use of
drydock or marine railway, or other necessaries
performed or supplied in the Philippines.
How proceeds of sale disposed
(Sec. 17, P.D. 1521)
 Preferred mortgaged lien takes priority over all claims
against the vessel. Exceptions:
1. Expenses and fees allowed and costs taxed by the
court and taxes due to the government.
2. Crew’s wages.
3. General average.
4. Salvage, including contract salvage.
5. Maritime liens arising prior in time to the recording of
the preferred mortgage.
6. Damages arising out of tort.
7. Preferred mortgaged registered prior in time.
 If proceeds of the sale is not sufficient to pay all
creditors included in one number or grade, the
residue shall be divided among them pro rata.
 All credits not paid, whether fully or partially shall
subsist as ordinary credits enforceable by personal
action against the debtor.
Suit in Personam in Admiralty upon
Default (Sec. 18. P.D. 1521)
 Allows the creditor to bring suit in personam in
admiralty against the mortgagor for the amount of
the outstanding mortgage indebtedness even if
secured by the vessel.
 If the debt is also secured by other realty or
personalty, the creditor may proceed upon the same.
Maritime Lien for Necessaries
(Sec. 21, P.D. 1521)
 Repairs, supplies, towage, use of drydock or marine
railway, or other necessaries were furnished to the
vessel.
 The work is done on orders of the ship owner or
person authorized by the owner.
 Such credit must be alleged or proved that it was
given to the vessel.
 Enforceable by suit in rem.
MARINA M.C. 100 (Guidelines on
Annotation/Cancellation of Mortgage)
 Documentary requirements:
 Letter of Intent & Duly accomplished application

form;
 Duly notarized mortgage contract;

 Proof of payment of documentary stamp tax with the

BIR; and
 Original copy of CO and CVR.

Note: The annotation of mortgage to be reflected at the

back of the CVR and CO.
Other applicable MARINA regulations
on vessels
 M.C. No. 48 – Measure to control overcrowding/
overloading and scalping of tickets in the interisland
vessels.
 M.C. No. 72 – Guidelines on the Implementation of at
least 10-minute film on safety features of each
specific passenger/passenger-cargo vessels as
amended by M.C. No. 136.
 M.C. No. 83 – Guideline on the issuance of
endorsement certificates in accordance with the
STCW (Standards for Training, Certification and
Watchkeeping) 1978 Convention.
 M.C. No. 89 – Implementing guidelines for vessel
safety regulations as amended by 89-B.
 M.C. No. 114 – Preventive Safety Measure and other
concerns
 M.C. No. 123 – Wearing of lifejackets during
boarding and/or prior to departure by all passenger
vessels with open deck accommodation.
 M.C. No. 135 – Rules on the implementation of voice
tape on the safety features of a vessel.
 M.C. No. 143 – Rules and regulations to implement
the International Safety Management (ISM) Code in
Domestic Shipping ( M.C. No. 159 for NSM).
Republic Act 9295

The Domestic Shipping

Development Act of 2004
State policies on shipping
(Sec. 2)
 (a) promote Filipino ownership of vessels operated
under Philippine flag;
 (b) attract private capital to invest in the shipping
industry by creating a healthy and competitive
investment and operating environment;
 (c) provide necessary assistance and incentives for
the continued growth of the Philippine domestic
merchant marine fleet;
 (d) encourage the improvement and upgrading of the
existing domestic merchant marine fleet and Filipino
crew to meet international standard;
 (e) ensure the continued viability of domestic
shipping operations; and
 (f) encourage the development of a viable
shipbuilding and ship repair industry to support the
expansion and modernization of the Philippine
domestic merchant marine fleet and its strict
adherence to safety standards which will ensure the
seaworthiness of all sea-borne structures.
Important terms in R.A. 9295 & IRR
 Domestic Shipping - means the transport of
passengers or cargo, or both, by ships duly registered
and licensed under Philippine law to engage in trade
and commerce between Philippine ports and within
Philippine territorial or internal waters, for hire or
compensation, with general or limited clientele,
whether permanent, occasional or incidental, with or
without fixed routes, and done for contractual or
commercial purposes.
 Domestic Trade - means the sale, barter or exchange
of goods, materials or products within the
Philippines.
 Domestic Ship Operator" or "Domestic Ship Owner" -
means a citizen of the Philippines, or a commercial
partnership wholly owned by Filipinos, or a
corporation at least sixty percent (60%) of the capital
of which is owned by Filipinos, which is duly
authorized by the Maritime Industry Authority
(MARINA) to engage in the business or domestic
shipping.
 Shipper - means any person, partnership or
corporation who shall procure for itself the services
of a domestic ship operator for the carriage of its
cargo in the domestic trade upon payment of proper
compensation.
 Certificate of Public Convenience - means the license
or authority issued by MARINA to a domestic ship
operator to engage in domestic shipping.
 Cargo Handling Equipments - means any machinery
gear or equipment used by the ship operator or a
duly authorized and licensed port operator to service
or handle cargo, on board the vessel, at the pier, or
in the terminal or container yard such as, but not
limited to, cranes, forklifts, top lift, stacker, tractor
heads, containers, pallet boards, and the like,
including all spare parts, replacement parts,
appurtenances, accessories, articles, supplies, and
material thereof.
 Shipbuilding - means the design, construction,
launching and outfitting of all types of ships and
watercraft;
 Ship repair - means the overhaul, refurbishment,
renovating, improvement, or alternation of the hull,
machineries, equipment, outfits and components of
all types of ships;
 Shipyard - means the shipbuilding or repair facilities
which have the capability to lift vessels above the
waterline in order to effect ship work vessels,
appendages, structure, machinery and equipment.
Investment incentives to domestic
shipping industry (Sec. 4)
 (a) Exemption from value-added tax on the
importation and local purchase of passenger and/or
cargo vessels of one hundred fifty (150) tons and
above, including engine and spare parts of said
vessels.
 Vessels to be imported must comply with the age
limit requirement, at the time of acquisition counted
from the date of the vessel’s original commissioning,
as follows: 1) For passenger and/or cargo vessels,
the age limit is fifteen (15) years old, 2) For tankers,
the age limit is ten (10) years old, and 3) For high-
speed passenger craft, the age limit is five (5) years
old;
 (b) Exemption from value-added tax on the
importation of life-saving equipment, safety and
rescue equipment and communication and
navigational safety equipment, steel plates, and
other metal plates including marine-grade aluminum
plates, used for transport operations.
CONDITIONS IN THE GRANT OF (a) & (b):
 Not manufactured domestically in sufficient quantity,

of comparable quality and at reasonable prices;

 Directly imported by a MARINA-registered domestic

shipping operator;
 Reasonably-needed and will be used exclusively by
the registered domestic shipping operators in its
transport operations;
 Approval of a MARINA was obtained prior to the
importation of said articles;

Valid up to ten (10) years from effectivity.
Deregulation of the Domestic
Shipping Industry (Sec. 8)
 Domestic ship operators authorized to establish their
own domestic shipping rates provided that effective
competition is fostered and public interest is served.
 MARINA shall monitor all shipping operations and
exercise regulatory intervention where it is
established, after due process that public interest
needs to be protected and safeguarded.
Safety Standards
(Sec. 9)
 All vessels shall at all times be in seaworthy
condition, properly equipped with adequate life-
saving, communication, safety and other equipment,
operated and maintained in accordance with the
standards set by MARINA, and manned by duly
licensed and competent vessel crew.
 The MARINA given the power to inspect vessels and
all equipment on board vessels to ensure compliance
with safety standards.
Jurisdiction of MARINA
(Sec. 10)
 Register vessels;
 Issue certificates of public convenience, or any
extensions or amendments thereto, authorizing the
operation of all kinds, classes and types of vessels
in domestic shipping: Provided, That no such
certificate shall be valid for a period of more than
twenty-five (25) years;
 Modify, suspend or revoke at any time, upon notice
and hearing, any certificate, license or accreditation
it may have issued to any domestic ship operator;
 Establish and prescribe routes, zones of areas of
operations of domestic ship operators;
 Require any domestic ship operator to provide
shipping services to any coastal area, island or
region in the country where such services are
necessary for the development of the area, to meet
emergency sealift requirements, or when public
interest so requires;
 Set safety standards for vessels in accordance with
applicable conventions and regulations;
 Require all domestic ship operators to comply with
operational and safety standards for vessels set by
applicable conventions and regulations, maintain its
vessels in safe and serviceable condition, meet the
standards of safety of life at sea and safe manning
requirements, and furnish safe, adequate, efficient,
reliable and proper service at all times;
 Inspect all vessels to ensure and enforce compliance
with safety standards and other regulations;
 Ensure that all domestic ship operators shall have
the financial capacity to provide and sustain safe,
reliable, efficient and economic passenger or cargo
service, or both;
 Determine the impact which any new service shall
have to the locality it will serve;
 Adopt and enforce such rules and regulations
which will ensure compliance by every domestic
ship operator with required safety standards and
other rules and regulations on vessels safety;
 Adopt such rules and regulations which ensure the
reasonable stability of passengers and freight rates
and, if necessary, to intervene in order to protect
public interest;
 Hear and adjudicate any compliant made in writing
involving any violation of this law or the rules and
regulations of the Authority;
 Impose such fines and penalties on, including the
revocation of licenses of, any domestic ship
operator who shall fail to maintain its vessels in
safe and serviceable condition, or who shall violate
or fail to comply with safety regulations;
 Investigate any complaint made in writing against
any domestic ship operator, or any shipper, or any
group of shippers regarding any matters involving
violations of the provisions of this Act;
 Upon notice and hearing, impose such fines,
suspend or revoke certificates of public
convenience or other license issued, or otherwise
penalize any ship operator, shipper or group of
shippers found violating the provisions of this Act;
and
 Issue such rules and regulations necessary to
implement the provisions of this Act: Provided, That
such rules and regulations cannot change or in any
way amend or be contrary to the intent and purposes
of this Act.
Prohibited Acts and Practices of
Domestic Ship Operators (Sec. 16)
 Operate without a valid certificate of public convenience,
accreditation or other form of authority required by this Act;
 Refuse to accept or carry any passenger or cargo without
just cause;
 Fail to maintain its vessels in safe and serviceable condition,
or violate safety rules and regulations;
 Fail to obtain or maintain adequate insurance coverage;
 Fail to meet or maintain safe manning requirements; and
 Such other acts which the MARINA shall determine, after
due notice and hearings, to be detrimental or prejudicial to
the safety, stability and integrity of domestic shipping.
CPC Issuance (Sec. 2, Rule IV, IRR of
R.A. 9295 on Deregulation)
 Power of MARINA to issue CPC or any
amendments/extensions/renewals.
Requirements:
 Economic and beneficial effect which the proposed

service shall have to the port, province or region

which it proposes to serve; and
 Financial capacity of the domestic
shipowner/operator to provide and sustain safe,
reliable, adequate, efficient and economical service in
accordance with the standards set by government
regulations.
Amendment to CPC
(Sec. 3, Rule IV IRR)
 Permanent Addition or Deletion of a route/port/link;
or,
 Permanent Addition/ Reduction/ Replacement of
Ship/Fleet or Change in Ship’s Name; or,
 Permanent Addition/ Reduction/ Replacement of
Ship/Fleet or Change in Ship’s Name; or,
 Change in name of the
entity/corporation/partnership/cooperative.
 Validity of CPC
(Sec. 5, Rule IV IRR)

Years of Operation Validity of CPC

More than 10 years 25 years

More than 5 years up to 10 15 years

years

5 years and below 10 years

 Qualification Requirements
(Sec. 6, Rule IV, IRR)
 Must be a MARINA-registered shipowner/operator
per MARINA MC 79/79-A or their subsequent
amendments.
 Must be financially capable to provide and sustain
safe, reliable, adequate, efficient and economical
service in undertaking the proposed shipping
service.
Formula on Financial Capability: Capitalization = (Equity
– fixed assets net of long-term liabilities) + total
depreciation
 Must provide a service that has economic and
beneficial effect on the port, province or region it
proposes to serve.
Jurisdictional Requirements
(Sec. 8, Rule IV, IRR)
 Affidavit of publication with the newspaper
clipping;
 Copy of the whole newspaper where the Order was
published;
 Photographs showing proof of the required posting
of Order.
Safety Standards
(Sec. 1, Rule VI, IRR)
 All ships shall, at all times, be in seaworthy condition
as to their hull and machinery
 Properly outfitted with adequate navigational aids
and equipment, firefighting, life-saving,
communication, and other safety
appliances/equipment.
 Operated and maintained in accordance with
prescribed standards, and manned by duly licensed
and competent ship crew.
Rates
(Sec. 1, Rule VIII, IRR)
 Domestic shipowners/operators are authorized to
establish/fix their own domestic shipping rates,
passenger or cargo rates or both.
 Limitation: Effective competition is fostered and
public interest is served.
 Effectivity: 7 calendar days from the date of
publication.
Conditions in Fixing Rates
(Sec. 2, Rule VIII, IRR)
 Shipowners/operators with Entity/Company CPC to
submit under oath with the MARINA their Notice for
the adoption of initial/ subsequent upward or
downward adjustment of deregulated rates in a
prescribed form.
 The notice shall indicate, among others, the name of
covered ship(s), authorized route(s)/link(s), rate(s)
per route/link and the grounds for the adjustment.
Publication Requirement of
Adjusted Rates
 The notice shall be published in any of the five (5)
major newspapers of national circulation, if the
route(s)/area(s) of operation to be served is national
and/or inter-regional in scope.
 If the route(s)/area(s) to be served is local or intra-
regional in scope, publication in a newspaper of local
circulation is sufficient.
 And, posting of the notice in in all conspicuous places
at the affected port(s), vessel(s), company premises,
passenger terminals and ticketing office(s).
Instances Warranting MARINA
Intervention (Sec. 4, Rule VIII, IRR)
 Monopoly of a route/link, lack of effective
competition in a route/link, and practices which
constitute combinations in restraint of trade.
 Any complaint against the rates charged and/or
services rendered by the shipowners/operators
provided sufficient basis/justification is submitted.
 Any adverse findings/recommendations as a result
of monitoring activities undertaken by the MARINA.
 Other analogous instances.
Compulsory Insurance Coverage
(Sec.1, Rule IX, IRR)
 (1) Not less than Php 200,000.00 per manifested
passenger;
 (2) Adequate insurance coverage for cargo, in an
amount to be computed in accordance with existing
laws, rules and regulations, and the total amount of
such coverage shall be equivalent to the total cargo
capacity being offered by the vessel.
 (3) If a domestic shipowner/operator should offer
both passenger and cargo service, then the total
insurance coverage shall be in the total sum
equivalent to that stipulated in paragraphs (1.1)
and (1.2) of this Section.
Amount of Insurance If Operating
more than (1) ship
 The amount equivalent to the total authorized
number of passengers, or total cargo capacity, or
both, of the largest operating ship.
 But must not exceed the value of such ship.
Prohibited Acts
(Sec. 1, Rule XII, IRR)
 Operating without a valid certificate of public
convenience, accreditation or other form of authority.
 Refusal to accept or carry any passenger or cargo
without just cause, except for tramp operations.
 Failure to maintain the vessels in safe and
serviceable condition, or violation of the safety rules
and regulations.
 Failure to obtain or maintain adequate insurance
coverage.
 Failure to meet or maintain safe manning
requirements.
 Failure to submit the required Quarterly Report and
an audited Annual Report of Operations and
Finances, attaching the copy of the Official Receipt
(OR) of Quarterly and Monthly Common Carriers Tax
Payments to the Bureau of Internal Revenue.
 Other detrimental or prejudicial to the safety,
stability and integrity of domestic shipping.
 Those prohibited acts defined in existing MARINA
Circulars.
Powers of MARINA
(Rule XIV, IRR)
 Power to Investigate
 Power to Hear and Adjudicate
 Power to Issue Summons
 Rules on Appeals to MARINA Regional
Offices’ CPC Decisions (Rule XV, IRR)
 Order, ruling, decision or resolution rendered by
MARINA Regional Office relating to CPC application
 MR – 15 days from receipt;
 If denied, appeal to Administrator – 15 days from
receipt.
 If denied by MARINA Administrator:
- ADMINISTRATIVE APPEAL to the MARINA Board
within 15 days from receipt; or
- Special Civil Action on Certiorari with CA within 30
days from receipt.
All other Decisions
 MR – 15 days from receipt;
 If denied, appeal to MARINA Administrator – 15 days
from receipt.
 If denied by MARINA Administrator:
ADMINISTRATIVE APPEAL to the MARINA Board
within 15 days from receipt.
Perfection of Appeal
 File a Notice of Appeal with the MARINA
Administrator and the concerned CO/MRO
Director/OIC.
 Copy to be served upon the adverse party.
 Within 15 days from receipt of the appealed from
decision, etc.

Payment of Docket Fee of P1,000.
Temporary Take-Over of Operations
(Sec. 1, Rule IX, IRR)
 In times of national emergency;
 When the public interest so requires;
 Under reasonable terms prescribed by the Flag state;
 Flag state may temporarily take over or direct the
operations of any vessel engaged in domestic trade
and commerce or prescribe its rates or routes of
operation.
 Immediately upon the cessation of the emergency,
the State shall immediately reinstate to the domestic
shipowner/operator the operation of the ship under
the same terms and conditions existing prior to the
occurrence of the emergency.
Chapter 8
Persons Who Take Part In Maritime
Commerce
Ship owner and Ship agent
 Ship owner – the person primarily liable for damages
sustained in the operation of vessel.
 Ship agent – the person entrusted with provisioning
of the vessel, or who represents her in the port in
which she happens to be.
 Both are civilly liable for the acts of the captain and
for the obligations contracted by the him to repair,
equip, and provision the vessel. [Art. 586, Code of
Commerce]
Domestic Shipowner/operator
 A citizen of the Philippines, or a commercial
partnership wholly owned by Filipinos, or a
corporation at least sixty percent (60%) of the capital
of which is owned by Filipinos, which is duly
accredited by the MARINA under Memorandum
Circular No. 79/79-A or their subsequent
amendments to engage in the business of domestic
shipping, which may include cooperative or
association duly registered with relevant government
agency. [IRR, R.A. 9295]
Captain and Masters
 Captain – those who govern vessels that navigate the
high seas or ships of large dimensions and
importance, although they may be engaged in
coastwise trade.
 Masters – those who command smaller ships

engaged exclusively in the coastwise trade.

Note: For purposes of maritime commerce, both have
the same meaning, i.e. they command ships.
Powers & Functions of Captains
(Masters)
 Nature of his position: confidential and managerial.
 3 distinct roles he performs:
(1) As general agent. If he is also a co-owner, his
agency becomes one coupled with interest. He may
not be dismissed if he is a co-owner or the
partnership agreement stipulates as a condition as
ship captain [see Art. 602 & 606 -607];
(2) As commander and technical director of the
vessel; and
(3) As representative of the country under whose
flag he navigates.
Vessel Pilot
 A person duly qualified, and licensed, to conduct a
vessel into or out of ports, or in certain waters.
 In a broad sense, the term ‘pilot’ includes:
- Those whose duty it is to guide vessels into or out
of ports, or in particular waters; and
- Those entrusted with navigation of vessels on the
high seas.
 Compulsory pilotage is enforced in the Port of Manila,
Port of Cebu, Port of Tacloban, among others.
Pro Hac Vice Nature of Position of
Pilot
 Under English and American authorities, generally
speaking, the pilot supersedes the master for the
time being in the command and navigation of the
ship, and his order must be obeyed in all matters
connected with her navigation.
 He becomes master pro hac vice and should give all
directions as to speed, course, stopping and
reversing, anchoring, towing and the like.
 And when a licensed pilot is employed in a place
where pilotage is compulsory, it is his duty to insist
on having effective control of the vessel or to decline
as pilot. [Far Eastern Shp., v. CA, G.R. No. 130068, Oct.
1, 1998]
Occasions When Master May
Interfere or Even Displace Pilot
 When Pilot is obviously incompetent or intoxicated;
 In cases of danger which pilot does not foresee;
 In all cases of great necessity.
 To advise or offer suggestions to the pilot
considering that he is still in command of the vessel,
except so far as her navigation is concerned.
 To see that there is sufficient watch on deck and that
the men are attentive to their duties, etc.
 Failure on the part of the Master to comply with
above duties makes him personally liable for resulting
damage cause. [Ibid]
Liability of Pilot
 Rule: a pilot is personally liable for damages caused
by his own negligence or default to the owners of the
vessel and to third parties for damages sustained in a
collision.
 Negligence of Pilot is known as ‘MARITIME TORT’
 As held In Far Eastern Shipping:
 In the United States, the owners of a vessel are not
personally liable for the negligent acts of a
compulsory pilot, but by admiralty law, the fault or
negligence of a compulsory pilot is imputable to the
vessel and it may be held liable therefor in rem.
 Where, however, by the provisions of the statute the
pilot is compulsory only in the sense that his fee
must be paid, and is not in compulsory charge of the
vessel, there is no exemption from liability.
 Even though the pilot is compulsory, if his negligence
was not the sole cause of the injury, but the
negligence of the master or crew contributed thereto,
the owners are liable.
 But the liability in rem does not release the pilot from
the consequences of his own negligence. The
rationale for this rule is that the master is not entirely
absolved of responsibility with respect to navigation
when a compulsory pilot is in charge.
Other Officers and Crew
 Deck Officer – an officer qualified in accordance with
the provision of the International Convention on
Standards of Training, Certification and
Watchkeeping for Seafarers (STCW) 1978, as
amended, Chapter II.
 Chief Engineer – a senior licensed marine engine
officer responsible for the mechanical propulsion and
the operation and maintenance of the mechanical
and electrical installations of the ship.
 Engineer Officer – an officer qualified in accordance
with the provision of (STCW) 1978, as amended,
Chapter III.
 Radio Officer –a person holding an appropriate
certificate issued and recognized by the MARINA
under the provisions of the Radio regulations.
 Ratings – a member of the ship’s crew other than the
master or an officer.
 Major Patron (MAP) – a marine deck officer duly
registered and certificated to act as officer or master
of vessel of not more than 500 GT navigating in the
major coastwise trade routes within the territorial
limits of the Philippines.
 Minor Patron (MIP) – a marine deck officer duly
registered and certificated to act as officer or master
of vessel of not more than 250 GT navigating within
a specified body of water in the minor coastwise
trade route in the Philippines.
 Marine Diesel Mechanic (MDM) – a person authorized
by MARINA to operate and maintain the ship’s diesel
engines or the qualification/license to act as such.
 Supercargoes – administrative officers of the ship
with duties to keep an account and record of their
transaction. Powers and duties of the captain with
regard to that part of the administration shall cease
when thee is a supercargo.
 Supernumerary - a person who is not a regular
member of the crew but performing functions
appropriate to the certificate possessed. 
Chapter 9
Charter Party
Definition of a Charter Party
 A written contract whereby the ship owner or the
ship agent leases the vessel to transport passengers
or cargo for a fixed price. [Art. 652, Code of Commerce]
 A contact by which an entire ship or some principal
part thereof, is left by the owner to another person
for a specified time or use. [Caltex Philippines, Inc. v.
Sulpicio Lines, Inc., 315 SCRA 709]
National Union Fire Insurance v.
Stolt-Nielsen Phil., 184 SCRA 682
Held:
 Where BL has been issued covering goods shipped
aboard a vessel under a charter party, and charterer
remains the holder of the BL, it operates as a receipt
for the goods, and as document of title passing the
property of the goods, but not as varying the
contract between the charterer and ship owner.
 The BL becomes merely a receipt and not the
contract of carriage in a charter of the entire vessel.
Ouano vs. CA, 211 SCRA 740
Held:
 Even if a charter party has a condition against sub-
chartering, and the vessel was in fact sub-chartered
without knowledge on the part of the sub-charterer
of the prohibition, no cause of action arises in favor
of the owner of the vessel against the sub-charterer.
 Neither does such owner have any lien against the
cargo of sub-charterer.
 Carrier has a lien on the goods only while he retains
possession of the goods
Obligation of the Charterer
 Charterer, before transporting its cargo, is of no
obligation to ensure that the vessel it chartered
complied with all legal requirements. The duty rests
upon the common carrier as it is the one engaged in
‘public service’. [Caltex v. Sulpicio Lines, infra]
Important Terms Used in Charter
Party
 Primage – the bonus to be paid to the captain after a
successful voyage.
 Demurrage – A penal clause intended to compensate
the owner of the vessel for its non-use.
 Lay days – The period when the vessel will be
delayed in port for loading and unloading.
 Deadfreight –The portion of the cargo under a
charter not loaded. It is also used as the amount
recoverable by the ship owner from the charterer for
that portion of the ship’s capacity that the latter
failed to occupy despite the stipulation in the charter
party.
Cases on Demurrage
 In its strict sense, demurrage is the compensation
provided for in the contract of affreightment for the
detention of the vessel beyond the lay time or that
period of time agreed on for loading and unloading of
cargo and is given to compensate the ship owner for
the non-use of the vessel. [National Steel v. CA, 283
SCRA 45]
 Demurrage is the sum fixed in a charter party as
remuneration to the ship owner for the detention of
his vessel beyond the number of days allowed by the
charter party for loading or unloading or for sailing.
[NFA v. CA, 311 SCRA 700]
NFA v. CA, 311 SCRA 700
 The shipper or charter is liable for the payment of
demurrage claims when he exceeds the period of
loading or unloading as agreed upon or the agreed
lay days. The period for such may or may not be
stipulated in the contract. A charter party may either
provide for a fixed lay days or contain general or
indefinite words such as ‘customary quick dispatch’
or ‘as fast as the steamer can load’.
 Customary quick dispatch implies that loading and
unloading of the cargo should be within a reasonable
period of time. Due diligence should be exercised
according to the customs and usages of the port or
ports of call.
 The circumstances obtaining at the time of loading
and unloading are to be taken into account.
 When the provision is for ‘demurrage/dispatch:
NONE’ it will be deemed a waiver of the right to claim
demurrages.
 Delay in loading or unloading, to be deemed as
demurrage, runs against the charterer as soon as the
vessel is detained for an unreasonable length of time
from the arrival of the vessel because no available
berthing space was provided for the vessel due to
the negligence of the charterer or by reason of the
circumstances caused by the fault of the chartere.
Keng Hua Paper Products v. CA, 286
SCRA 257
Held:
 A claim for demurrage by carrier involves an
obligation NOT ARISING from a loan or forbearance
of money. The applicable interest rate is 6% P.A.
pursuant to Art. 2209, NCC.
 When the BL does not specify the demurrage
amount, and the total amount claimed by the carrier
increased as the days went by, the total amount
demanded cannot be deemed to have been
established with reasonable certainty until the trial
court rendered its judgment. Hence, the 6% is to be
computed from the date of the trial court’s decision
imposing demurrage charges against the consignee.
Kinds of Charter Party
 Contract of Affreightment – one whereby the owner
of the vessel leases a part or all of its space to haul
goods for others. It is a contract for special services
to be rendered by the ship owner. The ship owner
RETAINS the possession, command and navigation of
the ship, the charterer merely having use of the space
in the vessel in return for his payment.
 Bare-boat or Demise Charter – where the shipowner
turns over possession of his vessel to the charterer,
with the latter undertaking to provide the crew,
victuals, supplies and fuel during the term of the
charter. Charterer is owner PRO HAC VICE.
Two Classes of Contract of
Affreightment
 Voyage Charter –The vessel is leased to the
chartered for a single voyage only;
 Time Charter – The vessel is leased for a fixed period
of time.
Substantive Provisions Relating to
Charter Party
 If charterer’s cargo is not sufficient to fill up 3/5 of
the capacity of the vessel, carrier has the right to
unload the cargo and put it on a smaller vessel at the
expense of the charterer. If cargo exceeds 3/5 of the
cpacity, the carrier cannot exercise the right. [Arts.
670 & 671, CoC]
 If vessel has been chartered in whole by one party,
the owner cannot receive the cargo of any other
person as the charter party becomes an exclusive
contract. [Art. 672]
 The owner of the vessel is liable to the charterer for
damages in case the captain unduly delays the
voyage. [Art. 673]
 If charterer brings more than that agreed upon, the
carrier may accept the increase in cargo and demand
increase of freightate provided the vessel is not
overloaded. [Art. 674]
 If vessel has been chartered to load cargo in another
port and upon arrival in that port there is no cargo
delivered, the captain has two options:
a) Look for other cargo; or
b) After expiry of lay days there is still no cargo, the
captain should file a marine protest and return to
home port in full ballast. The charterer should pay
freightage in full. [Art. 675]
 No right to freightage if charterer can prove that the
vessel is not in condition to navigate. [Art. 676]
 Charter may sub-charter where there is no express
prohibition. [Art. 679]
 Charterer who cannot fill the vessel is liable for full
freightage. [Art. 680]
 Charterer is liable for damages if loaded cargo
subjects the vessel to forfeiture or confiscation.
Under Art. 356, carrier can open the packages of
shipper to find out whether they contain items which
may subject the vessel to forfeiture. [Art. 681]
 If merchandise should have been shipped for
purpose of illicit commerce, and were taken on board
with knowledge of the person from whom the vessel
was chartered or of the captain, the captain is jointly
liable with the ship owner for all the losses which
may cause the other shippers. [Art. 682]
 Where the vessel is in need of repairs, chartere must
wait until vessel is repaired. [Art. 683]
 Before beginning of the trip, charterer may unload
the cargo by paying ½ of the freightage. [Art. 685 in
relation to Art. 688]
 Charterer is under obligation to pay the freightage
after the discharge of the cargo. [Art. 686]
 Charterer and shippers cannot abandon the cargo
unless it consist of liquids and ¾ leaks out due to
inherent defect of the cargo and with not more than
¼ remaining in the container. [Art. 687]
Other rules affecting charter party
and cargo
 If merchandise sold to make necessary repairs,
charterer shall still pay for the freightage. [Art. 659]
 If merchandise is jettisoned, lost at sea or seized by
pirates, no obligation to pay freightage. Considered
as general average. [Arts. 660 & 661]
 Merchandise damaged due to inherent defect: pay
full freightage. [Art. 663]
 Where payment is based on weight and the cargo
increases in weight during the voyage, the charterer
must pay the increase. [Art. 664]
 Cargo carried is subject to retaining lien by the ship
owner. Retaining lien – while in possession; Carrier’s
lien – subsists up to 30 days from date of release of
cargo. [Arts. 665 - 667]
Valid Rescission By Charterer of
Charter Party (Arts. 688 – 690, CoC)
 Before loading by paying ½ of the freightage agreed
upon. The consent of ship owner is NOT NECESSARY.
Mere notice to him is sufficient. {Note: This is the 1st
distinction between charter party and in ordinary
lease. In lease, none of the parties may unilaterally
cancel the contract without paying the full
consideration plus damages};
 When the vessel is not up to the capacity agreed
upon or the flag under which she sails differs from
that agreed upon. No obligation to pay the
freightage.
 When the vessel is not place at the disposal of the
charterer. No obligation to pay the freightage.
 When the vessel returns due to pirates or to bad
weather and charterer decides to unload. He must
pay the full freightage.
 When the vessel returns for repairs. If repairs take
less than 30 days, charterer must pay in full the
freightage; if it exceeds 30 days, he must pay that
portion of the freightage proportionate to the
distance covered.
Total Rescission by the Ship owner
(Art. 689)
 When the charterer fails to load the vessel and lay
days have expired. In this case, charterer is under
obligation to pay ½ of the freightage.
 When the owner sells the vessel and the new owner,
despite knowledge of the charter party, decides to
load the vessel with his own cargo. There is no
obligation on the part of the ship owner to
compensate the charterer. But if the new owner has
no cargo to load, he must respect the charter party.
{Note: This is the 2nd distinction between charter
party and in ordinary lease. In ordinary lease
contract, if the buyer of the object of lease was
aware of the lease, he must respect the contract.}
Total Rescission Due to Fortuitous
Event (Art. 690)
 War
 Blockade
 Prohibition to receive cargo
 Embargo of vessel by a Government
 Inability of vessel to navigate due to no fault of the
captain or ship agent.
Chapter 10
Bottomry & Respondentia
Concepts of Bottomry &
Respondentia
 Bottomry: A maritime contract whereby the owner of
a ship borrows for the use, equipment or repair of the
vessel, for a definite term, and pledges the ship (or
the keel or bottom of the ship pars pro toto) as
security, with the stipulation that if the ship is lost
during the voyage or during the limited time on
account of the perils enumerated, the lender shall lose
his money.
 Respondentia: A maritime contract where it is the
goods, or some part thereof, are hypothecated as
security for a loan, the repayment of which is
dependent upon maritime risks.
 Distinguished from Simple Loan
 Firstly, in bottomry & respondentia, rate of interest is
not subject to the Usury Law on account of the
extraordinary risks involved while in simple loan, the
rate of interest must not exceed the ceiling fixed by
the Usury Law (note: read now as unconscionable).
 Secondly, in the former, there must necessarily be a
marine risk, the existence of which must be duly
established while there is no need for such risk under
the latter.
 Thirdly, in the former, it must be executed in
accordance with form and manner required in the
Code of Commerce while in the latter, the formal
requisites on contract apply.
 Fourthly, loan on bottomry or respondentia must be
recorded in the registry of vessels in order to bind
third persons while no such registration is required in
simple loan.
 Lastly, in the former, preference is extended to the
last lender if there are several lenders upon the
theory that were it not for the last lender, then the
prior lenders would not have benefited from the
preservation of the security. Whereas in the latter,
the first lender, as a general rule, enjoys preference
over subsequent ones. [Art. 730, CoC]
Characteristics/Common Elements
of Bottomry & Respondentia
 Exposure of security to marine peril. [Art. 732]
 Obligation of debtor conditioned only upon the safe
arrival of the security at the point of destination.
Who May Contract Bottomry or
Respondentia
 Bottomry: General rule – only the owner. If owner is
absent – the captain. [Art. 728]
 Respondentia: only the owner of the cargo.
Hypothecary Nature of Bottomry &
Respondentia (Art. 731)
General Rule:
 The loss of the security, i.e. vessel in bottomry or

cargo in respondentia, extinguishes the obligation.

Exceptions:
 Due to inherent defect (cargo);

 Due to barratry on the part of the captain, i.e.

malfeasance;
 Due to fault or malice of borrower;

 Vessel was engaged in contraband; and

 Cargo loaded different from that agreed upon.

Other Relevant Provisions on
Bottomry & Respondentia
 No bottomry on the salaries of the crew. [Art. 725]
 If loan given in excess of security through
overvaluation by borrower, the excess must be
returned with legal interest. [Art. 726]
 When respondentia loan is not all utilized for the
cargo, the excess must be returned. [Art. 727]
 If the security in bottomry or respondentia is not
subject to a marine peril, it becomes an ordinary
loan. [Art. 729]
 Lenders of bottomry and respondentia must
contribute to the general average once jettison has
made possible the safe arrival of the security. [Art.
732]
 Exposure to marine peril takes place from the time
the anchors are a weighed at the port of departure
until anchors are dropped at the port of destination.
[Art. 733]
 In case of shipwreck and there is salvage, loan will
depend on the repayment on what may be salvaged.
[Art. 734]
 The concurrence of bottomry loan with insurance,
the insurable interest of the owner of the vessel is
the value of the vessel less the loan in bottomry, in
reference to Sec. 101 of the Insurance Code. [Art.
735]
 Failure to pay the premium on time of bottomry or
respondentia loans gives rise to liablility for legal
interest (delay ex re). [Art. 736]
Chapter 11
Averages
Average Defined
 Any damage deliberately caused, or any expense
deliberately incurred due to a marine peril and
because of which the vessel and/or cargo is saved.
 Art. 806: All extraordinary or accidental expenses
which may be incurred during the voyage in order to
preserve the vessel, the cargo, or both.
 Excludes: Petty and ordinary expenses incident to
navigation, e.g., pilotage, lighterage, towage,
anchorage, inspection, health, quarantine, lazaretto
[i.e., quarantine station for maritime travellers] , and
other so-called port expenses, costs of barges and
unloading until the merchandise is place in the wharf,
and any other usual expenses in navigation.
Kinds of Average
 Particular (or Simple) Average – All the damages and
expenses caused to the vessel or to her cargo which
have NOT INURED TO THE COMMON BENEFIT AND
PROFIT of all the persons interested in the vessel
and her cargo. The damages sustained shall be
borne by the owner of the vessel or the goods only.
[Art. 809]
 General Average – All the damages and expenses
which are DELIBERATELY caused in order to save the
vessel, its cargo or both, AT THE SAME TIME, from
REAL AND KNOW RISKS. [Art. 811]
Examples of Particular Average
(Art. 809)
 Losses suffered by the cargo from the time of its
embarkation until it is unloaded, either on account of
inherent defect of the goods or by reason of an
accident of the sea or force majeure, and the
expenses incurred to avoid and repair the same.
 Losses and expenses suffered by the vessel in its
hull, rigging, arms, and equipment, for the same
causes and reasons, from the time it puts to sea from
the port of departure until it anchors and lands in the
port of destination.
 Losses suffered by the merchandise LOADED ON
DECK, except in coastwise navigation, if the marine
ordinances allow it.
 The wages and victuals of the crew when the vessel
is detained or embargoed by legitimate order or force
majeure, it the charter has been contracted for a
fixed sum for the voyage.
 The necessary expenses on arrival at a port, in order
to make repairs or secure provisions.
 The lowest value of the goods sold by the captain in
arrivals under stress for the payment of provisions
and in order to save the crew, or to meet any other
need of the vessel, against which the proper amount
shall be charged.
 The victuals and wages of the crew while the vessel
is in quarantine.
 The loss inflicted upon the vessel or cargo by reason
of an impact or collision with another, if it is
accidental and unavoidable. If the accident should
occur through the fault or negligence of the captain,
the latter shall be liable for all the losses caused.
 Any loss suffered by the cargo through the fault,
negligence, or barratry of the captain or of the crew,
without prejudice to the right of th owner to recover
the corresponding indemnity from the captain, the
vessel, and the freightage.
Requisites of General Average
 There must be common danger;
 That for the common safety, part of the
vessel or of the cargo or both is sacrificed
DELIBERATELY;
 That from the expenses or damages caused
follows the successful saving of the vessel
and cargo; and
 That the expenses or damages should have
been incurred or inflicted after taking proper
legal steps and authority
Procedure in General Average
 Before the loss is caused or the expenses incurred,
the captain must call a meeting with the chief mate
and other officers and any cargo owner who may be
on board;
 They shall decide by voting on a resolution of the
captain. If majority disagrees with the captain, the
latter shall have the final decision;
 The minutes must be entered in the deck log book,
signed by all the persons present and stating in detail
all the goods jettisoned and the injuries caused to
those kept on board;
 Copy of the minutes to be filed within 24 hours after
arrival at first port of entry.
Examples of General Average
 The goods or cash invested in the redemption of the
vessel or of the cargo captured by enemies,
privateers, or pirates, and the provisions, wages, and
expenses of the vessel detained during the time the
settlement or redemption is being made.
 The goods jettisoned to lighten the vessel, whether
they belong to the cargo, to the vessel, or to the
crew, and the damage suffered through said act by
the goods which are kept on board.
 The cables and masts which are cut or rendered
useless, the anchors and the chains which are
abandoned, in order to save the cargo, the vessel or
both.
 The expenses of removing or transferring a portion of
the cargo in order to lighten the vessel and place it in
condition to enter a port or roadstead, and the
damage resulting therefrom to the goods removed or
transferred.
 The damage suffered by the goods of the cargo by
the opening made in the vessel in order to drain it
and prevent its sinking.
 The expenses caused in order to float a vessel
intentionally stranded for the purpose of saving it.
 The damage caused to the vessel which had to be
opened, scuttled or broken in order to save the cargo.
 The expenses for the treatment and subsistence of
the members of the crew who may have been
wounded or crippled in defending or saving the
vessel.
 The wages of any member of the crew held as
hostage by enemies, privateers, or pirates, and the
necessary expenses which he may incur in his
imprisonment, until he is returned to the vessel or to
his domicile, should he prefer it.
 The wages and victuals of the crew of a vessel
chartered by the month, during the time that it is
embargoed or detained by force majeure or by order
of the government, or in order to repair the damage
caused for the common benefit.
 The depreciation resulting in the value of the goods
sold at arrival under stress in order to repair the
vessel by reason of gross average.
 The expenses of the liquidation of the average.
Who Will Contribute for the
General Average
 Those who benefited from the sacrifice: the ship
owner and owners of the cargoes that were saved.
 Contribution may also be imposed on the insurers of
the vessel or cargoes that were saved as well as
lenders on bottomry or respondentia.
Who Are Entitled To The
General Average
 All the owners whose goods were sacrificed
pro rata.
Exceptions:
 Goods carried on deck unless the law or

customs of the place allow such stowage.

 Goods that are not recorded in the books or

records of the vessel.

 Fuel for the vessel if there is more than

sufficient fuel for the voyage.

American Home Assurance v. CA,
208 SCRA 343
Held:
 A particular average presupposes that the loss or
damage is due to an inherent defect of the goods, an
accident of the sea, or a force majuere or the
negligence of the crew of the carrier governed by the
Code of Commerce.
 The claims for damages due to the negligence of the
common carrier are governed by the Civil Code
provisions on common carriers.
Magsaysay Inc. vs. Agan,
96 Phil. 504
 Facts: An interisland vessel of petitioner sailed from
Manila to Aparri. The vessel entered the Aparri river
where she stopped to load and unload. Overnight, a
sand bar formed at the mouth of the river. On her
way out, the vessel hit the sand bar and got stuck. A
tug boat was sent by the owner to town the vessel.
In Manila, the captain demanded from Agan and
other cargo owners to reimburse him for the
expenses of hiring the tugboat.
 Held: Particular average only. The cargo was not
benefited since it was not perishable nor the cargo
owner in a hurry. Even assuming it was general
average, the captain did not call the meeting.
Philippine Home Assurance v. CA,
257 SCRA 468
Facts:
 A vessel, with cargo on board, caught fire due to a

small flame coming from the acetylene cylinder which

were stored in the accommodation area near the
engine room and which exploded despite efforts to
extinguish the fire. The vessel was subsequently
towed to port with the expenses of having the cargo
transshipped to port of destination was charged to
the consignees. Petitioner sought recovery as
subrogee.
 Held: The consignee of the cargo cannot be made to
share with the carrier for additional freight and
salvage charges.
 Fire cannot be considered a natural disaster or
calamity since it almost always arises from some act
of man. It cannot be an act of God unless caused by
a lightning or a natural disaster or casualty not
attributable to human agency.
 While the facts of the case may technically fall within
the purview of general average, the formalities
prescribed were not complied with. Consequently,
the carrier’s claim for contribution from the
consignees cannot be enforced.
 Jettison of Cargo
 Cargo on deck shall be first to be jettisoned followed
by those from the lower deck then those of bigger
bulk but of smaller value. [Art. 815]
 Cargo jettisoned, to be entitled to reimbursement for
general average, must be covered by a bill of lading.
[Art. 816]
 Expenses to lighten a vessel by the transfer of goods
to other vessels is general average. Also when there
is fire on port and there is need to sink the vessel to
save the goods. [Arts. 817 & 818]
Liquidation of Average
 Whether general or particular average, the
person benefited by the damage or expense
incurred must contribute his proportionate
share, to be determined by the amount of
damages or expenses incurred and
apportioned among the those benefited in
proportion to the value of their property save.
 In particular average, it is implied that there
is only one interest involved and the
proportion pertains to him 100%.
The York-Antwerp Rules
 Allow deck cargo on coastwise shipping but prohibits
it on overseas trade.
 Hence, a deck cargo stowed on deck, with consent of
the shipper in an overseas trade must always
contribute to general average. But if it is the one
jettisoned, it will not be entitled to reimbursement.
 On the other, a deck cargo stowed on deck in a
coastwise trade with consent of the shipper while
also must contribute to general average is likewise
entitle to reimbursement if jettisoned.
Chapter 12
Collisions
Collision & Allision
 Collision – occurs when both vessels are on
motion.
 Allision – happens when one of the vessels is
stationary.
 Rule on Collision: The guilty vessel shall pay
for the damage caused by the collision.
Exception: If guilty vessel sinks due to the
hypothecary nature of maritime transactions.
Exception to exception: When there is
negligence of ship owner [see Abdulhaman
case]
Five Cases Covered by Collision/
Allision
 One vessel is at fault – Vessel at fault is liable for the
damage caused to the innocent vessel as well as to
the damage suffered by the owners of cargo of both
vessels.
 Both vessels at fault – Each vessel must bear its own
loss, but the shippers of both vessels may go against
the ship owners, being solidarily liable to them.
 Vessel at fault is unknown – Same rule when both
vessels are at fault.
 Third vessel at fault – Same rule as when one vessel
is at fault.
 Fortuitous Event – No liability; res perit domino.
Three stages in Collision
 When the 2 vessels approach each other, i.e. when the
risk of collision may be said to have begun.
 When the risk of collision begins up to the moment

when it has become a practical certainty.

 Time between the moment when collision has become

a practical certainty and the moment of actual contact.

Note: The foregoing rule was laid down in Urrutia v. Baco
River Plantation, 26 Phil. 623 to apply the doctrine of
last clear chance. But this ruling was abandoned in
Williams v. Yangco, 27 Phil. 68 (infra)
Williams v. Yangco,
27 Phil. 68 (1914)
Held:
 The doctrine of last clear chance is inapplicable for

marine collision since the rule of liability in this

jurisdiction for maritime accidents such as that now
under consideration is clearly, definitely, and
unequivocally laid down in Art. 827 of the Code of
Commerce.
 Under the rule, the evidence disclosing that both

vessels were at fault gives neither of the owners an

action against the other for the loss or injury
sustained by their respective vessel.
Villacarlos v. Everett Steamship,
4 CA Reports 961
Facts:
 A fishing vessel of Philippine registry collided with a

vessel from Europe. The foreign vessel was at fault

but its owner was beyond the jurisdiction of the
courts. The owner, however, had a shipping agent in
the Philippines who, nonetheless denied liability.
Held:
 The agent is liable in the absence of the ship owner.

The shipping agent or naviero acts as owner in the

absence of the ship owner.
 Code of Commerce uses the word ‘buque’ in
reference to collision of vessel, i.e.a draft with deck.
A fishing vessel here had no deck, hence, not a
buque so that Art. 835 on marine protest does not
apply.
 Failure of the captain of the fishing vessel to file
marine protest does not bar recovery.
Duty of the Overtaking or Crossing Vessel
(Sulpicio Lines v. CA, 305 SCRA 478)
 Under Rule 24-C of the Regulations for Preventing
Collision at Sea, the duty of overtaking or crossing
vessel to keep out of the way subsists even if the
overtaking vessel cannot determine with certainty
whether she is at forward or aft more than two
points from the vessel being overtaken.
 In case of collision, it would be beyond cavil that the
overtaking vessel must assume responsibility as she
was in a better position to avoid the collision.
 She should have blown its horn or given signs to
warn the other vessel that she was overtaking her.
When moving vessel strikes stationary
object (Far Eastern Shipping v. CA, 297
SCRA 30)
Held:
 American evidentiary rule provided for a presumption

of fault against a moving vessel that strikes a

stationary object, such as a dock or navigational aid.
 In admiralty, this presumption does more than

merely require the ship to go forward and produce

some evidence on the presumptive matter. The
moving vessel must show that it was without fault or
that the collision (allision) was occasioned by the
fault of the stationary object or was the result of
inevitable accident.
Doctrine on In Extremis
 Also known as ‘Agony of the Moment
Defense’
 Applies when a ship is placed in sudden
peril through no fault of its own and is
forced to take "evasive maneuvers that
may be a violation of a rule."
Doctrine of Inevitable Accident
 Applies when the cause of the collision
was a cause not produced by the
vessel, but a cause of which the vessel
could not avoid.
Chapter 13
Arrival Under Stress & Shipwrecks
Steps To Be Taken In Determination
Of Propriety Of Arrival Under Stress
 Captain to determine during voyage if there is well-
founded fear of seizure, privateers or other valid
grounds.
 He then assembles all the officers.
 He summons the persons interested in the cargo who
are present and who may attend. They have no right
to vote.
 Officers to be determined and agree if there is well-
founded reason after examining the circumstances.
The captain has the deciding vote.
 Agreement to be drafted and minutes to be signed
and entered in the deck log book. Also objections.
Instances of Arribada
 Lack of provision or fuel
 Pirates

 Inability to navigate.

Note: If the lack of fuel or provision is not due to lack

of foresight, or the fear of pirates is well-founded or
the inability to navigate is not attributable to fault of
captain or crew, then these arrivals under stress
becomes particular average of the vessel. Shippers
must wait.
No damage needs to be paid to the shippers. But if
due to bad faith, the damages must be paid to
shippers for delay and the vessel bears the loss.
Improper Arribada
 If lack of provisions should rise from the failure to
take the necessary provisions for the voyage
according to usage and customs, or if they should
have been rendered useless or lost through bad
stowage or negligence in their care.
 If the risk of enemies, privateers, or pirates should
not have been well-known, manifest, and based on
positive and provable facts.
 If the defect of the vessel should have arisen from
the fact that it was not repaired, rigged equipped,
and prepared in a manner suitable for the voyage, or
from some erroneous order of the captain.
 When malice, negligence, want of foresight, or lack
of skill on the part of the captain exists in the act
causing the damage.
 Expenses. [Art. 820, Code of Commerce]
Shipwreck (Agrounding)
 The demolition or shattering of a vessel caused by
her driving ashore or on rocks and shoals in the
midseas, or by the violence of winds and waves in
tempests.
Rules on Shipwrecks (Arts. 840-845)
 Losses/deterioration due to shipwreck or stranding to
the account of the owners & ship owner.
 If caused by malice, negligence, or lack of skill of the
captain or because vessel put to sea was insufficiently
repaired and equipped: Shippers can demand
indemnity from the captain.
 The goods saved from the wreck to be specially
bound for the payment of the expenses of the
respective salvage.
 If several vessels sail under convoy, and any of them
should be wrecked, the cargo saved will be distributed
among the rest in proportion to the amount which
each one is able to take.
 If any captain should refuse, without sufficient cause,
to receive what may correspond to him, the captain
of the wrecked vessel to enter a marine protest
against him.
 If it is not possible to transfer to the other vessels
the entire cargo of the vessel wrecked, the goods of
the highest value and smallest volume to be saved
first. Designation to be made by the captain with
concurrence of his officers.
 The captain taking on-board the goods saved from
the wreck to continue his course to the port of
destination and upon arrival he should deposit the
goods for disposal to their owners.
 In case the captain changes his course, and if he can
unload them at the port of which they were
consigned, he may make said port if the shippers or
supercargoes present and the officers and
passengers of the vessel consent thereto. But he is
not required to do so even if he has the consent
during time of war or when the port is difficult and
dangerous to make.
 The owners of the cargo to defray all the expenses of
this arrival and the payment of the freightage.
 If cannot be, proceed to judicial sale complying with
the formalities and on publicity.
Chapter 14
Salvage
Definition and Philosophy of Salvage
 Salvage is a service which one person renders to the
owner of a ship or goods, by his own labor,
preserving the goods or the ship which the owner or
those entrusted with the care of them have either
abandoned in distress at sea, or are unable to protect
and secure.
 Salvage Law provides for the compulsory reward to
those who brave the perils of the sea to save the
cargo or vessel in order to encourage such services.
Whether the owner of the property save likes it or
not, he must give a reward. The maximum amount is
50% of the value of the property save.
Kinds of Salvage Services
 Voluntary – compensation is dependent on the
success.
 Under contract for a per diem or per horam wage,
payable at all event.
 Under contract for compensation payable only in
case of success.
Requisites For Salvage Reward
 Valid object of salvage.
 Such object must be exposed to marine peril.
 Must be rendered voluntarily.
 Must be successful.
Derelict
 A vessel or cargo badly damaged and abandoned by
the crew to the mercy of the sea.
 Mere abandonment does not make such vessel or
cargo res nullius.
 Proper procedure must be followed by the salvors to
be entitled of the reward.
Procedure In Derelict
 If vessel is abandoned, salvor must tow her to the
nearest port where it will be delivered to the
municipal treasurer or collector of customs who will
advertise the fact of salvage.
 If owner of salvaged vessel or cargo appears, he may
take possession of vessel or cargo and pay the
reward amount not exceeding 50% of the value of
the vessel.
 Reward is determined by considering:
- the value of the property save; zeal employed;
danger posed to the salvors; number of persons who
took part; services render; and expenses incurred.
 If no claim for the vessel is made within 3 months
after publication, the municipal treasurer to sell the
property salvaged at public auction. The reward and
expenses will be deducted from the proceeds. The
balance to be deposited with the treasury.
 If no one claims for the balance after 3 years, ½ will
go to the salvors and the other half to the
government.
 If one vessel saves another:
- ½ to the ship owner of the saving vessel.
- ¼ to the captain
- ¼ to the crew
Honorio Barrios v. Go Thong & Co.,
G.R. L-17192, March 30, 1963
 Facts: Go Thong is the owner of a vessel plying the
route from Mindanao to Cebu. The engine of his
vessel conked out while she was in the middle of the
sea. The captain radioed the owner and was advised
that a sister ship was on its way to tow the vessel.
The sea at the time was calm. The radio message
was picked up by another vessel which thereafter
proceeded to the stranded vessel of Go Thong. The
captain agreed that the vessel be towed. The owner
of the towing vessel knew the owner of the stranded
vessel. He waived charges of towing. But the captain
and the crew the responding vessel complained of
their respective ¼ shares in the reward.
 Issue: Was there salavage or towage?
 Held: There was no salvage because there was no
marine peril at the time. There was no danger for the
stranded ship. The sea was calm and a sister ship
was nearby. Hence, no reward is due. Also, there is
no need for compensation for the towage because of
the waiver of the towing vessel.
Chapter 15
COGSA
History of COGSA
 Originally passed by Congess of the US on April 16,
1936 as Public Act No. 521.
 Adopted by the Phil Commonwealth on October 22,
1936 as Commonwealth Act No. 65.
 When the New Civil Code took effect on August 30,
1950, it became the primary law on carriage of goods
by sea.
 Art. 1753, NCC: The law of the country to which the
goods are to be transported shall govern the liability
of the common carrier for their loss, destruction or
deterioration.
 COGSA remains suppletory law for international trade
Chapter 16
Public Service Laws
Meaning and Concept of Public Utility
 A business or service engaged in regularly supplying
the public with some commodity or service of public
consequence such as electricity, gas, water,
transportation, telephone or telegraph service.
[National Power Corporation v. Court of Appeals,
G.R. No. 112702, September 26, 1997]
 In a very real sense, a public utility is engaged in
public service-- providing basic commodities and
services indispensable to the interest of the general
public. [Republic v. Meralco, G.R. No. 141314, April
9, 2003]
 When, therefore, one devotes his property to a use
in which the public has an interest, he, in effect
grants to the public an interest in that use, and must
submit to the control by the public for the common
good, to the extent of the interest he has thus
created. [Kilusang Mayo Uno Labor Center v. Hon.
Jesus B. Garcia Jr., G.R. No. 115381, December 23,
1994 citing Pantranco v. Public Service Commission,
70 Phil.221]
Constitutional Provisions
 Public utilities – must be owned by Filipino citizen or
60% owned by Filipino citizens. [Art. XII, Sec. 11]
 Mass media – must 100% Filipino.
 Government take-over: In times of national
emergency, when the public interest so requires, the
State may, during the emergency and under
reasonable terms, temporarily take over or direct the
operation of any privately owned public utility or
business affected with public interests. [Art. XII, Sec.
17]
 Operation of vital industries: The State, may, in the
interest of national welfare or defense, establish and
operate vital industries and upon payment of just
compensation, transfer to public ownership utilities
and other private enterprises to be operated by the
government. [Art. XII, Sec. 18]
 Prohibition against monopolies: The State shall
regulate or prohibit monopolies when the public
interest so requires; no combination in restraint of
trade or unfair competition shall be allowed. [Art.
XII, Sec. 19]
Public Service
 Includes every person who may own, operate,
manage, or control in the Philippines for hire or
compensation, with general or limited clientele,
whether permanent, occasional or accidental, and
done for general business purposes, any common
carrier, railroad, street railway, fraction railway,
subway motor vehicle, steamboat, or steamship line
ferries, and water craft, shipyard, ice plant, electric
light, heat and power or any other public utility. [Sec.
13(b), Act. 146]
PAL V. CAB, 270 SCRA 538
 Held: The terms ‘convenience and necessity’ if used
together is a statute, are usually held not to be
separable, but are construed together. Both words
modify each other and must be construed together.
The word ‘necessity’ is so connected, not as an
additional requirement but to modify and qualify what
might otherwise be taken as the strict significance of
the word necessity.
 Public convenience and necessity exists when the
proposed facility will meet a reasonable want of the
public and supply a need which the existing facilities
do not adequately afford.
 It does not mean or require an actual physical
necessity or an indispensable thing.
 The use of the word ‘necessity’, in conjunction with
‘public convenience’ in a certificate of authorization
to a public service entity to operate, does not in any
way modify the nature of such certification, or the
requirements for the issuance of the same.
 It is the law which determines the requisite for the
issuance of such certification, and not the title
indicating the certificates.
Public Utilities
 Public utilities are privately owned and operated
businesses whose services are essential to the
general public. They are enterprises which specially
cater to the needs of the public and conduce to their
comfort and convenience. As such, public utility
services are impressed with public interest and
concern. The same is true with respect to the
business of common carrier which holds such a
peculiar relation to the public interest that there is
superinduced upon it the right of public regulation
when private properties are affected with public
interest, hence, they cease to be juris privati only.
 When, therefore, one devotes his property to a use
in which the public has an interest, he, in effect
grants to the public an interest in that use, and must
submit to the control by the public for the common
good, to the extent of the interest he has thus
created. [Kilusang Mayo Uno Labor Center v. Hon.
Jesus B. Garcia Jr., G.R. No. 115381, December 23,
1994 citing Pantranco v. Public Service Commission,
70 Phil.221]
Difference Between Operation of a
Public Utility and Ownership of Facilities
 While the Constitution in no uncertain terms requires
a franchise for the operation of a public utility, 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.
 In law, there is clear distinction between the
operation of a public utility and the ownership of the
facilities and equipment used to serve the public.
[Ibid]
Telecommunications
Radio Industry
Broadcasting
 Broadcast is an undertaking the object of which is to
transmit over-the-air commercial radio or television
messages for reception of a broad audience in a
geographic area.
Cable Television Operations (E.O.
436, Sept. 9, 1997)
 Classified as mass media
Essential components:
 Reception facilities which extract the broadcast signal

from the air, or microwave transmission.

 Input equipment, which converts and amplifies the

signal received; and

 Distribution system, which consists of feeder or trunk

lines originating from the input equipment; smaller

distribution cables which carry the signal to the
immediate vicinity of the subscriber; and drop lines
which carry the signal into the subscriber’s premises.
Electronic Commerce Act
Internet and Value Added-Services
 Electronic Mail (Email) –
 Bulletin Board System (BBS) –
 World Wide Web (www)
Mass Media
Electric Power Industry Reform Act
of 2001 (R.A. 9136)
Build-Operate-Transfer Law (R.A.
6957, as amended by R.A. 7718)
BOT Schemes
 Build-Operate-and-Transfer (BOT
 Build-and-Transfer (BT)
 Build-Own-Operate (BOO)
 Build-Lease-Transfer (BLT
 Build-Transfer-and-Operate (BTO)
 Contract-Add-and-Operate (CAO)
 Develop-Operate-and-Transfer (DOT)
 Rehabilitate-Operate-and-Transfer (ROT)
 Rehabilitate-Own-and-Operate (ROO)
End of Subject